With the expiration of the 2010 Tax Relief Act drawing closer, now is the time to review the impending tax changes that will affect your overall financial status and your current estate plan. How will these tax changes impact your financial circumstances? Your ability to gift to your children or others? For example, with the expiration of the Tax Relief Act, be prepared to expect increased income taxes, higher long-term capital gains tax, and a greater tax on qualified dividends, but a lower federal estate tax exemption. Give us a call to discuss how we can assist you in minimizing the impact of these drastic tax changes to the financial security of your family.

• Investment income will be subject to 3.8% Medicare tax for taxpayers earning in excess of $200,000 ($250,000 for joint filers and $125,000 for married filing separately).  This is a non-deductible tax.
• Additionally 0.9% Medicare tax on earned income will apply with the same financial and filing structure as investment income.
• Capital gains rates will increase from 15% to 20%, on top of the Medicare tax.
• Dividend tax rates will increase from a flat 15% to mirror income tax rates.
• Income tax rates will revert from 10, 15, 28, 33 and 35 to 15, 25, 28, 36, and 39.6 respectively.
• Itemized deductions for high income taxpayers will be limited. The tax benefit for itemized deductions and other preferences will decrease to 28%, for a single taxpayer with an income over $200,000, or married - filing jointly - with an income over $250,000.   

Estate and Gift Tax Changing Landscape

Currently, an individual can transfer up to $5.12 million, tax-free, during life or at death without paying a estate or gift tax, thereafter, the tax rate is 35%. A spouse can do the same, bringing the total tax-free transferable amount to $10.24 million. In addition, the concept of "portability" allows any unused estate tax exemption of a deceased spouse to be transferred to and used by the surviving spouse. However, in 2013, the estate tax exemption is scheduled to return to $1 million with a tax rate of 55% (and an additional surtax of 5% for estates between $10 million and approximately $17 million), and portability will expire. Gift tax exemptions, which are unified with the estate tax exemptions, will also revert to an exemption amount of $1 million with a tax rate of 55% along with the 5% surtax on certain gifts. Generation-Skipping Transfer Tax is also scheduled to shrink to approximately $1.4 million, as adjusted for inflation, with a tax rate of 55%.  

Other Tax Policies Set to Expire or Take Effect in 2013: 

• Payroll Tax 2% cut to Social Security expires
• American Opportunity Tax Credit expires
• Child Tax Credit reduced from $1,000 to $500 per child
• Reduction in Marriage Penalty expires
• 100% Business Expensing expires
• New Health Care Taxes take effect

There are 41 tax provisions expiring at the end of 2012. For high income or higher net worth individuals, the risk of not planning for an increased tax burden is substantial. Are you prepared? With the end of the year quickly approaching, now is the time to take action and protect your income, assets and your future.