With proposed federal spending cuts and the expiration of some lower tax provisions, you can expect to pay more taxes in 2013. If Congress allows the nation to jump over the so-called “fiscal cliff,” consisting of tax hikes and spending cuts scheduled to begin in January, we could be in for a recession.
Starting in 2013, you can expect to see
- The top federal income tax rate jump from 35% to 39.6%.
- The maximum rate applied to long-term capital gains will increase from 15% to 20%.
- Qualifying dividends, currently taxed at lower long-term capital gain rates, will be taxed as ordinary income.
- The elimination of the 2% payroll tax cut for Social Security.
- Decreased exemptions and increased tax rates for the federal estate and gift tax.
- A dramatic increase in the number of people subject to the Alternative Minimum Tax.
The non-partisan Tax Policy Center estimates that taxes will increase by about $3,500 per household, translating to a reduction of after-tax income of about 6%. The study finds that the lowest-income earners would be hardest hit by the expiration of existing tax breaks which include the expanded earned income tax credit, the child tax credit for working families and the $2,500 credit for college tuition, which decreases to $1,800 for two years, instead of the previous four.
Also coming in 2013 are two new taxes: the hospital insurance (HI) portion of the payroll tax– the Medicare portion–will increase by 0.9% for high-wage earners as well as a new 3.8% Medicare contribution tax to be levied on the net investment income of higher-income individuals.
The Congressional Budget Office predicts that approximately 80% of Americans will feel the impact of the fiscal cliff. Now may be a good time to consult with your tax professional to discuss how these measures will affect you and whether a real estate investment might help offset some of the effects on your financial situation.
If you are interested in learning more about investment properties in Breckenridge, Frisco, Dillon or anywhere in Summit County, please feel free to email me at [email protected] or call me at (970) 390-9311.
The information contained herein is for general education purposes and is not intended to be used or interpreted as specific legal, tax or investment advice. Consult your tax advisor or attorney regarding tax issues specific to your circumstances.