After the Cliff: Tax Changes for 2013
3 minute video
Bloomberg provides a summary of the changes you may expect. Further updates are listed via Associated Press below.
For families earning more than $450,000, the top tax rate rises to 39.6% in 2013. All those earning less will see no tax increases on earnings.
Estate Taxes: Zero tax up to $10M for couples ($5M apiece) and then 40% tax rather than the current 35%.
Capital Gains and Dividends taxes go up to 23.8% for higher earners (families earning over $450K). Under that amount, the current 15% stays.
The temporary Social Security payroll tax reduction is expiring, hitting nearly every wage earner. The Alternative Minimum Tax has been "patched" again and won't change for 2013. How tax increases (primarily due to increase in Social Security or Self Employment tax) will affect households at different income levels: Annual income: $100,000 to $200,000 Average tax increase: $1,784 Annual income: $200,000 to $500,000 Average tax increase: $2,711 Annual income: $500,000 to $1 million Average tax increase: $14,812 Bottom Line: Most dentist's 2013 federal taxes will go up $2K to $3K. High earners may see taxes go up over $10K, yet nowhere near the $20K-$25K estimated a few weeks ago.
Estate Taxes continue to only apply to estates above $5M for singles and $10M for couples. Many dentists may wish to simplify their bypass trusts, as a lower limit exemption seems improbable in the future. See your tax attorney in 2013!
Investment income will be taxed at 23.8% above family income of $450K.
Note: For any tax-deferred investment income, the change will be zero. For taxable investment income in tax-efficient vehicles such as index funds, the effect will be nominal.
For you traders with high earnings, watch out!
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