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Upcoming 2013 Tax Provisions Which Will Impact Planning Opportunities

Unless Congress acts quickly, taxes are going up!  Although major tax law changes are set to take place in 2013, uncertainty makes it hard for families and businesses alike to plan ahead. Below are the expected tax law changes:

Marginal ordinary income tax rates rising:  The four highest federal marginal ordinary income tax rate brackets are currently scheduled to increase on January 1, 2013, with the highest bracket’s tax rate scheduled to increase from 35% to 39.6%.

Qualified dividend income tax rate rising:  The income tax rate for qualified dividends is scheduled to increase from the current rate of 15% up to the highest federal ordinary marginal income tax rate of 39.6% on January 1, 2013. Additionally, dividend income from a trade or business that is considered to be passive activity relative to the taxpayer will be includible in net investment income for Medicare surtax purposes.

Long term capital gains rate rising:  The long term capital gains tax rate is scheduled to increase from 15% to 20% on January 1, 2013. Additionally, capital gains will be includible in net investment income for Medicare surtax purposes.

Federal estate tax exemption decreasing and rates rising:  The federal estate tax exemption is scheduled to decrease from $5 million to $1 million on January 1, 2013, and the estate tax rate will rise from 35% up to a highest marginal tax rate of 55% for taxable estates greater than $3 million, 60% for taxable estates between $10 million and $17 million, and 55% for the portion of an individual’s taxable estate above $17 million.

Federal gift tax exemption decreasing and rates rising: The federal gift tax exemption is scheduled to decrease from $5 million to $1 million on January 1, 2013, and the gift tax rate will rise from 35% up to a highest marginal tax rate of 55%.

Federal generation skipping transfer tax exemption decreasing and rate rising: The federal generation skipping transfer tax exemption is scheduled to decrease from $5 million to $1 million (as indexed for inflation from 1999) on January 1, 2013, and the GST tax rate will increase from 35% to 55%.

Affordable Care Act

Medicare surtax:  Beginning on January 1, 2013, a 3.8% Medicare surtax will be imposed on the lesser of a taxpayer’s (i) net investment income and (ii) the excess of the taxpayer’s modified adjusted gross income over $200,000 for single taxpayers, $125,000 for married taxpayers filing separately, and $250,000 for married taxpayers filing jointly.

In spite of the uncertainty, our tax law firm is helping clients aggressively plan for the future. Contact us for a consultation.