2013 tax increases for income tax and estate tax

By Jeffrey Brooks, CPA, CFP, MBA for Jbrooks Wealth Advisors, PC, a Professional CPA and CFP Firm jeff@jbrookswa.com 602-687-9900 x101 Please consult with your professional tax CPA regarding your specific circumstances!

When we help clients with 2012 tax planning, we are keeping our eyes on 2013 too! Unfortunately due to the election results, tax rates are increasing.

Income taxes are higher than most other expenses that you will have in 2013.

I have changed the names of the clients to protect their privacy.

New 3.8% Additional Medicare Tax; Potential Reduction In Estate Tax Exemption

Dear Jon and Mary,

As you know, our CPA firm likes to be proactive in tax planning with our clients. If the Bush-era tax cuts expire at the end of 2012, there will be dramatic tax increases for some clients. Amongst the changes scheduled for 2013 are:

• Reinstatement of the 36% and 39.6% income tax brackets.

• Qualified dividends taxed at ordinary income tax rates.

• Long-term capital gains taxed at 20%.

Also, the Affordable Care Act (new health care law) tax provisions include a new 3.8% surtax on net investment income. This will impact many individuals’ tax rates on dividends, interest, capital gains, and/or rental income (PAGI – passive activity gross income).

The New 3.8% Additional Medicare Tax On Net Investment Income

Starting in 2013, the Affordable Care (Health Care Reform) Act tax law provisions impose a new 3.8% additional Medicare tax on net investment income. This tax applies to clients who have modified adjusted gross incomes (MAGI) above:
Category MAGI Threshold
Married Filing Jointly $250,000.
Single $200,000.
Married Filing Separately $125,000.

The tax rate (3.8%) is applied to the lesser of: (1) net investment income; or (2) the excess of MAGI over the MAGI thresholds above. The tax also applies to certain estates and trusts.

Tax Planning

There are a number of tax planning techniques that may help you with this new 3.8% additional Medicare tax. For example, if you are considering the sale of a vacation home, you could sell it in 2012 instead of 2013 to avoid the 3.8% tax. Remember, tax planning is complex and thus, it is important for you to meet with us before taking any action (eg: to do multi-year tax projections).

There are a number of other tax changes that also need to be examined. For example, if the Bush-era tax cuts expire at the end of 2012, the estate tax exemption will reset back to $1,000,000 from the current amount of $5,120,000. Many clients are currently engaging in strategies (eg: gifts; gifts into trusts, Grantor Retained Annuity Trusts, Dynasty Trusts, etc.) to utilize the tax benefits available right now. Again, tax planning in this area is complex and requires careful analysis before taking action.

Very truly yours,



Jeffrey I. Brooks*, CPA, CFP, MBA,
JBrooks Wealth Advisors, PC.
4647 N. 32nd Street Suite B245
Phoenix, AZ 85018
Phone: (602)687-9900 x101
Fax: (602)467-3040
Email: jeff@jbrookswa.com
“for a wealth of useful information, visit our website at www.jeffbrookscpa.com”

*This transmission is intended for the named addressee(s) only and may contain confidential and privileged information. Reading, copying or disseminating this transmission by anyone other than the named addressee(s) is strictly prohibited. If you have received this message in error, please notify us immediately by reply e-mail or phone at (602)687-9900.

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About Jeffrey Brooks

Jeffrey Brooks, CPA, CFP, MBA since 1976 has specialized in helping clients save significant taxes, help businesses increase their cash flow, revenues and profits while increasing their control and satisfaction. Jeff and his accounting firm sincerely cares about the happiness of his clients.

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JBrooks Wealth Advisors, PC.

Certified Public Accountant
Address: 4647 N 32nd Street, Suite B245
Phoenix, Arizona 85018
Phone: 602-292-2009
Email: jeff@jbrookswa.com