2013 has been a big year for taxes. Earlier in the year, Congress passed legislation averting the so-called "fiscal cliff," and many of the "Obamacare" changes have taken effect, or are about to. While few of us who watched the process would consider it Washington's finest hour, we now have answers to many of the questions that have made proactive planning so difficult over the past few years. And now, with just 20 days left in 2013, it's time to review the "deals" the IRS is offering and start to plan.
Here are the highlights:
• First, the Bush tax cuts are permanently extended for income up to $400,000 ($450,000 for joint filers). Ordinary income above those thresholds is taxed at 39.6%, while qualified corporate dividends and long-term capital gains above those thresholds are taxed at 20%.
• Next, the 2% payroll tax "holiday" of 2011-2012 is over. This can mean over $2,000 in additional tax for those earning over $100,000 per year.
• Third, the Alternative Minimum Tax has finally been indexed for inflation. This means Congress will no longer have to "patch" it every year to avoid entangling millions more taxpayers in its web.
• Finally, the Medicare tax provisions of the Affordable Care Act, or "Obamacare," have taken effect. This means an extra 0.9% tax on earned income above $250,000 and a 3.8% tax on investment income for taxpayers earning more than $200,000 ($250,000 for joint filers).
President Obama has called for slashing several more tax breaks, possibly including some sacred cows like mortgage interest. However, after the recent government shutdown, there appears to be little appetite on Capitol Hill for further changes to the code.
With just 20 days left in until the “IRS Holiday Tax Sale” ends join us here to review some specific strategies for minimizing your tax under the new rules.