Prepare for Increased Taxes in 2013
As many of you know, the U.S. Supreme Court upheld the 2010 Health Care Act on June 28, 2012. What you may not understand is how this decision will affect your tax burden in 2013. It is more likely than not that the 3.8% surtax (the “Surtax”) on net investment income (interest, dividends, capital gains, non-qualified annuity distributions, rental income and royalty income) will begin to hit most high-income taxpayers and trust and estates beginning in the year 2013.
The Surtax is imposed on clients with modified adjusted gross income (MAGI) over $200,000 for individuals, or modified adjusted gross income (MAGI) over $250,000 for married couples filing jointly ($125,000 for married couples filing individually). The Surtax will be assessed at 3.8% on the lesser of: (1) the net investment income or (2) the amount of MAGI over the applicable thresholds expressed above.
The estate tax exemption is scheduled to decrease from $5.120 million in 2012 to $1 million in 2013. The estate tax rate will also increase from 35% in 2012 to 55% in 2013.
NOTE: You can minimize your exposure to the Surtax by: (1) Maximizing or increasing deductible contributions to IRAs, SEPs, 401(k)s and other retirement accounts, (2) Converting a tradition IRA into a Roth IRA before year end and (3) Gifting before year end to distribute assets contributing to the investment income.
To utilize the current estate tax exemption make those gifts NOW and hire appraisers NOW (they will surely be swamped in December).