January 24, 2013 by Bill McCarty
What can your clients expect now?
In the nick of time, Congress ended their fiscal cliff debate to pass the American Taxpayer Relief Act of 2012 (ATRA). While there still may be more tax reform to come, the following is a brief summary of some of the tax changes your clients may experience in 2013.
For most taxpayers, income tax brackets will remain unchanged as most of the 2001 and 2003 tax rates and cuts were permanently extended. Only the top income tax rate was permanently increased from 35 percent to 39.6 percent. This new rate goes into effect in 2013 for single filers with taxable incomes above $400,000 and joint filers with taxable income above $450,000.
The 2010 Tax Relief Act of 2010 temporarily reduced the Social Security payroll tax rate by 2%, setting the temporary rate to 4.2%. With ATRA, the employee-portion of Social Security taxes has been restored to 6.2%. This will mean a reduction in take-home pay for taxpayers with annual incomes up to $113,700.
Capital gains and dividends
ATRA permanently extends the 0% and 15% tax rates for long-term capital gains and qualified dividends for single filers with taxable incomes below $400,000 and joint filers with taxable incomes below $450,000. For filers with taxable incomes above these thresholds, the top rate will permanently increase to 20%.
The 3.8% Medicare tax has been enacted under the healthcare law. This means that single filers with modified-AGI above $200,000 and joint filers with modified-AGI will pay an additional 3.8% tax on investment income.
The Alternative Minimum Tax (AMT) “patch”, which helps tax rates from increasing too quickly, was permanently extended. The AMT thresholds will be adjusted annually for inflation.
The fiscal cliff provision for estate taxes would have decreased the exemption to $1 million and increased the tax to 55%. However, Congress modified this provision to bring estate taxes up by 5% (2012) to just 40. ATRA also outlines an exemption level of the first $5 million of an individual’s estate or $10 million of a family’s estate.
Roth IRA conversions
Looking to increase revenues for the Federal government, Congress eased the ability of individuals to covert 401(k), 403(b), 457, and other retirement plans to Roth IRAs. Depending on an individual’s goals and tax situation, this may give some clients the ability to pay taxes now rather than during retirement.
In addition to the changes outlined here, the child, earned-income, and college-tuition tax credits in President’s 2009 stimulus package were extended for another five years.
This article presents some of ATRA’s highlights. For more complete details, please refer to the Tax Policy Center’s brief, “Tax Provisions in the American Taxpayer Relief Act of 2012 (ATRA)” which can be found at: http://www.taxpolicycenter.org/publications/url.cfm?ID=412730 You can also read the complete list of provisions at the Joint Committee on Taxation’s web site at: https://www.jct.gov/publications.html?func=startdown&id=4497
The information and opinions in these article are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Brokers International. It is given for informational purposes only and is not a solicitation to buy or sell any products mentioned. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
November 15, 2012 by Bill McCarty
Scaling the “fiscal cliff” together can mean better solutions for your clients
While the ‘fiscal’ cliff leaves us with more questions than answers right now, it is perfect time to begin networking with a CPA to address individual client concerns. Here are three reasons why.
1. Tax efficiency.
No matter what happens during the ‘lame duck’ session, this is a good time to review the tax efficiency of your clients’ portfolios. Of course, only a qualified tax professional will be able to review the tax efficiency of an individual’s overall portfolio and discuss how the components of the fiscal cliff may affect their individual circumstances. At the conclusion of the review, and depending on your licenses, the two of you can potentially make recommendations that can help the individual make improvements such as gaining additional tax deferral through a variety of products or strategies.
2. Additional tax deferral in 2012.
According to Andy Friedman of The Washington Update, there are some actions that investors can take now to “blunt some of the effects of future tax increases.” Friedman offers the following suggestions:
- Sell assets to take advantage of existing capital gains rates.
- Receive ordinary income currently rather than in a later year when tax rates may be higher.
- Defer discretionary deductible payments (such as charitable contributions) to later years when they may be worth more due to higher tax rates.
- Give increased consideration to municipal bond investments.
- Give increased attention to harvesting losses and buy-and-hold investment strategies.
- Consider tax-efficient mutual funds and other professionally managed tax-advantaged investment strategies.
- Consider investing in annuities and life insurance that offer tax deferral.
- Convert a traditional IRA to a Roth IRA.
For the full article: http://www.sequoiaadv.com/wp-content/uploads/2012/04/EatonVance-Investing-in-a-Rising-Tax-Environment1.pdf
3. Get ready to help your clients in 2013.
When the election dust clears, your clients will likely have a lot of questions and concerns. By networking with your CPA now, you can create a game plan for how you’ll serve your clients when the implications of the fiscal cliff become clear near the end of the year. Consider creating a plan a collaborative way to communicate the changes with your clients through a variety of means – phone calls, letters, newsletter articles, emails, and Website content. Also, you may want to discuss how you’ll work together to best provide reviews, support, and customer service.
Learn how 2013 tax law changes could potentially impact you and your clients at our 2013 Business Briefing and Post-Election Tax Update. We’re hosting the event on December 7, 2012 in Dallas, TX. Find out what else you’ll learn and how to pre-register here.
The information and opinions in this article are provided by third parties and have been obtained from sources believed to be reliable, but accuracy and completeness cannot be guaranteed by Brokers International Ltd. It is given for informational purposes only and is not a solicitation for the purchase of any product. The information is not intended to be used as the sole basis for financial decisions, nor should it be construed as advice designed to meet the particular needs of an individual’s situation.
This article is designed to provide general information on the subjects covered. Pursuant to IRS Circular 230, it is not, however, intended to provide specific legal or tax advice and cannot be used to avoid tax penalties or to promote, market, or recommend any tax plan or arrangement. Encourage your clients to consult their tax advisor or attorney.