Unless Congress acts prior to year end, a variety of taxes will increase automatically on January 1, 2013. Income tax rates and capital gain rates will increase on January 1.
A new 3.8% Medicare tax comes into effect on January 1, 2013. The new Medicare tax is imposed on is imposed on investment income in excess of certain thresholds (adjusted gross income of $200,000 single/$250,000 married). Investment income includes income received from rents, stocks, bonds, mutual funds and other investments. Income that is derived in the ordinary course of a trade or business is not included. Taxpayers should review investment portfolios, asset structure, and business structure to minimize the impact of the new tax.
The estate tax exemptions for gifts during life or at death and the generation skipping transfer exemption will decrease from $5.12 million to $1.0 million, $1.0 million and $1.4 million respectively. Those with assets in excess of $1.0 m should at least review and consider planning options prior to December 31, 2012.
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