THREE STRIKES FOR WEALTHY TAXPAYERS ON 2013 TAX RETURNS

It is time for you  to think about year end tax planning, especially if you are a “wealthy” taxpayer.  The new higher tax structure has seemed so far in the distant future  for many years, but  here we go!  When you file your 2013 tax returns (due in April, 2014), you should be aware of these three curve balls:

 

STRIKE 1:  Higher tax rates. 

Compare the 2012 and  2013 tax bracket charts shown below.  Highest rate is 39.6% for 2013 as compared to 35% for 2012.  This represents a 13% increase for those affected.

 2012 tax rates

Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,700 Up to $17,400 Up to $8,700 Up to $12,400
15% $8,701 – $35,350 $17,401 – $70,700 $8,701- $35,350 $12,401 – $47,350
25% $35,351 – $85,650 $70,701 – $142,700 $35,351 – $71,350 $47,351 – $122,300
28% $85,651 – $178,650 $142,701 – $217,450 $71,351 – $108,725 $122,301 – $198,050
33% $178,651 – $388,350 $217,451 – $388,350 $108,726 – $194,175 $198,051 – $388,350
35% $388,351 or more $388,351 or more $194,176 or more $388,351 or more

2013 tax rates

 Tax rate Single filers Married filing jointly or qualifying widow/widower Married filing separately Head of household
10% Up to $8,925 Up to $17,850 Up to $8,925 Up to $12,750
15% $8,926 – $36,250 $17,851 – $72,500 $8,926- $36,250 $12,751 – $48,600
25% $36,251 – $87,850 $72,501 – $146,400 $36,251 – $73,200 $48,601 – $125,450
28% $87,851 – $183,250 $146,401 – $223,050 $73,201 – $111,525 $125,451 – $203,150
33% $183,251 – $398,350 $223,051 – $398,350 $111,526 – $199,175 $203,151 – $398,350
35% $398,351 – $400,000 $398,351 – $450,000 $199,176 – $225,000 $398,351 – $425,000
39.6% $400,001 or more $450,001 or more $225,001 or more $425,001 or more

 

STRIKE 2:   Loss of up to 80% of itemized deductions.

While some itemized deductions are not subject to these rules, for the most part, 3% of itemized deductions are disallowed for excess AGI over a certain threshold ($300,000 Married Joint, $250,000) single.

 

STRIKE 3:  Higher rates on long term capital gains and qualified dividends.

In 2012, the highest rate was 15%.  For 2013, the highest rate is 23.8% (20% capital gains rate + 3.8% medicare surtax).  This amounts to an almost 60% increase on the tax for such income.

……. Maybe, in 2014, you won’t be so “wealthy” (3 strikes, you’re out!)

 

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