Best of the Week
Most Popular
1.Trump Delirium Triggers Stock Market Brexit Upwards Crash Towards Dow 20,000! - Nadeem_Walayat
2.The Future Price Of Gold Will Drop Below $1000 In 2017 -InvestingHaven
3.May Never Get Another Opportunity to Buy Gold at this Level Again - Chris_Vermeulen
4.Delirium - The Real Reason Why Donald Trump Won the US Presidential Election - Nadeem_Walayat
5.Why Nate Silver / Fivethirtyeight is one of the Most Reliable Election Forecasting Indicator? - Nadeem_Walayat
6.Gold Price Forecast: Nasty Naughty November Gold Price Trend - I_M_Vronsky
7.Gold Mining Stocks Screaming Buy! Q3’16 Fundamentals - Zeal_LLC
8.Delirium of Trump Mania Win's Mr BrExit US Presidential Election 2016 - Nadeem_Walayat
9.The War On Cash Goes Nuclear In India, Australia and Across The World - Jeff_Berwick
10.Hidden Signs for Gold and Silver - P_Radomski_CFA
Last 7 days
Gold And Silver – Do Not Expect Much Difference With Trump Compared To Obama - 3rd Dec 16
Gold, Currencies and Markets Critical 61.8% Retracements - 2nd Dec 16
Gold Junior Stocks Q3’16 Fundamentals - 2nd Dec 16
Adventures in Castro’s Cuba - 2nd Dec 16
We Are Putting Off the Inevitable - 2nd Dec 16
Macroeconomic Cycles & Demographics - A Fuse, An Explosive and The Igniting Catalyst - 2nd Dec 16
How Moving Averages Can Identify a Trade - 1st Dec 16
Silver Prices and Interest Rates - 1st Dec 16
America, is it Finally time for us to say Goodbye? - 1st Dec 16
Blockchain Technology – What Is It and How Will It Change Your Life? - 1st Dec 16
Burn the Flags, Can Trump Salvage The Sinking US Economic Ship? - 1st Dec 16
Will US Housing Real Estate Market Tank in 2017? - 1st Dec 16
Referendum Puts Italy's Government to the Test - 30th Nov 16
Why We Haven’t Seen Gold Price Rally after Trump Victory - 30th Nov 16
Breakdown and Slide in Crude Oil Price - 30th Nov 16
A 'Wicked Rally' in Gold Price Predicted - 30th Nov 16
Silver Market Sentiment Looks Golden - 30th Nov 16
Indian Demonetization Denotes Severe Stress in the Global Gold Market - 30th Nov 16
Owning Gold and Silver in Troubling Times - 29th Nov 16
Trump's Presidency - Stock Market Crash or Start of New Mega-Trends - 29th Nov 16
Prime Minister Modi's War Against Corruption, Black Money and Fake Currency Notes in India - 29th Nov 16
Can President Trump Really Drain the Swamp? - 29th Nov 16
President Trump’s Economic Plan Isn’t Going to Work - 29th Nov 16
The US Bond Bear Market Has Begun! - 29th Nov 16
Simple Yet Powerful Technical Trading Tools - 28th Nov 16
Public Infrastructure – Welcome to the World of Waste, Fraud, and Abuse - 28th Nov 16
Fifty Years Later, Moore's Computing Law Holds - 28th Nov 16
An Elusive Stock Market Top - 28th Nov 16
This Past Week in Gold - 27th Nov 16
Italian Bank Collapse European Sovereign Bond Carnage, Criss-Crossed Fuses & Lit Bonfire - 27th Nov 16
How to Beat UK Savings Crisis with Child Junior Cash ISA, Pension's and Life-time ISA - 27th Nov 16
Castro Was Not Who You Thought He Was - 27th Nov 16
Understanding the Trump Presidency , Beyond Merkel - 26th Nov 16
US Stocks Bull Market New All Time Highs - 26th Nov 16
Silver Mining Stocks Q3 2016 Fundamentals - 26th Nov 16
MSM's Stock Market Druck'n Suck-In Continues - 26th Nov 16
Gold Price Down 13.5% In 13 Days - Opportunity For Geometric Price Cost Averaging - 26th Nov 16
Tips for Trading Options with Elliott Waves - 26th Nov 16
Germany Pulls the Plug on Market Oracle site for 24 hours, German Election BrExit GerExit Warning Shot? - 26th Nov 16
New NS&I 2.2% Savings Bond Ahead of 2017 Stealth Inflation Theft of Purchasing Power - 24th Nov 16
Establishment Controlled Mainstream Media Launches War on Alternative 'Fake' News - 24th Nov 16
Black Friday Cheap Christmas Lights, How Long do they Last ? B&M Stores Review Video - 24th Nov 16
War On Cash Goes Global – India and Citibank In Australia - 24th Nov 16
Stocks, the Politically-Driven S.O.D. to Lose Again - 24th Nov 16
One of the best buying opportunities in history? - 24th Nov 16
Gold and Monetary Populism: The Oligarchs’ Mortal Enemies – The Peoples’ Salvation - 23rd Nov 16
The Winners and Losers of a Global Trade War - 23rd Nov 16
Why Mexico’s Oil Reform Is A Huge Opportunity For Investors - 23rd Nov 16
Silver and Gold - We Can’t Understand It for Them - 23rd Nov 16
A Review of Nedbank Private Wealth - 23rd Nov 16
Trump’s Financial Revolution! - 22nd Nov 16
Stock Market New All Tiime Highs & the Election Buried This HUGE Story - 22nd Nov 16
Will Crude Oil Price Rally to $50? - 22nd Nov 16
The Spreading Bondfire And The Rising Price Of Gold - 22nd Nov 16
Did The 'Trump Tantrum' Just Trigger The Next US Recession? - 22nd Nov 16
Cheap Money to Continue Flowing & Helicopter Money to Start after 2017 Market Crash - 22nd Nov 16
Gold Price Forecast: Nasty Naughty November Gold Price Trend - 22nd Nov 16
Stocks and Deby - Will Trump Bring Morning or Mourning in America? - 22nd Nov 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

