1) The Long-Term Capital Gains Rate is Going Up
Long-term capital gains are for capital assets held longer than a year. Capital assets include stocks, bonds and mutual funds. Collectibles and certain Real Estate are subject to special rules. The stated rate on long-term capital gains is currently 15%. If Congress fails to take any action, this will increase to 20%. The so-called Bush tax cuts reduced the rate on long-term capital gains to 15%. These tax cuts are set to expire at the end of 2012.
2) The Short-Term Capital Gains Rate is Going Up
Short-term capital gains are for capital assets held a year or less. These are taxed at ordinary income tax rates. The highest ordinary income tax rate is currently 35%. If Congress doesn’t take any action, this is scheduled to increase to 39.6% in 2013.
3) The New Unearned Income Medicare Contribution Tax Will Apply to Capital Gains
Beginning in 2013 The Unearned Income Medicare Tax will apply to passive income. Passive income includes:
- Interest
- Dividends
- Capital Gains
- Annuities
- Rents
- Royalties
- Passive Income from Flow Through entities such as Subchapter S Corporations
This tax will affect married taxpayers filing taxpayers with Modified Adjusted Gross Income of $250,000 and single filers of over $200,000.
ACTION ITEM: Investors need to understand capital gains taxes and rates. As always however, don’t let the tax tail wag the dog.
Thomas F. Scanlon, CPA, CFP®
Tom Scanlon has over thirty years experience in public accounting with an extensive background in the areas of financial, tax, and estate planning. He prides himself on providing in-depth and customized solutions to privately held businesses and their owners. He is a Certified Public Accountant and Certified Financial Planner®. Tom is a frequent speaker for area organizations and has recently been quoted on CNBC, Fox 61 News and AARP's blog. Tom also has been a guest columnist for numerous publications including The Wall Street Journal, Barron's, Money Magazine, The Hartford Courant, The Hartford Business Journal, and The New Haven Register. He is a member of the American Institute of Certified Public Accountants, the Connecticut Society of Certified Public Accountants, and the Financial Planning Association. Active in the community, Tom supports a variety of not-for-profit organizations.
