The Wall Street Journal
Weekend Investor – January 11, 2014
Taxes: What’s New This Season
Seven changes that could make a big difference to your bottom line.
By Bill Bischoff
Taxpayers are about to start filing the first federal returns that reflect changes hammered out during policy battles in Washington in recent years. Here is what you need to know about seven changes for the 2013 tax year that could have a significant impact on your bottom line.
• Higher top tax rates on income, capital gains and dividends.
• Medicare surtax on investment income for some taxpayers.
• Medicare surtax on salary and self-employment income for some taxpayers.
• Exemptions curtailed for some taxpayers.
• Itemized deductions curtailed for some taxpayers
• Higher threshold for itemized medical deductions.
• Married same-sex couples must file as married taxpayers.
Comments January 11, 2014
Surprise – Higher Taxes! When you file your 2013 tax return you may be unpleasantly surprised to find you owe more taxes than you did when you filed your 2012 tax return, even though you earned the same amount of income, capital gains and dividends. The combination of higher income rates and investment surtaxes along with the reduction or elimination of deductions and exemptions are all designed to fill the government’s coffers at your expense.
One critically important weapon to fight taxes is tax diversification. The basic premise of tax diversification is maintaining exposure to taxable, tax free and tax deferred accounts. Since the U.S. and various states Treasury departments refuse to publish future tax rates investors cannot plan with certainty what their future obligations may be, so they must diversify their tax risk. As recently as 1980, the top federal marginal income tax rate (TFMITR) was 70%.
For example, a 50 year old executive could maximize his 401(k) account by contributing $23,000, while his 50 year old wife maximizes her 403(b) account by contributing $23,000 and her 457(b) account by contributing $23,000. The combined $69,000 in retirement plan contributions would reduce their adjusted gross income (AGI). This would create a positive domino effect. Their reduced AGI would reduce their income tax rate, avoid investment surtaxes, avoid exemption phaseouts and avoid itemized deduction phaseouts. Surprise – Lower Taxes!
Aaron Skloff, AIF, CFA, MBA
CEO – Skloff Financial Group
Aaron Skloff, Accredited Investment Fiduciary (AIF), Chartered Financial Analyst (CFA), Master of Business Administration (MBA), is the Chief Executive Officer of Skloff Financial Group, a Registered Investment Advisory firm. The firm specializes in financial planning and investment management services for high net worth individuals and benefits for small to middle sized companies. He can be contacted at www.skloff.com or 908-464-3060.