$10000 Gold

Taxmageddon 2013: How to Prepare for Looming Tax Law Changes

Personal_Finance / Taxes Sep 07, 2012 - 06:40 AM GMT

By: Money_Morning

Personal_Finance

Best Financial Markets Analysis ArticleLarry D. Spears writes: It's often said the only things certain in life are death and taxes - but this year, even taxes aren't a certainty.

At least not the specifics, thanks to Election 2012 and Taxmageddon 2013. Investors are left with more questions than answers.


Will the so-called Bush tax cuts expire as scheduled - or be extended? Will levies designed to help implement and pay for Obamacare go into effect - or will Republicans finally succeed in repealing the new healthcare program?

Will President Barack Obama view his re-election as a mandate to impose more new taxes to expand social programs, or will a newly-elected President Mitt Romney cut taxes in a bid to encourage renewed economic growth?

That's why it's important for investors to look at the range of possibilities relative to their current financial holdings and take precautionary actions where appropriate.

This special Money Morning series will examine a number of upcoming or proposed changes in tax laws and rates and suggest strategies to minimize their impact on your investments. Or better yet, take advantage of them if possible.

With Taxmageddon, Rates are Set to Rise
As it stands, there are more than two dozen tax-law changes scheduled to take effect in 2013. Some of them target nearly every single taxpayer while others are more narrowly focused on individuals, such as small business stockholders and home sellers.

Of most immediate concern to investors is the scheduled increase in tax rates on capital gains. Currently, the federal government recognizes three types of capital gains:

•Short-term gains - Profits from assets held for less than one full year. These gains are taxed as ordinary income at a rate based on your total personal income, with percentages now ranging from 10% to 35%.
•Ordinary long-term gains - Profits from assets held for more than one year, now taxed at a maximum rate of 15%, regardless of income from other sources. (Note: Individual taxpayers in the 10% and 15% brackets now pay no tax on long-term capital gains but merely include them with other taxable income. However, in 2013 these taxpayers will be subject to a 10% tax on long-term gains.)
•Qualified long-term gains - Profits from assets purchased after the 2000 tax year and held for a minimum of five years. Qualified gains are currently taxed at a maximum 15% rate.

