On January 1, 2014, twenty new or higher taxes brought on by Obamacare will be imposed upon Americans for the first time. In light of these changes to the tax law and increases in individual income tax rates, there are several planning opportunities that need to be considered before year end.
Five of the worst new, or increased, taxes are:
- The Obamacare Medical Device Tax – a $20 billion tax increase on medical device manufacturers which will increase the cost of your health care, making everything from pacemakers to prosthetics more expensive.
- The Obamacare “Special Needs Kids Tax” – a $13 billion tax increase on up to 35 million Americans who use Flexible Spending Accounts (FSA) at work to pay for their families’ basic medical needs.
- The Obamacare Surtax on Investment Income – a $123 billion tax increase on investment income earned in households making at least $250,000 ($200,000 single).
- The Obamacare “Haircut” for Medical Itemized Deductions – a $15.2 billion tax increase most affecting those with modest incomes but high medical bills.
- The Obamacare Medicare Payroll Tax Hike – an $86.8 billion tax increase on wages and self-employment profits exceeding $200,000 ($250,000 in the case of married couples).
Individuals and businesses should consider employing the following strategies to plan ahead for these taxes:
- Taxpayers may consider using carryforward losses from 2012 by recognizing capital gains to the extent of the available carryforwards.
- Hold capital assets for more than 12 months before disposing them to avoid short-term capital gain treatment taxed at the higher marginal rate.
- In light of the new Net Investment Tax, careful consideration should be given to keeping threshold income below the levels at which Net Investment Tax will apply. This can be achieved by spreading income over a number of years or offsetting the income with above-the-line deductions. All investment income should be monitored for exposure especially for individuals with income from passive activities.
Because the highest rate for estates and trusts starts at a relatively low level of taxable income ($11,950 in 2013 and $12,150in 2014), executors and trustees should consider making distributions to beneficiaries before year-end, which generally will pass that amount of taxable income through to those beneficiaries and escape tax at the comparatively high estate/trust level.
Businesses seeking to maximize tax benefits for 2013 tax planning should use traditional timing techniques to accelerate deductions and defer income. There should also be special considerations given to utilizing incentives such as Section 179 deduction, Special Bonus depreciation, Work Opportunity Tax Credit and many other provisions available through the end of 2013.
Olga Ovnanyan, CPA, is founder of the JSB Group. Olga has more than 18 years of experience in all phases of public accounting. Olga previously served as a staff auditor for BDO before joining Deloitte. Olga’s areas of concentration include consulting and planning work for high net worth individuals and estate planning. She provides accounting, tax and advisory services for businesses, business investors and individuals. She also works with U.S. individuals living abroad and on U.S. taxation of resident/nonresident aliens. For more information, contact Olga Ovnanyan at 312-375-1418 orhttp://www.jsbgroupcpa.com.