October 24, 2017

Income taxes are going up in 2013 and you can count on that! You can do some things now in December to cushion the impact a bit and plan for the future.

Whether it is a "Fiscal Cliff" or a slope or a speed bump, if you make over $ 250,000 you will pay more one way or another. President Obama may take a hard line with the GOP since he earned a great deal of political capital in his re-election. Winning by 2% is still a win and it is illegally he will budge on higher rates. Even if he does compromise on the "Bush Tax Cuts", the Affordable Care Act (ACA) better known as "Obamacare" has automatic tax increases that will kick in anyway.

There is a 3.8% surtax for Medicare as part of the ACA funding scheme. It effectively increases the top capital gains tax to 18.8% for high income people. This means married couples with over $ 250,000 or singles with over $ 200,000 will be affected. So if you have appreciated assets that you are ready to consider selling, do so before December 31st of this year. Do not sell just because of tax rates, but based on your financial planning goals taking into account the new landscape of 2013. The President would like to increase rates even higher than the 18.8% currently pending.

If you plan to do a Roth conversion, do it this year as it could increase your AGI in 2013 and affect the surtax. If you have stock options from your employer that have appreciated, you may want to discuss the possibility of cashing them in this year with your financial advisor. If your investments include CDs or Corporate Bond Funds, talk to your advisor about moving some investments to Tax Free Municipal Bonds or tax free mutual funds. Another option is investing a portion in short term traditional Annuities (2-5 year) for money that you do not have to use or hold for emergencies. Annuities accumulate tax free inside the investment. Traditional Annuities are safe from market risk and have guaranteed returns.

If you are self-employed and need a new vehicle for business, consider a "heavy" SUV or truck. Vehicles over 6000 pounds are eligible for bonus depreciation of 50% through the end of the year. That goes away in 2013 if no action is taken by Congress.

You can maximize your charitable giving this year. Congress and the President have talked about restricting the deductibility of charitable contributions. You may want to make a donation in 2012 rather than 2013. This is tricky as the deduction may survive and with rates going up could make it a better option to wait.

For 2012, the gift-tax exemption has been "unified" with the estate-tax exemption. The unified exemption is $ 5.12 million. The gift-tax exemption is scheduled to drop to $ 1 million in 2013. That is a huge change and means that serious consideration must be given to taking action …