The New Federal Tax Plan for Year 2013 and Beyond

The US Congress passed the American Taxpayer Relief Act (ATRA) on New Years Day, 2013.


The following Wall Street Journal Article reviews the ATRA.

TaxReliefAct2013


Disclaimer:

It should be noted that H-AREA makes this information known as a service to its Home Page Viewers.
Tax Planning is a subject that one that should seriously consider undertaking to minimize the Taxes You Pay on your Income and on Your Assets.
It is Strongly Suggested that Each Individual should Consult his Tax or Financial Advisor and Tailor a Plan to suit his Present and Future Needs.

James Himich Jr., H/AREA HP Editor, 01/2013


An Historical Perspective on Tax Planning

Some Tax Planning for the Year 2011 and For Year 2013

The Reader of this article should be aware, that as of January 1, 2011, the available exemptions from estate, gift and generation skipping transfer ("GST") taxes all increased to $5 million per person. The gift tax exemption had previously been only $1 million, and in 2009 the estate and GST exemptions were each $3.5 million. The rate of tax for all three of those taxes is 35 percent, down from 45 percent in 2009.The new tax law also introduced "portability" as a way for married taxpayers to save estate and gift taxes.

Since these Tax Changes are all new, It is strongly suggested that the Reader consult his Financial/ Tax Advisor to Tailor a Plan to suit his Present and Future Needs.

This Article was added to the H/AREA Home Page on 06/24/2010.

President G.W. Bush’s Tax Cuts Expire on or about January 1, 2011. The Tax Changes are:

  1. Federal Personal Income Tax Rate will go from 35% to 39.6%.
  2. The Capital Gains Tax Rate goes to 20% from 15 %.
  3. The Federal Estate Tax Rate goes from the present 0% to 55 %.
  4. The Highest Federal Tax Rate on Dividends will go from 15% to 39.6%.

In addition, State and Local Taxes will be going up depending of course on the particular State or Local Financial Revenue Needs.

A Possible Tax Planning Strategy is a Roth Rollover. You must first cash in :

  1. Your IRA’s, or
  2. Your Keough Deferred Income Accounts, or
  3. Your 401K Deferred Income Accounts

If You do this You must pay the Taxes on these Deferred Income Accounts.
These Deferred Income Accounts can then be rolled over into Roth IRA’s.
You are NOW providing After – Tax Income for your future needs.

The Health Care Bill that the U.S. Congress pushed thru back in March 2010 contained two (2) New Taxes to help pay for it.
These two (2) New Taxes takes place in Yr 2013. They are:

  1. An extra 0.9% tax on wages for couples earning more than $250K ($200k if You are Single).
  2. A tax of 3.8 % on Investment Income.These are for people whose AGI’s are above the amounts in Line Item #1.

On First Thought, You might think that neither one of these new taxes is applicable to ME.
On Second thought ---- ‘The Devil is in Details'!
Tax #2 could effect You when Its comes to Paying Taxes on the Sale of your Home.

Here’s an Illustration.
( Reference – The WSJ, Sat-Sun Issue 06/12 -13, 2010. How the New Wealth Taxes Will Hit You by L. Saunders.)

  1. A Couple purchased their house in the 1970’s for $50k.
  2. They sell it for $1M in Yr 2013.
  3. They have an Investment Income of $450k. (You subtract out their Original Cost + the $500k Exclusion for Couples. )
  4. They a have a Pension of $30k and They take a IRA Payout for Yr 2013 of $70k;( $100k of Unearned Income).
  5. Their TTL Investment Income is now $550k. ($450k + $100k)
  6. Here's The Bottom Line: They must pay a 3.8% Tax on $300k ( $550k - $250k). Their Tax Amount is $11.4 k.

What has happened is that the Pension and IRA incomes – which normally do not count as Investment Income, has raised their AGI
and has now imposed an additional tax burden on them.


Now for Some Tax Stategies:

  1. Look again into the Roth IRA Conversion. Income from a Roth IRA does not raise the AGI.
  2. If You are ‘Lookin ‘ to Down-Size ‘ your Present Home for a ‘ Smaller ‘ Adobe,
    You might want to go thru this Math Exercise and determine its effect on your 'Net Wealth'.
    You can obtain from various sources an Estimate of your House Worth (Yr 2010) based on comparable sales of similar homes in your particular area.
    Remember, These Taxes are not effective until Yr 2013 so there is time to 'mull' over a Very Important Decision.
  3. The IRS will soon publish their Guidelines on this Matter. Perhaps, Other Changes will be revealed.
  4. There maybe 'Creative Payment Methods' available to You that would minimize this new tax should you decide to sell your house after Yr 2013.
  5. Repeal of these two taxes via a Change in the Makeup of Congress is always ‘Possible’ but One should not Count on it.
    And the President (WhomEver He Might Be --Yr 2012 is an Prez Election Year) always has Veto Power.

Disclaimer:

It should be noted that H-AREA makes this information known as a service to its Home Page Viewers.
Tax Planning is a subject that one that should seriously consider undertaking to minimize the Taxes You Pay on your Retirement Income and on Your Assets.
It is Strongly Suggested that Each Individual should Consult his Tax or Financial Advisor and Tailor a Plan to suit his Present and Future Needs.

James Himich Jr., H/AREA HP Editor, 06/24/2010.