Plan for Pending 2013 Tax Increases Now: How To Tips
This is the first in a four part series on pending tax legislation and how it can affect you.
It will likely be months before we know exactly who and what will be affected by the sunset, changes, extensions, and reinstatement of current tax legislation. For now, we are advising our clients to be prepared. Here are the following taxes that may be impacted:
- Not only are the Bush Administration tax cuts set to expire, but a new 3.8 percent surtax on investment income and a possible reinstated claw-back of itemized deductions could raise the tax rate on ordinary income to as high as an effective 44.6 percent for some taxpayers.
- Similarly, the tax rate on long-term capital gains could increase from 15 percent to 20 percent and the rate on qualified dividends from 15 percent to an effective 44.6 percent.
- Finally, if Congress doesn’t take action, the federal estate tax rate will increase from 35 percent to 55 percent and the exclusion amount will drop from $5,120,000 to $1,000,000.
Planning for these likely tax changes is a major undertaking and many clients are wisely beginning the process now rather than waiting for the fall elections. This is prudent because the additional time will allow you to become comfortable with the gifting process and provide time to custom design trusts for your family.
In my next three posts, I will delve into these issues in greater detail.
Be sure to come back tomorrow, I will discuss Harvesting Capital Gains, and next week I will take a look at the 3.8% Surtax, Accelerating Ordinary Income and Estate Tax Provisions