David Lerner Associates : Will Your Taxes Go Up In the New Year?

David Lerner Associates : Will Your Taxes Go Up In the New Year?

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fiscal cliffWhen the clock strikes midnight on December 31, 2012, many Americans will celebrate the arrival of a new year with streamers, confetti and a round of “Auld Lang Syne.” But when they wake up the next morning, January 1, 2013, they may not be as excited to learn that their federal taxes have increased.

As things stand now, many Americans are facing a tax increase beginning in 2013. This pending tax increase has been referred to as “the 2013 fiscal cliff” and “Taxmageddon” by some pundits, who are concerned that it could threaten the fragile economic recovery.

On January 1, 2013, the lower income, investment and estate tax rates that were passed as part of the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) are scheduled to expire. According to David Lerner Associates Branch Manager John Koene, these lower rates were originally scheduled to expire at the end of 2010. “However, they were temporarily extended by the Tax Relief Act of 2010 until December 31, 2012.”

Unless legislative action is taken again before December 31, 2012, the following taxes will be affected starting next year:

• Ordinary income taxes— The tax rates for the top four income brackets will all rise: from 25 to 28 percent, 28 to 31 percent, 33 to 36 percent, and 35 to 39.6 percent.

• Investment (or passive) income taxes— The top tax rate on capital gains will rise from 15 percent to 20 percent, and dividends will be taxed at ordinary income tax rates, which could be as high as 39.6 percent.

• Estate taxes— The top federal estate tax rate will rise from 35 percent to 55 percent. Also, the applicable exclusion amount for estate taxes will drop from the current $5.12 million per person (or $10.24 million for a married couple) to $1 million (or $2 million for a married couple).

In addition to the expiring lower EGTRRA tax rates, Koene adds that some upper-income taxpayers will also be faced next year with an additional 3.8 percent surtax on investment income as part of the Affordable Care Act. Starting in January, this surtax will apply to the unearned income of individuals with an adjusted gross income (AGI) of $200,000 or more and married couples with an AGI of $250,000 or more. An additional 0.9 percent payroll tax on wages will also apply to these individuals and couples at this time.

As a result, the top capital gains rate for these individuals and couples will rise to 23.8 % (20% capital gain plus 3.8% surtax) and the top tax rate will rise to 43.4 % (39.6% plus 3.8% surtax and additional .9% payroll tax on wages).

“These pending tax increases have emphasized the importance of year-end tax planning this year,” says Koene. If you haven’t yet, it may be a good idea to schedule a meeting with your tax advisor to discuss how you might be affected and steps you can take that might help minimize your future tax liability.

Material contained in this article is provided for information purposes only and is not intended to be used in connection with the evaluation of any investments offered by David Lerner Associates,Inc. (DLA). This material does not constitute an offer or recommendation to buy or sell securities and should not be considering in connection with the purchase or sale of securities. Member FINRA & SIPC.




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At David Lerner Associates we believe in the sensible middle ground of investing. We pursue these fundamental investment principles regardless of market conditions. We offer many investment opportunities, some designed to provide income. Founded in 1976, David Lerner Associates is a privately-held investment company with headquarters in Syosset, New York and branch offices in Westport, CT; Boca Raton, FL; Teaneck and Princeton, NJ; and White Plains, NY. For more information contact David Lerner Associates 1 877 367 5960 http://www.davidlerner.com

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Jake Mendlinger
Account Manager
516.829.8374 X 232

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