Friday, September 28, 2012

Municipal Bonds

For people who will be subject to the 3.8% Medicare surtax ("rich" people), tax exempt municipal bonds could be attractive. Interest rates are low, of course, but some people will choose them for safety and tax advantage.

Wednesday, September 26, 2012

New Year Plans

     People with incomes over $200,000 (single) or 250,000 (married)--after various adjustments of course--who are thinking of disposing of assets with potential capital gains will be considering whether to dump them before 2013 to avoid the new Medicare surtax that will go into effect then. The surtax is 3.8%, and it applies only to people in upper income brackets as mentioned above.
     There are always people selling businesses, real estate, etc., and it is certain that some people who have deals in the works are rushing to get them finalized before the stroke of midnight on December 31. Some people, too, who have stocks which they plan to sell are going to make sure they sell them before that witching hour. Also, accountants will be crunching numbers and potential sellers will be weighing circumstances to determine if avoiding the surtax will outweigh other potential costs or effects of accelerating the sale. Each case will be different; there may be many considerations involved. It is pretty sure, though, that it will mean extra work for some stock brokers, financial advisers, accountants and their clients. It could contribute to some extra volatility in the stock market at the end of the year.
     There is also a pending tax increase of 5% for the actual capital gains tax that is supposed to take effect in 2013.  There is a chance that it will be eliminated before it takes effect--at least many people are hoping so--but for now it is still scheduled.

Friday, September 21, 2012

Medicare and Self-Employment

Self-employed people who have reached age 65 and are paying Medicare premiums (usually deducted from Social Security benefits) can deduct them on page one of form 1040 as Self-Employed Health Insurance. (This was line 29 on the 2011 form 1040.) This had been a bit of a fuzzy area for taxpayers and tax professionals alike for the last few years, but the IRS recently confirmed that it is OK.

Tuesday, September 18, 2012

Inheriting an IRA

A person who inherits an IRA should be aware that there are a lot of complicated rules involved with such IRA's, and they should seek professional advice on how to handle them. For example, there are rules about how long you can keep the money in the IRA after inheriting it, depending on whether the beneficiaries are all individuals, or if some are non-profit organizations. Also, care should be taken if you are rolling over an inherited IRA. It must be rolled over directly into the recipient IRA, not paid to an individual first, as can be done with the usual IRA rollover. Professional help can sometimes steer you clear of an unnecessary tax hit.

Sunday, September 9, 2012

Medical expense threshold to rise in 2013

People who deduct medical expenses as part of their itemized deductions will have a higher bar to hurdle next year. Currently (including tax filing for the year 2012) taxpayers must deduct 7.5% of their Adjusted Gross Income (AGI) from their medical expenses before deducting them. For many, this means that their medical expense deduction is totally wiped out. For their 2013 taxes, they will have to deduct 10% of their AGI, probably wiping out even more people's medical deductions. Note: this change does not affect people over 65 years old, for now. People over 65 will be affected starting in 2017. This is a provision of the Affordable Care Act, AKA Obamacare.