Higher Taxes In 2013

December 14, 2012 by  
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Memo to clients:

As the presidential election looms, our thoughts turn to 2013 tax investment planning for our clients. For us, it seems an overwhelming task –trying to position our clients in a way to minimize the impact of the plunge off what the congressional budget office calls a “fiscal cliff”.

That cliff is the combination of the expiration of the Bush-era tax cuts which will subject most workers to higher income taxes; the expiration of the most recent fix for the alternative minimum tax; tax increases attached to the Patient Protection and Affordable Care Act (also called Obama Care); and a package of mandatory spending cuts totaling close to $1.2 trillion over 10 years.  Unless the congress and the president do not act and the country plunges off the “fiscal cliff”, a recession is likely in the first half of 2013, with gross domestic product contracting by 1.3%.

The effect to investors is obvious, especially the implications of the expiration of the Bush tax cuts. Without compromise between congressional democrats and republicans, the previous higher tax rates will apply for all taxpayers.  Without action, according to the Tax Foundation, Americans face a half trillion tax hike in 2013 – a scenario so ominous that is has been described as “taxmageddon”.  While the outcome is anyone’s guess, it’s important to know what hangs in the balance, and what it could mean for your bottom line.

What’s at stake                What will happen Jan. 1 without federal action

 

Income tax brackets                             Rates would rise for all Americans, with the lowest bracket rising from

10% to 15%, and the highest, from 35% to 39.6%.

Dividends                                                 Taxed at the same rate as ordinary income, instead of current 15%.

Capital gains                                            Maximum rate would rise to 20% from current 15%.

Personal exemptions                            Would be reduced for high-income taxpayers.

and itemized deductions

Alternative minimum tax                   Without extension of temporary exemptions, moretaxpayers will be   

                                                                       snared by this parallel tax system.

Payroll taxes                                            Individual’s share of Social Security taxes would return to 6.2%,

from  4.2%; self-employment tax would rise to 12.4% from 10.4%.

Estate taxes                                             Maximum estate tax rate would rise to 55% from current 35%;

estates valued at more than $1 million would face the tax.

Education savings                                  The annual contribution limit for Coverdell Education Savings

Accounts would fall from $2,000 to $500, and qualified would no longer be permitted for K-                                                                        2012 expenses.

 

Child Tax Credit                                   Falls from $1,000 to $500.

Married couples filing jointly         The expiration of features meant to address a so-called

“marriage penalty” would reduce standard deductions

and push many couples into higher tax brackets.

 

Adoption Credits                                 Maximum credit would fall from $13,360 to $6,000

and would only be available for special-needs children.

Other popular tax breaks                 Deductions for local and state taxes, higher education

and teacher  classroom supplies all would vanish.

Alternative minimum tax                   Starting this year 27 million more taxpayer families will be

subject to the alternative minimum tax.  The level of income exempt from AMT falls                     to $33,750 for individuals, and $45,000 for couples, down from $50,000, and $78,750, respectively.  And  surprise!    These levels  apply to 2012 income. 

Business expensing                              Full business expensing will disappear in 2013

Business taxes                                        Scores of tax hikes , including higher marginal rates and loss of

                                                                       tax credits for certain business activities such as research and

experimentation, among others. (Translates to job losses.)     The worst-case scenario for high income earners is a 43.4% tax rate starting in 2013!

And—there is more. 

On top of all this, are the tax increases triggered by the Affordable Care Act.   “Obama Care” applies a 0.9% surcharge on earned income of more than $200,000 a year for singles, and $250,000 for married couples.   In addition – taxpayers at those income levels will be subject to a 3.8% Medicare surcharge, applied to investment income.   AND – the surcharge will also apply to taxable estates. The 7.5% threshold will rise to 10% of AGI, for taxpayers under 65.

Adding to the pressure, members of Congress will grapple with these broad-reaching tax expirations while facing national elections and a related slowdown over what they should do when the nation again reaches its debt ceiling.

We cannot vote for you, but we are available to meet with you to review your financial situation, or any life-event  in the light of these onerous tax increases.

Best regards,

For Saint-Laurent Advisors,

 

End of Bush Tax Cuts, December 31, 2012
Now 2013 and Thereafter
Maximum Income   Tax Bracket 35% 39.60%
Medicare   Surtax on Earned Income – 0% 0.90%
  Greater Than $200,000, $250,000
Maximum   Qualifying Dividend Tax Rate 15% 39.60%
Maximum   Capital Gains Tax Rate 15% 20%
Medicare   Tax on Investment Income 0% 3.80%
  Greater Than $200,000, $250,000
Max.   Qualified 5-yr. Capital Gains Tax Rate 15% 18%
Estate   Maximum Tax Bracket 35% 55%
Estate   Tax Exemption $5,120,000 $1,000,000
Portability   of Estate Tax Exemption Yes No
Gift   Maximum Tax Bracket 35% 55%
Gift   Tax Exemption $5,120,000 $1,000,000
Portability   of Gift Tax Exemption Yes No
Generation   Skipping Tax 35% 55%
Generation   Skipping Tax Exemption $5,120,000 ~ $1,400,000
Portability   of GST Exemption No No
AMT   Minimum Tax Exemption: Single/Joint $50,000/$78,750 $33,750/$5,000
Payroll   Tax 4.20% 6.20%
Self   Employment Tax 10.40% 12.40%
Coverdale   Education Credit $1,000 $500
Adoption   Credits $13,360 $6,000
Business   Exemptions Reduced
Sate   and Local Tax Deductions Eliminated
Teacher   Classroom Supply Exemptions Eliminated
Worst   Case Tax Rate for High Income Earners 43.40%
Saint-Laurent Associates
100 Cummings Center, 322A
Beverly, MA 01915
Tel: (978) 232-9990
www.StLaurentPro.com

Richard St-Laurent

Hold Gold & Silver In Your Local Bank IRA With Our Unique Custodian

December 13, 2012 by  
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man sitting on goldUntil now, you could not actually possess physical precious metals in your own, local bank IRA.  Through our first of its’ kind arrangment our custodian will randomly audit the bank of your choice to determine the safety and validity of your precious metals IRA in accordance with IRS standards.