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Here is a continuation of my article on TAXMAGEDDON and how it will affect all Americans in 2013. Part 1 is HERE
Third Wave: The Alternative Minimum Tax and Employer Tax Hikes
When Americans prepare to file their tax returns during the 2013 tax season (January through April), they'll be in for a nasty surprise—the AMT won't be held harmless, and many tax relief provisions will have expired. These tax increases will be in force for BOTH 2012 and 2013. The major items include:
- The AMT will ensnare over 31 million families, up from 4 million last year. According to the Tax Policy Center, Congress' failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 31 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.
- Full business expensing will disappear. In 2011, businesses can expense half of their purchases of equipment. Starting on 2013 tax returns, all of it will have to be "depreciated" (slowly deducted over many years).
- Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the "research and experimentation tax credit," but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.
- Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.
- Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual "required minimum distribution." This ability will no longer be there.
Taxmaggedon is due to start January 1, 2013. We are looking at an absolute stalemate with both political parties.. There is just not enough time for congress to make the changes before the end of year, so the IRS can't make any changes. Best hope you've got is to keep up with the news and also sign up and read Ebere's weekly newsletters. We are trying to prepare for something that may or may not happen. It comes down to you as the tax payer, what do you think is going to happen?
Real estate investors – three major changes
Capital Gains Rate is going to increase – From 15% to 23.8% This will affect your deals
AMT – Threshold amount is just $45k per year. Investors could easily exceed this amount.
3.8% surtax will apply to your net investment income (rental income after deductions)
• If you're selling a property with a big capital gain, it's better to sell in 2012 than 2013.
• If you're renting out a property. Make sure you qualify for 'materially participating' – you will not be subject to the 3.8% surtax
• Be careful about what type of business structure you use for your deals. Ebere recommends the Manager managed LLC where you are named as the manager.
• Be sure you are doing planning for AMT and regular tax. If you are subject to AMT you need to do some planning and the planning for AMT is very different from regular taxes.
• If you itemize, even if you don't have a business you still may be facing more taxes because your itemized expenses and exemptions are shrinking.
• If you do a short sale or go into foreclosure on your principal residence , the debt cancellation will be taxable from January 1, 2013. Only way to get out of it is to declare bankruptcy.
• Also you are going to lose deductions for your mortgage insurance premium payments.
These tax hikes also apply to employees:
If you earn over $200k, you're going to face a Medicare surtax on your W2 income as part of Obama care. If you've always done your own tax return and never had to think about it, you're going to get a surprise next year because you're going to pay more taxes.
Stocks and Bonds Investors – You are definitely going to see increases in your taxes.
Dividends are going to be treated the same as other income plus the surtax, almost tripling the amount of tax you pay. Capital gains rates are also going up.
Child tax credit is getting cut in half, education credits are going away, earned income tax credit benefits are going away. The poorer are getting hit the most. Bottom line is if you're a parent you are going to pay more in taxes.
General Strategies to put in place now to protect yourself
We decided to share what will happen in 2013 now rather than in December or January so you can be better prepared to deal with the largest tax increase in the history of this country. So prepare yourself to have less money from your paycheck.
You MUST watch my short webinar on this topic which explains how 2013 will mean more taxes for YOU and how you protect yourself from Uncle Sam. Watch it HERE
Here are some recent questions from my blog:
Question: Can I tithe or give regularly to missions from my business?
Answer: Yes, but it is still a deduction you get on your personal tax return not the business tax return.
Question: Can I take out money for a life insurance payment for the owner from the business?
Answer: Yes but it will not be deductible if it is not Keyman's insruance
Question: The only money that I have been taking out of the business has been to slowly pay back the initial loan that I gave to the business, and monthly expenses. I haven't taken out anything in 'cash' or salary. How do I prepare my quarterly taxes?
Answer: You still have to pay taxes on the net income regardless of any distributions (withdrawals). So if you made net income of $50k for the year but only took out $10k, you are still responsible for paying taxes on the $50k. Also how the $50k is taxed now depends on your entity type .
Our Free Assessment allows you to find out just how much you could have saved over the years, and how much you could save in the future. Assessments can find missed deductions, potential audit triggers and identify compliance and asset protection risk.
For those about to file taxes, we offer a free consultation. Learn how you can legally reduce the amount you pay out, personally, or maximize the financial efficiency of your business as a whole. We also advise on business formation and business restructuring.
At the Wealth Building CPA we teach our students how to become savvy and wealthy investors without making costly mistakes. Our many articles, webinars and podcasts demonstrate how to use money and tax strategies to maximize profits and minimize losses. This aggressive approach will fast track you to financial success. We implement a lot of the teachings from renowned real estate and wealth building experts such as: Robert Kiyosaki, Robert Allen, Scott Scheel, Ron Legrand, Zig Ziglar, Carleton Sheets, David Lindahl, Robert Shemin, Dave Ramsey and many more.
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