Start planning for tax hikes now

In the latest issue of Forbes (yes, I am still getting it for free), there is a nice summary of what to do between now and 2013 to try and minimize any effects of the tax hikes that will be hitting all of us.

There will be a new 3.8% "Medicare" tax on investment income and 0.9% Medicare tax on wages.

Here are some of the key points:

• Next year, money in FSAs, Health Savings Accounts, and Health Reimbursement Accounts may no longer be used for over-the-counter medications  unless your doctor has prescribed you to take them.
• In 2013, the maximum you can place in an FSA will be decreased to $2,500 per year. 
• In 2013, there will be an additional 0.9% Medicare tax on gross compensation (before any retirement contributions) above $200,000 (individuals) or $250,000 (couples).  
• In 2013 there will also be a new 3.8% surtax on investment income for individuals with more than $200,000 in adjusted gross income and $250,000 for those filing jointly.  This will apply to interest, capital gains, annuities, rents, royalties, passive activity income, and dividends.  Except will be retirement account distributions, capital gains from selling your principal residence and business income from a venture.  It will also affect trust income more than $11,200 that you do not distribute.
• In case you were planning to sell some of your long-term investments in future years for a major bill, consider selling them before the capital gains rate increases. Depending on your tax bracket, your long-term capital gains rate could be going from 0% to 10-20% or from 15% to 20%. Click here to view the table on Wikipedia

The Forbes article has a nice graph showing what the Capital Gains and Income Tax Top Rates have been from 1960 to the present and in the coming years.  Click here to view that graph.

For more details, click here for the article.

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