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Tom Licciardello, CFP
Cristina Licciardello
Your Trusted Financial Advisors | |
We don't predict the future, we help our clients prepare for it. |
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Cliff Notes, Part 2
From the Desk of Tom Licciardello, CFP
Since our last newsletter, we have taken a step closer to the fiscal cliff with no settlement in sight.
As a taxpayer and investor, how will this impending crisis affect your investment goals? Importantly, what can you do to help:
· Minimize your tax obligations
· Maximize your after-tax return
· And increase the likelihood of you reaching your financial destination
Unless Congress acts soon, nearly nine out of every 10 households will be paying higher taxes. Every income group would see their taxes rise by at least 3.5%, with high-income households taking an even bigger hit.
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Taxable Income -Married Filing Jointly |
2012 |
2013 |
Top Rate with Surtax 20131 | |
$0-$17,400 |
10% |
15% |
15% | |
$17,400-$70,700 |
15% |
15% |
15% | |
$70,700-$142,700 |
25% |
28% |
28% | |
$142,700-$217,450 |
28% |
31% |
34.8% | |
$217,450-$388,350 |
33% |
36% |
39.8% | |
Over $388,350 |
35% |
39.6% |
43.4% |
There are two new surtaxes scheduled to start as of January 1, 2013.
As part of the Healthcare Bill, the Medicare tax rate on households with modified adjusted gross earned income (MAGI) > $250,000 will be increased from 1.45% to 2.35%, an increase of 90bps. The same increase will occur for singles with MAGI over $200,000.* Also there will be a surtax on net investment income of 3.8% for the same households identified above. Net investment income includes taxable interest, dividends, capital gains, rents, royalties, annuities, and passive activity income less applicable expenses. Net investment income does not include tax-free interest, retirement plan & IRA payouts.
As an example, a couple with $50,000 of investment income and adjusted gross income (AGI) of $290,000 will pay $1,520. Calculated as follows, 3.8% x $40,000 = $1,520. The $40,000 is the excess over the $250,000 (threshold amount) of AGI.
Tax Planning Point #2 - Tax-exempt interest could attract new investors looking to escape the Medicare surtax. Municipals will remain in demand for high-income taxpayers since municipal interest is not subject to the surtax nor does the interest affect the owner's AGI. Consider positioning your cash in high-quality tax-free vehicles sooner rather than later. If you are in Alternative Minimum Tax (AMT), avoid private-activity bonds that generate an AMT preference item essentially making the municipal interest taxable.
Please don't hesitate to contact me if you'd like to discuss any of the planning issues presented in our newsletter. We can't predict the future, but we can help you deal with it more effectively.
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The Ripple Effect
By: Tom Licciardello, CFP
One of the suggestions that has been debated to help lower the deficit is to raise the age at which we could qualify for Medicare from age 65 to age 68.
Without a doubt, Medicare has been accurately described as a "third rail" issue, but surely some action must be taken to reduce the unsustainable rising cost of Medicare.
Proponents of this proposal suggest the multi billion dollar savings are crucial and that the average retirement age is creeping higher, so many folks will stay on their employer sponsored health plans. Further, The Affordable Care Act ("Obamacare") guarantees the option of getting individual coverage through insurance exchanges. (We already have them established in Massachusetts as "The Connector").
Sounds like a pretty simple solution to containing costs, right?
Maybe not. Consider what happens to the risk pool of Medicare when the youngest members - those age 65-67 - are removed. Effectively, the youngest are the healthiest, the least likely to have claims, and the ones who help support the medical risk of the older members. Take them out and there is a high likelihood that the savings could evaporate in higher claims which would lead to higher premiums for those retirees.
Further, inject those 65-67 year olds into employer sponsored or individual plan risk pools and you've now added a layer of older risks with higher claims. Again, higher claims mean higher premiums. I'm one so I can say this...we Baby Boomers are still having a profound impact on the economy, for better and worse!
This is but one example of how difficult it is to solve this budget challenge.
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A Real Cliffhanger: Tax Planning Strategies for 2013
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We 're just past Thanksgiving and in full Holiday planning mode. Year end planning, Christmas shopping, and Holiday gatherings fill the calendar. In the middle of all of this activity, we at Compass Capital Corporation wanted to host a tax planning seminar for you...then we came to our senses.
Yet, the information is too important to not share. So the next best approach is to share the webnar prepared by our friends at SEI. It's well worth the time to watch. | |
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Did You Know?
As a fee based financial advisor we can:
- Help you define your most important financial goals based upon your core values
- Create a strategy to help you navigate the financial choices that will help you reach your goals
- Provide ongoing review of your plan to assure that you stay on track
- We can advise on the correct use of financial instruments such as no load mutual funds and ETF funds.
In addition to health insurance, our Benefits division can help your company with:
- 401k plans
- Employee paid payroll deduction benefits
- Group Life, Disability, and Dental Plans
We can advise you on, and find the best rates for:
- Term Life Insurance
- Long Term Care Insurance
- Long Term Disability Insurance
Through our network of Qualified Advisors affiliated with our ProNet Group, we can refer you to the best advisors in the following areas:
- Estate Planning Attorney
- Real Estate Attorney
- Employment Law
- Third Party Administrator
- Certified Business Evaluations Expert
- Property Casualty Agent
- Accountant
- Banker
- Mortgage Broker
Let us know if we can help!
When conditions become volatile and confusing, there is no more important time to have a Trusted Financial Advisor to help guide you. Please remember that you have unrestricted access to us. Call, email, or text any time! |
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Do you have an idea for the next newsletter? Is there an issue you'd like to hear more about? Is there someone you'd like to add to the newsletter list? Let us know!
Sincerely,
Tom Licciardello, CFP Crissy Licciardello Licciardello Financial Services Compass Capital Corporation |
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