The US Tax Shock

People generally don’t bother about changes in tax laws until they are ready to file their returns. However, this approach poses a big risk, especially when it is realized at the last minute that the tax bill could have been considerably lower only if some effort had been put in earlier to understand the implications of the new changes and take remedial actions.

Hidden Tax Hikes for 2013

The Congress resolved several tax related issues which has led to a hike in taxes for many Americans. However, not many are aware of these hikes yet. The one change that may impact most tax payers is the end of the 2% cut in social security taxes. The other tax hikes which are complicated and not as broad based may affect certain sections of tax payers. Some of these are a new top rate for long term capital gains and dividends, a new top income tax rate, phasing out of a couple of tax benefits, and a new inflation adjustment to the alternative minimum tax among others. It is expected that the top 1% of the tax payers will be the most affected lot although others could be affected too depending on their total income level including those from investments.

Things to be aware of

The following are some of the new tax changes.

  • There is a new Net Investment Income Tax of 3.8% that applies to the amount above the threshold of $250,000 of aggregate gross income (AGI) for couples and $200,000 of AGI for single filers.
  • The Personal Exemption starts phasing out for couples and single filers with AGIs of $300,000 and $250,000 respectively.
  • Medicare Payroll tax will increase by 0.9% for joint filers with an AGI of above $250,000 and $200,000 for single filers.
  • The Pease limit disallows 3% of itemized deduction for the same thresholds as those for Personal Exemption.

Some ways to minimize the impact of the above changes would be to contribute more towards 401K, minimize AGI, give out gifts, donate to charity, maximize deductions, and make use of tax breaks.

only if some effort had been put in earlier to understand the implications of the new changes and take remedial actions.

Hidden Tax Hikes for 2013

The Congress resolved several tax related issues which has led to a hike in taxes for many Americans. However, not many are aware of these hikes yet. The one change that may impact most tax payers is the end of the 2% cut in social security taxes. The other tax hikes which are complicated and not as broad based may affect certain sections of tax payers. Some of these are a new top rate for long term capital gains and dividends, a new top income tax rate, phasing out of a couple of tax benefits, and a new inflation adjustment to the alternative minimum tax among others. It is expected that the top 1% of the tax payers will be the most affected lot although others could be affected too depending on their total income level including those from investments.

Things to be aware of

The following are some of the new tax changes.

  • There is a new Net Investment Income Tax of 3.8% that applies to the amount above the threshold of $250,000 of aggregate gross income (AGI) for couples and $200,000 of AGI for single filers.
  • The Personal Exemption starts phasing out for couples and single filers with AGIs of $300,000 and $250,000 respectively.
  • Medicare Payroll tax will increase by 0.9% for joint filers with an AGI of above $250,000 and $200,000 for single filers.
  • The Pease limit disallows 3% of itemized deduction for the same thresholds as those for Personal Exemption.

Some ways to minimize the impact of the above changes would be to contribute more towards 401K, minimize AGI, give out gifts, donate to charity, maximize deductions, and make use of tax breaks.

Source: http://finance.yahoo.com/news/lower-2013-tax-bill-000800910.html

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