Dramatic tax increases scheduled

Dramatic tax increases scheduled to go into effect in 2013 make 2012 tax planning imperative. The following taxes may be impacted:

  • Not only are the Bush Administration tax cuts set to expire, but a new 3.8% surtax on investment income and a possible reinstated claw-back of itemized deductions could raise the tax rate on ordinary income to as high as an effective 44.6% for some taxpayers.
  • Similarly, the tax rate on long-term capital gains could increase from 15% to 20% and the rate on qualified dividends from 15% to an effective 44.6%.
  • Finally, if Congress doesn’t take action, the federal estate tax rate will increase from 35% to 55% and the exclusion amount will drop from $5,120,000 to $1,000,000.

Planning for these likely tax changes is a major undertaking and many clients are beginning the process now rather than waiting for the fall elections. This is prudent because the additional time will allow you to become comfortable with the gifting process and provide time to custom design trusts for your family.