Best of the Week
Most Popular
1.Will UK Interest Rate Rises Crash House Prices? - Nadeem_Walayat
2.Full on Crash Alert for Major World Stock Markets... - Clive_Maund
3.Gold And Silver Market Bottoming? Big Rally Imminent? Reality Check Says NO - Michael_Noonan
4.The Coming Silver Price Rally Will Outperform All Previous Ones - Hubert_Moolman
5.The Trigger For The Upcoming Stock Crash - Harry_Dent
6.Imploding Department Store Results - James_Quinn
7.Dr. Copper is Speaking, are you Listening? ... - Rambus_Chartology
8.Pandemonium in the Stock Market, Dow falls 1,000 points in a week - EWI
9.Asia's Whirling Dervish of Devaluations Has Encircled China's Exports - Keith_Hilden
10.China Weakens the Yuan; Rattles Global Stock and Financial Markets - Gary_Dorsch
Last 5 days
OPEC Divorce And Self-Destruction Thanks To Saudi Crude Oil Strategy? - 1st Sept 15
The Beginning Of A New Financial / Stock Market Cycle - 1st Sept 15
Three Things Every Master Trader Knows About Trading Options - 1st Sept 15
Chinese Yuan Revolution? - 1st Sept 15
Take Advantage of Record-High Auto Sales… Before This Bubble Bursts - 1st Sept 15
Pondering Hitler's Legacy - 1st Sept 15
Mainstream Media Goes Berserk - 1st Sept 15
Your Decisive Stock Market Plan to Follow Whilst Most Investors Shiver With Fear - 1st Sept 15
Are There Stock and Financial Markets Investing Opportunities For The Remainder Of 2015 - 1st Sept 15
Crude Oil Price Forecast 2015 and 2016 - 1st Sept 15
REPO Window Hidden $Trillion QE Monthly Volume - 31st Aug 15
Silver and Warnings From Exponential Markets - 31st Aug 15
Stock Market Calls Fed’s Bluff - 31st Aug 15
Why Some ETFs Led the Stock Markets Down Last Week - 31st Aug 15
Stock Market Collapse - Take The Opportunity To Bail Before It’s Too Late! - 31st Aug 15
The Most Important Market Chart on The Planet - 31st Aug 15
Stock Market 50% Retracement - 31st Aug 15
Stock Market Crash Red Alert for 2nd Downwave... - 31st Aug 15
Independant Scotland 1 Year on, UK Civil War If the SNP Fanatics Had Succeeded - 30th Aug 15
Gold’s 7 Point Broadening Top - 30th Aug 15
The Day the Stock Market Shook the Earth: Takeaways From the Dow’s 1,000-Point Drop - 30th Aug 15
Gold Price Rally Marked by Short Covering - 30th Aug 15
Aging Stocks Bull Market - 29th Aug 15
Economic Destabilization, Financial Meltdown and the Rigging of the Shanghai Stock Market? - 29th Aug 15
The Stocks You Should Be Buying After the Market Drop - 29th Aug 15
How I Learned to Stop Worrying and Love Market Fluctuations - 28th Aug 15
China's Yuan Devaluation: Why It Was "Expected" - 28th Aug 15
Stocks Go Nuts But the Question Remains – Will the Rally Stick? - 28th Aug 15
Fed’s Stock Market Levitation is Failing - 28th Aug 15
The Eight Energy Systems Driving The Stock Market Rout - 28th Aug 15
Silver Sold, then Squeezed - 28th Aug 15
U.S. Economic Fundamentals 'Look Good' - Bullard of St. Louis Fed - 28th Aug 15
Stock Market Margin Calls Mount - 28th Aug 15
Einstein, Physics, Gold and The Formula To End Economic Decay - 28th Aug 15
The 10 Best Stocks for Options Trading Plays in This Market - 28th Aug 15
Economics of a Stock Market Crash - 28th Aug 15
Currency Wars Detonate; Gold Refuses to Budge - 28th Aug 15
UK Immigration Crisis Hits New Record, Trending Towards Becoming a Catastrophe - 28th Aug 15
The Ultimate Cash-Management Guide - 27th Aug 15
Why a Fed Rate Hike Could Be a Blessing for Gold Prices - 27th Aug 15
Why Devaluing the Yuan Won't Help China's Economy - 27th Aug 15
Stock Market Trend & Trade Signal Of the Decade - 27th Aug 15
Keep Your Eye On the Gold and Silver Bear - 27th Aug 15
Refugees Expose Europe’s Lack Of Decency - 27th Aug 15
How to Profit from China's Currency War - 27th Aug 15
How China's Currency Policies Will Change the World - 27th Aug 15
Chinese Medicine not Impressing Dr Copper - 27th Aug 15
Novel Biotech Novel Technology Platforms with Dramatic Growth Potential - 27th Aug 15
China Stocks Bear Market Crash, Are We Near the Bottom Yet? - 27th Aug 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Global Stocks Slide

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

© 2005-2015 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

Biggest Debt Bomb in History