This relatively simple structure will become more complicated in 2013, for several reasons... For starters, there is no scheduled increase in tax rates for short-term capital gains - they'll still be taxed at ordinary income rates. However, if Congress allows the Bush-era tax cuts to expire, those ordinary rates will rise substantially.

For example, those in the lowest income-tax bracket - individuals earning less than $8,700 or married couples earning less than $17,400 - will see their tax rate jump from 10% to 15%, with the increase applying to short-term gains as well. (Note: The income levels cited for various tax brackets are for 2012; they'll be adjusted for inflation in 2013.)

Taxpayers in the next bracket - individuals earning from $8,700 to $35,350 and couples earning from $17,400 to $70,700 - will see no increase in their current 15% marginal tax rate. But there is one catch! Rather than being double that for unmarried taxpayers, the income level at the top of the bracket for married couples will be reduced to 167% of the individual cap - just $59,035 based on 2012 numbers.

This will put substantially more joint tax filers in the new 28% bracket (now 25%), increasing the so-called "marriage penalty" and effectively almost doubling their rate on short-term capital gains as well.

Taxpayers in the current 25%, 28% and 33% brackets will see their marginal tax rates jump by 3% in 2013, while those in the highest bracket - individuals and couples earning more than $388,350 - will see a 4.6% increase from 35% to 39.6%.

Individuals in the highest brackets could also see an additional 3.8% bump in their capital gains rates if Obamacare - formally, the Patient Protection and Affordable Care Act (PPACA) - is not repealed and the included "Medicare contribution tax" is assessed on unearned income.

How to Minimize the Taxman's Bite
Given those changes, the best strategy if you have short-term gains and want to take them for other-than-tax reasons - e.g., technical resistance or fading fundamentals on a stock - is to take them before the end of the year, when your ordinary income rates will still be lower.

On the other hand, if you're in a higher bracket, currently have short-term gains and have no other reason to sell, don't. You'll be better off to hold into 2013, let the gains go long-term and then sell, paying the 20% maximum that will be imposed then.

The optimum strategy if you already have long-term gains is the exact opposite.

As noted, the current rate on both ordinary and qualified long-term gains is 15%. However, beginning Jan. 1, 2013, that rate will climb to 20% for ordinary long-term gains and 18% for qualified (or five-year) gains. (Note: Individual taxpayers in the 10% and 15% brackets now pay no tax on long-term capital gains but merely include them with other taxable income. However, in 2013 these taxpayers will be subject to a 10% tax on long-term gains.)

Plus, if you're in one of the upper income brackets, your gains will also be subject to the 3.8% Medicare contribution tax, which would raise your 2013 rates on ordinary and qualified long-term gains to 23.8% and 21.8%, respectively.

Given that, all investors holding positions with long-term gains, qualified or not, should keep a close eye on both the election results and the actions of Congress in the wake of the vote. If mid-December rolls around and lawmakers haven't taken action to either extend the Bush tax rates or repeal the Obamacare tax, your best strategy will be to sell your appreciated assets before year-end so you'll only owe 2012's lower 15% capital gains rate.

(Note: This strategy is doubly important for investors in states with capital-gains or income-tax rates assessed as a percentage of federal rates.)

If you still like the long-term prospects for your stock or other security, you can simply wait until after Jan. 31, 2013 and buy it back, starting a new holding period - and perhaps getting a better price if other investors are also selling their shares. (Technically, you only have to wait more than 30 days before rebuying to avoid the so-called "wash sale" rule, but why squeeze the deadline and tempt the IRS.)

One other strategy note: If you have losing long-term securities positions, you may also want to sell those holdings before the end of the year. You can use the losses to offset gains on the profits you take this year, plus you can carry any excess losses forward and apply them against gains you may have in 2013. Given the higher rates then, that will increase the tax value of your current capital losses.

In the next installment of our tax series, we'll discuss changes in the 2013 rules and rates for dividends on stocks and exchange-traded fund (ETF) - an area of major concern for income-oriented investors.

Source :http://moneymorning.com/2012/09/07/taxmageddon-2013-how-to-prepare-for-looming-tax-law-changes/

Money Morning/The Money Map Report

©2012 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife