This week, we think it fitting to share Mick Higley’s “By The Number$” synopsis as we head into 2013. Mick is a respected industry analyst, publisher and friend of CIC Services, LLC. While a deal on the fiscal cliff has apparently been reached between President Obama and House Republicans, many of the tax increases outlined below will still take effect in 2013 (particularly for business owners.)
- TAXES – The “Bush Tax Cuts” (BTCs) were to expire on 12/31/10, only to be extended through 12/31/12. Effective 1/01/13, the BTCs expire and the top marginal individual tax rate reverts back to 39.6% from its current 35% level. The expiration of the BTCs will increase federal income receipts by $285 billion in 2013 (source: Congress).
- LONG TERM HOLD – The top tax rate in 2012 on long-term capital gains is 15%. That top tax rate will increase to 20% as of 1/01/13. The top tax rate for high-earners on long-term gains will actually rise to 23.8% because of the new 3.8% tax on net investment income for wealthy American taxpayers (see bullet # 4) (source: Congress).
- DIVIDENDS – The top tax rate on dividend income is 15% in 2012. This rate will jump from 15% to 39.6% as of 1/01/13, not counting the 3.8% tax (see bullet # 4) on net investment income (source: Congress).
- OBAMACARE – A new 3.8% tax on dividends (this tax will also apply to other forms of unearned income) as a result of Obamacare is effective on 1/01/13. There is an income test on this “Medicare Contribution Tax” that causes only taxpayers with a modified AGI of at least $250,000 (joint return) to pay this tax (source: Congress).
- MORE INCOME TAXES – Obamacare also will bring about a Medicare Tax increase of 0.9% effective 1/01/13 on joint taxpayers reporting at least $250,000 in AGI and single returns with at least $200,000. This takes the existing 2.9% Medicare Tax (which is 1.45% each for employee and employer) up to 3.8% (source: Congress).
- AUTOMATIC – The first of 9 years (2013-2021) of automatic spending cuts totaling $1.2 trillion starts 1/01/13. The reduction to defense spending for the remaining 9 months of fiscal year 2013 is $55 billion (equal to 8% of defense spending), matched by $55 billion of spending cuts in discretionary spending (source: CBO).
- PHYSICIANS – Doctors servicing Medicare patients will suffer a 26.5% cut in payments unless Congress adopts a temporary fix, a solution that Washington has implemented every year since 1997 (source: Congress).
- PAYROLL TAXES – The reduction in employee payroll taxes (from 6.2% to 4.2%) that has been in place for the last 2 years (2011-12) expires on 12/31/12. The bump in payroll taxes (which supports Social Security) by 2% will increase taxes by an estimated $125 billion in 2013 (source: Congress).
- ESTATE TAXES – The federal estate tax exemption will decrease from $5.12 million to $1.0 million as of 1/01/13. The tax rate above the exemption will increase from 35% to 55% and would impact an estimated 40,000 estates in 2013 compare to only 4,000 taxable estates in 2012 (source: Congressional Research Service).
- AMT – Congress has consistently passed an inflation-indexed adjustment of the personal exemption for the alternative minimum tax (AMT) to protect middle-class families from the tax, something not done in 2012. Without the AMT “patch,” the tax will hit 34 million households in 2012 (from 4 million in 2011). Failure to pass the AMT exemption will lead to delayed tax filings and refunds for 100 million households because a taxpayer that might be subject to the AMT will not be able to file a return while the IRS overhauls its computer programs (source: IRS).
- JOBLESS BENEFITS – 2.1 million out-of-work Americans lost their federally extended jobless benefits on Saturday 12/29/12 because Congress did not extend the unemployment benefits. Extending these unemployment benefits would cost taxpayers $30 billion a year (source: Congress).
- HEALTH CARE – US states had until 12/14/12 to decide how they’ll set up health-insurance exchanges by 2014, i.e., a website where consumers would choose a health plan. 18 states elected to set up their own state-run exchange, 7 states decided to partner with the federal government to create an exchange, and 25 states are going to let the Federal government run their exchange (source: Health and Human Services).
- TODAY – Treasury Secretary Tim Geithner told Congress on Wednesday 12/26/12 that the US government would hit its $16.394 trillion debt ceiling on Monday 12/31/12 (source: Treasury Department).
- MUNI BONDS – Congress is considering federal income taxation of municipal bond income. One idea is to limit the tax exemption on municipal bond interest income at a 28% rate. States and municipalities have protested that a federal tax on state and local bonds could lead to reduced services or higher taxes (source: BTN Research).
- NEW CPI – The proposed change in the way the CPI is calculated not only lowers future Social Security benefits but it would also result in higher tax revenue because the new CPI would result in smaller year-to-year changes for indexing tax brackets. The changes are estimated to be worth $365 billion over 10 years (source: Congress).
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Copyright © 2012 Michael A. Higley. All rights reserved. Email firstname.lastname@example.org for information.
Past performance is not indicative of future results.
Data as of 6pm ET 12/28/12. Please consult a tax professional for advice.
Perspective on “The Numbers”
All indications are that insurance costs, regulations and taxes will all increase in 2013. For many small businesses, the most efficient strategy to address the impact of increasing insurance costs, regulations and taxes is for a small business to own its own insurance company. If your business owns its own insurance company – known as a captive insurance company – look for opportunities to utilize it more in 2013. If your business does not own its own insurance company, give serious consideration to forming a captive insurance company in 2013.
CIC Services, LLC manages over 20 captive insurance companies. Our firm has worked with business owners seeking greater control over risk management, insurance costs, regulations and taxes. Contact us to discuss if owning your own insurance company is the right move for your business.
Phone – 865- 386-4920
E-Mail – Tom@CICServicesLLC.com
Web – www.CICServicesLLC.com