Tax Changes on the Horizon?

Originally published in the Cedar Street Times

October 19, 2012

Unless you have been hiding under a rock, you are sure to have heard the hubbub surrounding potential tax increases in 2013.  These tax increases do not require Congress to take action, but to gridlock and do nothing, which is why they stand a much better chance of actually occurring than a concerted effort to raise taxes. Most of the increases are the result of the expiration of the temporary tax decreases dubbed “The Bush Tax Cuts,” passed in 2001 and 2003 while George W. Bush was in office.  There was also a two percent reduction in payroll taxes a few years ago that was meant to be a temporary stimulus for the economy.  The Tax Policy Center estimates that nearly 90% of American households will face an average tax increase of $3,500 if the tax cuts expire.

If current legislation stays in place, ordinary income tax brackets will jump 3-5%, depending on your bracket.  Capital gains tax will increase 5-15%, depending on your bracket, and there will be a new Medicare surtax, generally for people making over $200,000, of another 3.8% on net investment income.

Alternative Minimum Tax (AMT) is another big issue that could affect most Americans.  AMT is a parallel tax calculation that runs alongside the normal system, cutting out common deductions, and if it results in a higher overall tax liability, you pay the incremental difference as additional tax.

Estate and lifetime gift tax will also get hit hard.  Currently, there is a $5,120,000 exemption for the combined estate and gift tax.  If you have a taxable estate above that and you pass away by December 31, the excess will be taxed at a top rate of 35%. Next year, this exemption reverts to $1,000,000 with a maximum tax rate of 55% on your taxable estate above that figure.

This certainly presents questions for you, your tax professional, and your estate planner to analyze.  If you knew ordinary tax rates, capital gains, and estate tax rates were going to rise next year, you would likely try to push expected income from next year to this year, sell your stocks now that could result in a gain in the future, and gift money from your estate to your heirs.  It is not quite this simple, and you should get professional assistance, but it is something to think about now rather than December 31st.

Related to the estate and gift tax issue, on Saturday morning, October 27th, I will be presenting with local attorney, Kyle A. Krasa, and local investment advisor, Henry Nigos, in a free seminar titled “Opportunities and Clawbacks – Taking Advantage of the Once-in-a-Lifetime 2012 Estate/Gift Tax Rules” from 10:00 am to 11:30 am at 700 Jewell Avenue, Pacific Grove.  The seminar is sponsored by Krasa Law – please RSVP at 831-920-0205.

Prior articles are republished on my website at

IRS Circular 230 Notice: To the extent this article concerns tax matters, it is not intended to be used and cannot be used by a taxpayer for the purpose of avoiding penalties that may be imposed by law.

Travis H. Long, CPA is located at 706-B Forest Avenue, PG, 93950 and focuses on trust, estate, individual, and business taxation. He can be reached at 831-333-1041.

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