If the Presidential election and Congress don’t interfere, tax rates are scheduled to increase significantly in 2013 for investors and corporations. Proper planning now can yield significant tax savings.
Rising capital gains tax rates
Investors in the 10% and 15% marginal tax brackets aren’t subject to any long-term capital gains taxes while everyone else owes 15%. In 2013, long-term capital gains taxes are set to rise to 10% for those in the 15% marginal tax bracket and up to 20% for everyone in the higher tax brackets. Plus, if you earn over $250,000 as a joint filer, your investment income could be subject to the 3.8% investment income surtax. Thus, high income earners could be paying 23.8% in long-term capital gains, up from 15% in 2012. Investors that are passive real estate investors will also face a 3.8% investment flat tax if their adjusted gross income exceeds $200,000 ($250,000 for joint filers).
What about dividends?
Dividends are scheduled to be taxed at ordinary income tax rates. The attractive 15% tax rate on dividends could jump to 39.6% or 43.4% with the investment income surtax for the highest income earners. This rate increase applies to both ordinary and qualified dividends.
What capital gains tax saving strategies should I employ?
Investors should be mindful of their portfolio allocation, but they may want to consider accelerating long-term capital gains this year to lock-in the lower tax rate. It would also be prudent to increase carryover losses to apply to 2013 when capital gains tax rates are scheduled to rise. You can still maintain the same portfolio when employing both of these strategies by simply purchasing the securities back after the sale. Please also be mindful of the 30 day wash sale rule, which restricts the purchase of the same securities 30 days before and after the sale when there is a capital loss.
What should C Corporations do?
If you control a C Corporation with positive free cash flow, it would be advisable to issue a special dividend in 2012, which will be taxed at 15% as opposed to 43.4% in 2013 for high income earners.
More Questions? Ask your 2013 tax questions or speak to a CPA online.
Related Articles
->Tax Planning Strategies To Mitigate Your Risk For Higher Taxes In 2013
->How Much Can I Contribute to My 401K and IRA in 2013?
->Are You a Passive Real Estate Investor Prepared for 2013 Taxes?
->The Payroll Tax Cut Is Set To Expire in 2013
->Many Investors Will Face a 3.8% Investment Income Tax in 2013
