We’ve had quite a few discussions this week about taxes, particularly clients surprised about the amount of taxes they owe. This week’s blog highlights major themes of the legislative deal Congress passed Jan. 1, 2013, how you can plan to lower your tax bill through tax-efficient investing, and the new estate planning landscape.
Higher 2013 U.S. taxes surprise some investors. Higher income taxpayers are seeing increased tax bills. A slew of new tax increases took effect. New taxes effective last year include an increase to 20 percent from 15 percent in capital gains and dividends tax for married couples making above $450,000. The new Affordable Healthcare Act imposes new taxes, and itemized deductions are scaled back at increasing levels of income.
The Importance of Tax-Efficient Investing. It’s not what you make, but what you keep after taxes that really counts. With the legislative deal Congress passed Jan. 1, 2013, tax-efficiency has moved to the forefront of investment tax planning. Choosing between investments held in taxable accounts vs. tax-exempt accounts takes on added significance. The good news is that taxpayers can exercise a good deal of control in the investment tax they pay.
Recent tax law changes are turning traditional estate planning on its head. For the types of clients we deal with, in general, estate planning has been turned upside down. The benefit of basis step-up at death takes on increasing importance. Formerly, the use of trusts to shield estates from tax was a dominant approach. Basis step-up essentially shields unrealized appreciation from income tax and is a powerful benefit to be considered in planning. Clients should consider reviewing and revising their estate plans accordingly.
And in case you missed it, click here to read last week’s blog post which answers many questions on social security.
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J. Mark Nickell & Co.
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