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Strategies implemented before your tax liability is set in stone could make you rich in the long run.
A look ahead at possible changes in the tax laws starting in 2013 brings attention to new opportunities and pitfalls created during the past year through court cases, IRS rulings, and lawmakers' political promises. And don't forget, this is an election year, so much of what is on the books for tax purposes could dramatically change in 2013.
INCOME AND DEDUCTION SHIFTING
WHERE WILL TAX RATES BE?
Currently individual income tax rates are 10%, 15%, 25%, 28%, 33%, and 35% for 2012. Under current law, the 10% rate is scheduled to expire after December 31, 2012; the remaining rates are scheduled to revert to 15%, 28%, 31%, 36%, and 39.6% after December 31, 2012, unless they are extended by Congress and signed by the president.
Since 1969, taxpayers have prepared two tax calculations in their personal income tax returns:
For tax years after December 31, 2012, taxpayers will have a third calculation: the 3.8% investment tax. This tax was part of the Health Care and Education Reconciliation Act of 2010. When preparing a return, you will have to plan not only for the investment tax; you also must determine what effect managing the investment tax will have on your regular and minimum tax.
The maximum tax rate on ordinary income for 2012 is 35%. Tax cuts implemented by President Bush and extended by President Obama will expire at the end of this year, increasing the top tax rate to 39.6%. The investment tax would be added on top of that, making the top rate 43.4% in 2013.