Best of the Week
Most Popular
1.U.S. Inner City Turmoil and Other Crises: Ron Pauls Predictions for 2015 - Dr_Ron_Paul
2. What’s In Store For Gold Price in 2015? - Ben Kramer-Miller
3.Crude Oil Price Ten Year Forecast to 2025: Importers Set to Receive a $600 Billion Refund - Andrew_Butter
4.Je ne suis pas Charlie - I am not Charlie - Nadeem_Walayat
5.The New Normal for Oil? - Marin_Katusa
6.Will Collapse in Oil Price Cause a Stock Market Crash? - OilPrice.com
7.UK CPI Inflation Smoke and Mirrors Deflation Warning, Inflation Mega-trend is Exponential - Nadeem_Walayat
8.Winter Storms Snow and Wind Tree Damage Dangers, DIY Pruning - Nadeem_Walayat
9.Oil Price Crash and SNP Independent Scotland Economic Collapse Bankruptcy - Nadeem_Walayat
10.U.S. Housing Market Bubble 2.0 Meet the Pin - James_Quinn
Last 5 days
Stock Market Major 4 or Primary IV Wave - 31st Jan 15
Gold And Silver Price Probability for A Lower Low Has Increased - 31st Jan 15
U.S. Bond Market Has Reached Tulip Bubble Proportions - 31st Jan 15
The 3 Big Reasons My Apple Stock Price Prediction Is Still Coming True - 31st Jan 15
199 Days of Hell - Unintended consequences: Oil and the Worst Battle in History - 31st Jan 15
Kaminak Yukon Gold - 30th Jan 15
U.S. Asset Price Deflation Coming Up? Food Prices Drop? CPI Negative? Credit Deflation? - 30th Jan 15
An Often Overlooked Predator: State Governments and Income Taxes - 30th Jan 15
Bullard Says Rates at Zero Interest Rates Not Right for U.S. Economy - 30th Jan 15
Why the European Central Bank's Massive Economic Experiment Will Fail - 30th Jan 15
Gold Price Short-Term Bottom Due, Higher into February - 30th Jan 15
Silver and Other Precious Metals To Manipulate - 30th Jan 15
Socialism Is Like a Nude Beach - Sounds Like a Great Idea Until You Get There - 30th Jan 15
To Create Unlimited Market Liquidity or Not; That Is the Question - 30th Jan 15
Seen the Energy Downturn Movie Before, and Not Worried - 30th Jan 15
It’s Not Time to Sell Everything – Yet - 30th Jan 15
13 Investment Themes for 2015 - 29th Jan 15
The Raging Currency Wars Across Europe - 29th Jan 15
The End of Currency 'Safe-Havens' - 29th Jan 15
Ron Paul on U.S. Fed, Central Bankers Monetary Psychopaths - 29th Jan 15
Why Microsoft Stock Will Provide Major Investing Returns - 29th Jan 15
Exploring the Clash Within Civilizations - Mind the Gap - 29th Jan 15
Saudi Arabia Changes Kings, But Not its Oil Policy - 29th Jan 15
Crude Oil Price Bulls vs. Resistance Zone - 28th Jan 15
Acceleration Of Events With Rising Chaos – US Dollar Death Foretold - 28th Jan 15
The Fed and ECB Take the West back to when the Rich Owned Everything - 28th Jan 15
Washington's War on Russia - 28th Jan 15
Cyber War Poses Risks To Banks and Deposits - 28th Jan 15
Lies And Deception In Ukraine's Energy Sector - 28th Jan 15
EUR, AUD, GBP USD – Invalidation of Breakdown - 28th Jan 15
“Backup-Camera Envy” Is Driving This Unstoppaple Investment Trend - 28th Jan 15
The Great "inflated" Expectations for Gold, Oil, Commodities -- and Now Stocks - 28th Jan 15
How to Find the Best Offshore Banks - 28th Jan 15
There’s More to the Gold Price Rally Than European Market Fears - 28th Jan 15
Bitcoin Price Tense Days Ahead - 27th Jan 15
The Most Overlooked “Buy” Signal in the Stock Market - 27th Jan 15
Gold's Time Has Come - 27th Jan 15
France America And Religious Terror War - 27th Jan 15
The New Drivers of Europe's Geopolitics - 27th Jan 15
Gold And Silver - Around The FX World In Charts - 27th Jan 15
It’s Not The Greeks Who Failed, It’s The EU - 27th Jan 15
Gold and Silver Stocks Investing Basics - 27th Jan 15
Stock Market Test of Strength - 26th Jan 15
Is the Gold Price Rally Over? - 26th Jan 15
ECB QE Action - Canary’s Alive & Well - 26th Jan 15
Possible Stock Market Pop-n-drop in Store For SPX - 26th Jan 15
Risk of New Debt Crisis After Syriza Victory In Greece - 26th Jan 15
How Eurozone QE Works: A Guide to Draghi's News - 26th Jan 15
Comprehensive Silver Price Chart Analysis - 26th Jan 15
Stock Market More Retracement Expected - 26th Jan 15
Decoding the Gold COTs: Myth vs Reality - 26th Jan 15
Greece Votes for Syriza Hyperinflation - Threatening Euro-zone Collapse or Perpetual Free Lunch - 26th Jan 15

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

Learn to Trade

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

© 2005-2014 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

Free Report - Financial Markets 2014