Visit our News page for regular updates on tax regulation and the latest developments at our firm.
We keep you informed of the most important changes:
Tax rates extended—for most taxpayers. Thanks to repeal of the so-called “sunset” of the Bush-era tax cuts, the new law makes the 10%, 15%, 25%, 28% 33% and 35% tax brackets permanent. However, the new law adds a higher 39.6% bracket, which begins at $400,000 for singles, $425,000 for heads of households, $450,000 for joint filers and surviving spouses, and $225,000 for marrieds filing separately for 2013. [IRC §1(i)]
The new law permanently extends the 0% tax rate on capital gains and qualified dividends for taxpayers below the regular 25% bracket, as well as the 15% rate for other taxpayers. However, the law adds a 20% rate for gains falling in the new 39.6% bracket. [IRC §1(h)]
Double whammy. Another tax law change will further increase the tax bite on capital gains and dividend income for higher income taxpayers. A new Medicare contribution tax on net investment income (including qualified dividends and capital gains), which was enacted by the 2010 health care law, takes effect starting this year. [IRC §1411] The tax is imposed at a rate of 3.8% on the lesser of (a) net investment income or (b) the excess of modified AGI above a threshold amount. The threshold is $250,000 for joint filers ($125,000 for marrieds filing separately) or $200,000 for other filers. So, for example, a single filer with $50,000 dividends and capital gains of income falling in the new 39.6% rate bracket will see the tax on that income rise to 23.8%. For taxpayers with dividends and gains below the 39.6% bracket but above threshold amount, the tax bite will increase from 15% to18.8%.
Please schedule an appointment to learn more about important changes in tax law.