Smart Financial Moves in Light of Upcoming Tax Law Changes…
Apr 14 2010
Forbes has an excellent article out on some major tax law changes coming up over the next three years…
It talks about key changes in the following areas:
- Flexible Spending Accounts (FSA) restrictions on reimbursement for over-the-counter medications (2011) and setting a $2,500 cap on pre-tax contributions (2013). Note that FSAs are not currently available for Active Duty military members, but available in most private sector companies and to other Federal employees.
- Expiration of the majority of the Bush-era tax cuts (2011)
- Significant increase in the “marriage penalty” for high-income dual wage-earner couples (2013)
- Increase in Medicare tax for high-income wage-earners (2013)
- Capital gains surtax that will affect interest, dividends, capital gains, rental income, royalties and other passive income (capital gains from the sale of a primary residence are exempt) (2013)
- Increase in the threshold of deductible medical expenses from 7.5% of AGI to 10% of AGI for those under 65 (2013). The increase for those over 65 comes in 2016.
Some of the possible financial moves recommended include:
- Moving to muni-bonds for better after-tax yield on your interest-producing investments
- Taking capital gains in 2010 to benefit from the maximum 15% tax bracket currently in place
- Utilizing FSA accounts for things such as LASIK surgery, braces and other expensive items before the $2,500 cap becomes effective in 2013
- Doing a Roth IRA conversion this year
These changes are significant, since they will drive the top tax bracket on capital gains in 2013 to nearly 24% (a 58% increase from current levels) and take the top rate on interest, rent, royalties from 35% to over 43% (a 24% jump from current levels). It is unclear which bucket dividend income will fall into at this time.
While most of these tax changes will have a mild-to-moderate impact on the Active Duty military member, the second career and fully retired face steep potential tax increases. Make sure you consult your tax and financial advisor to see what the best moves for your specific situation are…
Forewarned is forearmed!
Phil Dyer, CFP®, RLP®, CPCC
