Tax Increases in 2013 That Deserve Consideration

These are the new rates changes for 2013, changes that might affect the budgets of a lot of the contributors:

  1. The capital gains rate is going to increase. Under current law, gain from the sale of an asset held for investment for over one year is taxed at 15%. In 2013 this rate will increase to 20%. If you have an investment you are considering selling next year, you may want to move up your timetable to take advantage of the lower tax rate in 2012.
  2. Second, the alternative minimum tax (AMT) threshold amount will fall to $45,000 per year. This means that if you make more than $45,000 per year you will have to calculate AMT. If you don’t understand AMT you are not alone. The best way to explain AMT is to view it as a separate tax system. It has its own set of rates and its own rules for deductions, which basically amounts to fewer deductions. Under AMT you are simply adding back your deductions and calculating the tax you would owe without your deductions. You then pay whichever is more.
  3. Third, the 3.8% Medicare Surtax will kick in and apply to the lesser of your net investment income, or the amount of your modified gross adjusted income that is over $250k for a married couple, or $125k for a single person. In other words, if you sell an investment property and generate 350k in gain, your tax rate in 2013 will be 23.8%.
  4. Fourth, the estate/gift tax exemption will drop from its current $5,000,000 per person to $1,000,000 and the tax rate will increase from 35% to 55%. If you or your parents have an estate that is valued over $2,000,000, you should consider making moves before the end of the year to reduce your future gift and estate tax by transferring assets to your family now while the exemption is at $5,000,000.

Please give us a call 773-728-1500, we The Chicago Accountants will help you out.

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