The fiscal cliff so many of us have heard about that looms at the end of this year involves a number of likely tax changes that not only impact estate planning but your business planning as well. Unless Congress acts by December 31, here’s what you can expect:
Increase in income tax rates – This increase will affect just about everyone, including those in the lowest tax bracket, where rates will go from 10 percent to 15 percent. For married couples earning between $58,900 and $70,700, the tax bracket would go up from 15 to 28 percent. Singles earning over $85,650 and married couples earning over $142,700 can expect a minimum three percent increase – the highest rate will go from 35 to 39.6 percent.
Increase in capital gains tax – The tax on capital gains is scheduled to increase by more than 50 percent, and the tax on dividends is expected to more than double.
New Medicare tax – In 2013, the top Medicare tax rate workers pay goes from 1.45 percent to 2.35 percent (the 1.45 percent that employers pay stays the same) for those whose incomes exceed a threshold amount — $200,000 for single taxpayers and $250,000 for a married couple filing jointly. If you’re self-employed, you’ll pay 3.8 percent, up from 2.9 percent.
New Medicare taxes on investment income – A Medicare Contribution Tax on net investment income and high income trusts, estates and individuals kicks in on Jan. 1, 2013. Taxpayers that fall into this category will have to pay 3.8 percent of whichever is less: net investment income or modified adjusted gross income exceeding $200,000 for individuals, $250,000 for married couples filing jointly and $125,000 for married couples filing separate returns.
End of Social Security tax cuts – On Dec. 31, 2012, the temporary two percent cut in the employee Social Security tax rate will expire.
Phasing out of itemized deductions for high income taxpayers – For those with adjusted gross incomes of more than $100,000, itemized deductions equal to three percent of AGI will be disallowed (excluding medical expenses, investment interest and losses from casualty or theft).
Increase in gift tax exclusion rate – On Jan. 1, 2013, the annual gift tax exclusion rate goes to $14,000, up from $13,000 for the previous four years.
The Parents Estate Planning Law Firm, PC
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