Death and taxes are life’s two certainties. For most of us the shape and form of both are uncertain. The scientific communities have been nothing short of amazing in their ability to discover methods to forestall death. The average life expectancy of 2012 far outstrips the average life expectancy of prior years.
Taxation is a different story. Depending on who you talk to the problems with taxation are either we pay too much, or not enough, or who should be paying more or less. Regardless of your point of view we have managed to reach a political impasse, where both the left and the right maintain that failing to follow their direction will, or already has, caused the great American decline.
Assuming that the political forces in Washington cannot agree to changes in existing laws there will be some fairly dramatic changes in our tax laws.
Effective January 1, 2013 the following changes, among others, will occur unless Congress takes affirmative steps to stop them:
- The employee portion of social security withheld from wages will increase from 4.2% to 6.2%.
- The estate tax exemption will change from $5,120,000 to $1,000,000 and the maximum tax rate will change from 35% to 55%.
- Additional medicare tax will be levied on earnings of taxpayers over certain thresholds. The thresholds are defined as $200,000 for single taxpayers, $250,000 for married filing jointly and $125,000 for married filing separately.
- 0.9% additional tax on wages and self-employment income
- 3.8% additional tax on investment income.
- Increased income tax rates for all taxpayers to the same rates that existed in 2001 with the expiration of what is commonly referred to as the Bush Tax Cuts.
- Capital gains rates will change from 15% to 20%.
- The tax rate on qualified dividends will change from the capital gain rate of 15% to ordinary income rates (up to 39.6%).
- Limits of $2500 on the amount that you can contribute to a flexible spending account.
- The threshold for medical expenses deductions will increase from 7.5% to 10% for those under 65 years old. (The over 65 crowd have until 2017 before the threshold changes to 10%).
Will these changes happen? That is the “uncertainty”. What, if anything, should you do before the end of the year? We can assist you in making those tax planning decisions at Levin, Swedler & Company.
Written By: Gary D. Levin, CPA, CVA