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September 18, 2012

Higher Taxes in 2013

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Taxes are going up in 2013, and I mean REALLY up, as a result of a) Obamacare, and b) expiration of the "Bush tax cuts."

Here's a summary of the tax increases that will be hitting in just a few months, absent some kind of agreement between Congress and the Obama administration, which I seriously doubt.

  • A new Medicare surtax of 3.8% will be accessed against married taxpayers with AGI over $250,000, or single taxpayers with AGI over $200,000. This new surtax will be applied to interest, dividends, capital gains, annuity income, rents, royalties, and distributions from trusts and estates.
  • The threshold for deductible medical expenses will increase from 7.5% of AGI to 10% of AGI, which be a tax increase for many who itemize.
  • The top income tax rate will increase from 35% to 39.6%.
  • Capital gains tax will increase from 15% to 20%.
  • Dividend tax will increase from 15% to 39.6%. But for some the 3.8% Medicare surtax will also apply, resulting in a 43.4% tax on dividends. (Hello retirees on a fixed income!)
  • The Section 179 deduction for investment in business assets will be reduced from $139,000 to $25,000, and investments in software will no longer apply (Hello Oracle, SAP, and SAS).
  • The employee share of the FICA tax will jump up from 4.2% and return to its original 6.2%. This is a tax that all workers pay on their first dollar of income.
  • The estate and gift tax exemption will drop from $5,120,000 to $1,000,000, and the top tax rate on estates and gifts will jump from 35% to 55%.

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