Gary Boatman: Tax code just got even more complicated
By Gary Boatman
Published: Wednesday, March 6, 2013, 12:01 a.m.
Many people are in the process of completing their 2012 tax forms.
At this stage, about the only thing you can do to reduce last year's taxes is to make a contribution to an IRA if you can and have not yet filed your return. If you want to save on next year's taxes, you must plan now. The Internal Revenue Service is running way behind, because it did not know which tax rates or laws Congress would change. Because of this, the IRS waited to update its systems and publish forms.
The IRS has also slowed down the process because there were hundreds of millions dollars of fraud last year from people filing fake returns. Some people will have to deal with new Medicare taxes starting this year. They were part of Obamacare that narrowly survived a 5-4 Supreme Court decision last year.
There is Net Income surtax for single tax filers earning $125,000 and joint filers earning $250,000. This surcharge is on top of regular tax rates. It is an additional 3.8 percent. This tax is assessed on taxable interest, dividends, rent, taxable annuities, royalties and net capital gain, includes a gain passive income and a business trading in financial instruments. Homes sold for more than specific limits and most trust and estates. If you take a withdrawal from your IRA or 401K, you could be subject to these taxes.
An additional 0.9 percent Medicare tax could be added to these same people. Medicare taxes normally stopped when you reached a certain income. This is no longer true for these tax payers. It is important to remember individuals earning more than $85,000 per year already had to pay more for their Medicare even though they contributed more. There have been phasing out of deductions and credits for higher income people. Plus the fiscal cliff settlement raised tax rates again. The only way to get enough dollars to support the runaway spending is to raise the middle class like you and me.
There is something that you can do to try to avoid the 3.8 percent surcharge. Tax exempt interest is not subject to this tax. You must be careful of locking in low interest rate debt if we have a bond bubble. Credit worthiness of the issuer must also be considered. Many people have been buying dividend-paying stocks to try and survive the low interest rate. These dividends might make you go over the threshold. If you are still working, maybe you can contribute more to your qualified plan at work. This could reduce your gross income.
You may be able to defer income by putting investments that generate unearned income into tax deferred accounts. Roth withdrawals do not count toward these limits. Sometimes, you can time your income through something such as deferred compensation. Be sure of the credit worthiness of the debtor. You may be able to covert passive income to earned income. Some business owners might be able to take additional salary instead of profit distributions. This could make the payments possibly subject to FICA tax.
If you are selling an asset, maybe you can use an installment sale. If you spread the income over several years, you may be able to stay below the limit. Section 529 plans and Coverdell Education Accounts are exempt. These are ways to save for college expenses. Charitable Trust might work as well as planned distributions from trust. The already complicated tax code has gotten harder. Start planning now for next year to save on taxes.
Gary Boatman is a certified financial planner and local businessman who serves as president of the Monessen Chamber of Commerce.
Show commenting policy
TribLive commenting policy
You are solely responsible for your comments and by using TribLive.com you agree to our Terms of Service.
We moderate comments. Our goal is to provide substantive commentary for a general readership. By screening submissions, we provide a space where readers can share intelligent and informed commentary that enhances the quality of our news and information.
While most comments will be posted if they are on-topic and not abusive, moderating decisions are subjective. We will make them as carefully and consistently as we can. Because of the volume of reader comments, we cannot review individual moderation decisions with readers.
We value thoughtful comments representing a range of views that make their point quickly and politely. We make an effort to protect discussions from repeated comments either by the same reader or different readers.
We follow the same standards for taste as the daily newspaper. A few things we won't tolerate: personal attacks, obscenity, vulgarity, profanity (including expletives and letters followed by dashes), commercial promotion, impersonations, incoherence, proselytizing and SHOUTING. Don't include URLs to Web sites.
We do not edit comments. They are either approved or deleted. We reserve the right to edit a comment that is quoted or excerpted in an article. In this case, we may fix spelling and punctuation.
We welcome strong opinions and criticism of our work, but we don't want comments to become bogged down with discussions of our policies and we will moderate accordingly.
We appreciate it when readers and people quoted in articles or blog posts point out errors of fact or emphasis and will investigate all assertions. But these suggestions should be sent via e-mail. To avoid distracting other readers, we won't publish comments that suggest a correction. Instead, corrections will be made in a blog post or in an article.
- Donora woman dies in fire
- New life for expressway?
- Photo gallery: Santa visits Monessen Civic Center, Belle Vernon church
- Restaurateur’s roots planted in Mon Valley
- 2 Mon Valley educators up for state’s Teacher of the Year honor
- Sellew: Enough of Mike Tomlin already
- California cop facing assault charge
- Confederate Cabinet focus of Cal U’s Civil War roundtable
- Tenuta sisters shine as Pitt Golden Girls
- Mother’s suspicion leads to 4 arrests in Charleroi thefts
- California police looking for New Eagle woman