Tax Planning 2013

As the federal budget debate continues, uncertainty will continue to surround tax policy. This article highlights changes in the law affecting tax year 2013 to help you with tax planning strategies.

The new law permanently extends Bush era tax cuts for most taxpayers, starting in 2013.

Tax increases for certain taxpayers: 

Tax area Details Who is affected?
Social Security   payroll tax Increases from 4.2   percent to 6.2 percent on wages and salaries up to $113,700. All taxpayers earning   salary and/or wages.
Ordinary income taxes Highest marginal tax   rate increases from 35 percent to 39.6 percent. Taxpayers with taxable   income over $400,000 ($450,000 for couples).
Long-term capital   gains and dividend taxes Maximum tax rate   increases from 15 percent to 20 percent. Taxpayers with taxable   income over $400,000 ($450,000 for couples).
Phase-out of itemized   deductions and personal exemptions Tax benefit of   itemized deductions (mortgage interest, charitable donations, property taxes,   state and local income taxes, etc.) and personal exemptions, e.g., dependent   children, are reduced as income increases. Itemized deductions are reduced as   much as 80 percent and personal exemptions may be eliminated. Taxpayers with   adjusted gross income (AGI) above $250,000 ($300,000 for couples).


Federal estate taxes remain low.

Estate tax law provisions: 

Estate tax item Impact of legislation
Exemption amount The $5 million   exemption amount for estates, gifts and generation-skipping transfers is made   permanent and indexed for inflation ($5.25 million in 2013).
Maximum estate tax   rate Increases from 35   percent to 40 percent.
Portability The provision that   allows a surviving spouse to use a deceased spouse’s unused exemption is made   permanent.


Annual gift tax exclusion rises to $14,000 per person.

For Maryland residents, there is a state estate tax and the exemption is $1 million. 

Provisions affecting retirement accounts: 

The law reinstated a provision for IRA account owners aged 70 ½ and older that allows for a tax-free IRA distribution to be made directly to a qualified charity up to a maximum of $100,000 per year.  This provision expires at the end of 2013.

How does the 3.8 percent Medicare surtax work? 

Who will be affected by the tax? Individual taxpayers with more than $200,000 in modified adjusted   gross income (MAGI) or couples with more than $250,000 in MAGI.  For trusts and estates, the income   threshold is $11,950,
What type of income is subject to the tax? Investment income, including taxable interest, dividends, capital   gains, rental income, royalties, a taxable portion of income from   non-qualified annuities and income resulting from a business activity where   the taxpayer is not considered an “active” participant.
What income is NOT subject to the tax? Interest income from municipal bonds is exempt from the 3.8 percent   surtax, as well as distributions from retirement accounts like IRAs, 401(k)s   and the TSP.  However, income from   retirement distributions may cause a taxpayer to exceed the income threshold   and expose other investment income to the surtax.


Not all provisions in the new tax law are covered in this article.

Outlook on taxes going forward:  Is “permanent” really permanent?

Although the new law makes many tax rates and provisions permanent, it is still prudent for investors to prepare for potential tax increases.  Given the nation’s fiscal pressures, it is conceivable that there will be additional legislation to address the federal budget deficit that will include more sources of tax revenue.  Against this backdrop, tax diversification and tactical, tax-smart planning strategies and investment solutions will be critical.  I encourage investors to work closely with financial advisers and tax professionals to explore strategies that may benefit their individual situations.

Russ Cesari, CFP, ChFC,  CASL,  wealth adviser, can be reached at 800.269.2156, ext. 124, or at [email protected]

Securities and Advisory Services offered through LPL Financial, a registered investment adviser, and member, FINRA/SIPC. 

The contents of this article are intended to provide a general guide to the subject matter; it is not meant as tax advice and should only be considered a summary of complex tax rules. Please consult with the appropriate tax professional regarding your particular circumstances and the suitability of these strategies before making any decisions. Questions relating to this article should be addressed to [email protected]


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