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2012 & 2013 Individual Tax Changes

Posted by Predovich & Company

As a taxpayer, you are facing what is perhaps an unprecedented set of circumstances – the expiration of the tax rates enacted in 2001, the expiration of more than 150 tax provisions and a tax increase of more than $500 billion overall – that could result in a much higher tax liability when you file your next return.
If Congress and the President do not make changes, the combined effect could result in an average tax hike of around $3,500 per household for up to 90% of Americans. I want to inform you of possible tax increases and loss of tax benefits that could negatively impact your finances.  Give me a call as there may be some steps (as mentioned below) you can take immediately to soften the impact on your bottom line.

We have come to the edge of a “fiscal cliff,” as it is being called, because of several events that will have an impact all at once:
  • Tax cuts enacted during the Bush Administration are set to expire at year-end.
  • A new 3.8% Medicare surtax on some investment income will become effective Jan. 1, 2013.
  • A 2% reduction in the payroll taxes that fund Social Security expires on Dec. 31, 2012.
  • Changes to some itemized deductions could increase the rate on ordinary income to an effective rate that is as much as 44.6% for some taxpayers.
  • A possible increase on long-term capital gains could push rates from 15% to 20% and the rate on qualified dividends could jump to an effective 44.6% from 15% today.
  • A rise in the estate tax rate to 55% from 35% and a cut in the exclusion amount for what is subject to estate taxes to $1 million from $5.12 million.
  • A reduction in the Alternative Minimum Tax Exemption will impact tens of millions of taxpayers.
  • Potential across-the-board budget cuts in both defense and non-defense spending.

I am recommending that clients take a two-pronged approach that involves addressing many of the possible changes directly while also making use of all options for deductions and credits, or other tax-advantaged opportunities to lower their taxable income. Planning for these changes should begin now, since it may involve significant modifications in your tax strategy. 


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