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Jerry Citarella: Beware of 2013 taxes

Posted: December 11, 2012 2:00 a.m.
Updated: December 11, 2012 2:00 a.m.
 

There are times in life, when we look at a situation and simply have to ask, “what happened?” Sometimes we were in control of those situations and sometimes we were not. In the “what happened” example that is quickly approaching us, I can’t really identify whether we were in control of the situation or not. Either way however, we will all be affected. Many will be affected greatly and negatively.

As things stand right now, assuming no changes or resolutions to the looming “fiscal cliff,” we’re going to see some fairly dramatic tax changes. The problem with these changes is there’s not just one, or even two, that might touch the wallets of some people. There are many that will reach deep into the pockets of most people. Yes, even the middle class. Well, I guess only if the middle class has jobs, spouses or kids.

I’m not going to explain the history of the famous fiscal cliff here. You can research that anywhere. What I want to talk about are the taxes, most people are not aware of, that will likely touch you. The difference about me though, is that I’m not telling you just so you can know. I’m telling you so you can do something. Planning can, and should be done, to either reduce, or at least prepare for the added taxes. Whether it’s a planned liquidation or restructuring of assets, maximization of deductible contributions, increased charitable gifts or simply putting more away for the inevitable, something does need to be done.

There are nine changes that are being talked about most. These nine seem to be the most likely to touch most people. You can find a complete list on my website at www.TheTruthHelpsYou.com/Resources but here is a summary to at least give you an idea.

These are pieces of what is set to go into effect January 2, 2013:

- Payroll tax withheld from employees’ paychecks will increase from 4.2 to 6.2 percent.

- Tax brackets will be reduced from six to five, eliminating the lowest bracket of 10 percent and raising all of the other brackets by approximately 3 percent (the 25 percent tax bracket will now become 28 percent and so on).

- The typical capital gains tax will increase from 15 to 20 percent and the zero gain tax for the lowest brackets will be replaced with a minimum of 10 percent.

- The standard deduction for married couples will be reduced by approximately 16.5 percent of what it is currently.

- Personal exemption phaseout would return, eliminating this deduction for higher-income taxpayers.

- Itemized deductions will decrease by 3 percent above a certain threshold effecting higher-income taxpayers.

- The Child Tax Credit will be cut in half from $1,000 per child to $500. (This is a complete credit, not a deduction, costing potentially $500 per child out of pocket).

- Dependent/child care credits will reduce the allowable expenses from $3,000 for one child and $6,000 for two or more children down to $2,400 and $4,800 and reduce the highest credit amount from 35 percent down to 30 percent.

- Reduction of the allowable Estate Tax free passing of assets from $5.12 million in assets down to $1 million in assets and raising the taxable amount from 35 to 55 percent.

You can do the math for your own situation but I assure you that you will not be happy about it. What can you do then? Speak to your tax prepare and a qualified and ethical financial advisor about your options. Don’t wait a day past tomorrow.

Jerry Citarella is the owner of Infinity Wealth Management www.InfinityGoals.com. 23734 Valencia Blvd., Suite 301, Valencia, 661-255-9555, ext. 11. He is also the author of The Truth Helps Series of financial planning books. Citarella’s column reflects his own views and not necessarily those of The Signal. Submit questions to: jcitarella@nextfinancial.com. Securities and investment advisory services offered through NEXT Financial Group Inc. Member FINRA/SIPC. Infinity Wealth Management is not an affiliate of NEXT Financial Group Inc.

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