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Integrated Wealth Management

3 New Stealth Taxes Could Trip You Up

Thanks to new provisions in the recently signed taxpayer relief act, the standard IRS tax rate tables will mean very little to you if you have a higher income in 2013 and beyond. Three particularly sneaky taxes are the:

  1. Itemized Deduction Phase-out ("Pease Limit")
  2. Personal Exemption Phase-out (“PEP”)
  3. Medicare 3.8% surtax on investment income.

All 3 are described briefly in my last post on the new tax legislation.

Because of the added complexity these rules bring, it is crucial your tax plan include them or you could wind up with some unexpected penalties around this time next year. Here are some situations where these taxes could affect you, and what you could do about it:

Dual Income Household

The problem: Neither one of your employers knows what your spouse makes or what other income your household has – so they may not be withholding enough for taxes from your payroll.

One Answer: Make a tax plan that takes all your income into account and either modify your payroll withholding or make quarterly estimated tax payments. Work with your advisor or try this calculator suggested by the WSJ.

Rental Property, Other Investment Income, or Retirement Plan Distributions

The problem: The new rules take into account your wages, investment income (dividends, royalties, rents, interest, etc.), and distributions from qualified retirement plans to determine if any of your investment income is subject to the new Medicare surtax.

One Answer: Assuming your tax plan shows that the 3.8% tax applies, use any deductions or expenses at your disposal to reduce your adjusted gross income – such as business losses, rental property expenses, capital losses, and retirement plan contributions.

Family or Charitable Gifts

The problem: You want to support a family member or charity, but would have to cash out a highly appreciated stock (e.g. Apple) and are concerned about the tax impact.

One Answer: Give the Apple stock directly to the family member or qualified charity – they can then potentially sell the stock with little or no applicable tax. If giving to a family member, be sure that the gift and subsequent sale would not disqualify them for financial aid or other program.