WILL 2013 BRING TAX CHANGES?BondBeebe
Daniel Bottner, CPA
Next year has the potential to bring big changes for taxpayers.
The Bush-era tax cuts are scheduled to expire on December 31, 2012 and a new Medicare tax will be established. However, there is great uncertainty as to what will actually happen because of the election in November and (in some economists’ views) the potential adverse economic impact of large tax increases.
Expiring Bush-Era Cuts
The Bush cuts were the product of the Economic and Tax Reconciliation Act of 2001 and the Jobs Growth Tax Relief Act of 2003. The cuts were then extended by the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010.
- Tax rates: The current tax rates are 10, 15, 25, 28, 33, and 35 percent. They are scheduled to increase to 15, 28, 31, 36, and 39.6 percent.
- Capital gains: The current long term rate is 15% and will increase to 20% (10% for those otherwise in the 15% tax bracket). The old reduced rates of 8% (from 10%) and 18% (from 20%) are also scheduled to be reinstated for gains from securities held at least 5 years.
- Qualified dividends: There will be no distinction between ordinary and qualified dividends. Qualified dividends will be subject to ordinary income rates instead of the current 15% rate.
New Medicare Tax
- Medicare surtax: The 2010 health reform legislation is scheduled to institute a 3.8% surtax on unearned income of higher income taxpayers. Unearned income includes interest, dividends, annuities, royalties, and rents just to name a few. Higher income taxpayers are those that have a modified adjusted gross income (MAGI) of $200,000 (single taxpayer) or $250,000 (joint taxpayer).
The health reform legislation is currently in the hands of the Supreme Court with a ruling due in June. If they rule the entire law unconstitutional, the tax will not take effect. Additionally, Congress can still act. It is a presidential election year and the candidates have yet to fully detail their approach to addressing these tax increases, not to mention the lame duck session of Congress after the election.
So, for now, it is important to be aware of what changes may come, but we’d advise against any knee-jerk reactions. The economic recovery is still fragile and there is a lot of time between now and December 31st. Stay tuned to this blog for updates and ways to prepare for the changes.