U.S. Tax Information:

  Links to Tax authorities:

IRS

U.S. Securities and Exchange Commission

State Department of Revenue Web Sites

Texas Comptrollers’ Office

Texas Secretary of State

 

Selected Individual Incremental Tax Rates for 2011:

Single

Not over $8,500

 

> $8,500 - $34,500

 

> $34,500 - $83,600

 

> $83,600 - $174,400

 

> $174,400 - $379,150

 

> $379,150

10%

15%

25%

28%

33%

35%

Married, filing Joint

Not over $17,000

 

> $17,000 - $69,000

 

> $69,000 - $139,350

 

> $139,350 - $212,300

 

> $212,300 - $379,150

 

> $379,150

10%

15%

25%

28%

33%

35%

Selected Individual Incremental Tax Rates for 2012:

Single

Not over $8,700

 

> $8,700 - $35,350

 

> $35,350 - $85,650

 

> $85,650 - $178,650

 

> $178,650 - $388,350

 

> $388,350

10%

15%

25%

28%

33%

35%

Married, filing Joint

Not over $17,400

 

> $17,400 - $70,700

 

> $70,700 - $142,700

 

> $142,700 - $217,450

 

> $217,450 - $388,350

 

> $388,350

10%

15%

25%

28%

33%

35%

Individual Incremental Tax Rates for 2013:

10%

15%

28%

31%

36%

39.6%

Selected Individual Incremental Tax Rates for 2014:

Single

Not over $9,075

 

> $9,075 - $36,900

 

> $36,900 - $89,350

 

> $89,350 - $186,350

 

> $186,350 - $405,100

 

> $405,100 - $406,750

> $405,100

10%

15%

25%

28%

33%

35%

39.6%

Married, filing Joint

Not over $18,150

 

> $18,150 - $73,800

 

> $73,800 - $148,850

 

> $148,850 - $226,850

 

> $226,850 - $405,100

 

> $405,100 - $457,600

> $457,600

10%

15%

25%

28%

33%

35%

39.6%

Selected Individual Incremental Tax Rates for 2015:

Single

Not over $9,225

 

> $9,225 - $37,450

 

> $37,450 - $90,750

 

> $90,750 - $189,301

 

> $189,301 - $411,500

 

> $411,500 - $413,200

> $413,200

10%

15%

25%

28%

33%

35%

39.6%

Married, filing Joint

Not over $18,450

 

> $18,450 - $74,900

 

> $74,900 - $151,200

 

> $151,200 - $230,450

 

> $230,450 - $411,500

 

> $411,500 - $464,850

> $464,850

10%

15%

25%

28%

33%

35%

39.6%

Medicare Surcharge ("Obama Care") Tax:

3.8% Additional Tax On Net Investment Income ("NII") - Lesser of NII, or excess of income in excess of:

Singles

$200,000

Married Filing joint

$250,000

0.9% Additional Tax On Earned Income (Wages and Self Employment Income) - in excess of:

Singles

$200,000

Married Filing joint

$250,000

  

Selected 2014 Long-term Capital Gains Rates

Where ordinary income tax rate is :

Capital Gain Rate is

10% or 15%

0%

25%, 28% or 35%

15%

39.6%

20%

2015

2014

 

 

Standard Deduction

 

Single

$6,300

$6,200

 

Married Filing joint

$12,600

$12,400

 

Dependent

$1,050

$1,000

 

 

Personal Exemption

$3,950

 

 

Tax planning tips:

Current U.S. Tax Law Development    This Page is Under Construction

 

Discussions of Tax Issues:

December 2012:

Playing “Chicken” with the “Fiscal Cliff”

 Now that we are within two weeks of year-end and there has been no resolution to the so called “fiscal cliff”, I now feel compelled to summarize for you the more significant tax issues we are facing should there be no favorable resolution.  While the “fiscal cliff” is both a revenue (tax) problem, and a spending and debt problem, I will address only the tax related aspects.  In an effort to get this out quickly this morning, I have elected to omit many items that are not as significant, and I have abbreviated what I think will be generally understood.

I now see that it is possible that we will endure a “perfect storm” of tax increases.  In recent years, there have been “patches” to the alternative minimum tax (“AMT”) rate and extensions of certain deductions, such as the deduction for sales taxes, and often these patches have occurred “last minute” at year-end.  But, so far, no patches have been enacted for 2012.  When “ObamaCare” was passed, I studied the new law, but assumed that it would be overturned by the U.S. Supreme Court as unconstitutional.  As we now know, it survived the Court in an unexpected way, as a tax.  It seems that Congress has no limit on its constitutional authority to levy taxes.  Further, the expiration of the “Bush era tax cuts”, which was a temporary reprieve from the large tax increases imposed during President Clinton’s first year of office (a time of relatively low unemployment and economic prosperity), is scheduled to expire at the end of 2012.  You may remember that the Democrats referred to these tax cuts for years as the “Bush tax cuts for the wealthy”.  Now, it seems that they too are hopeful that the provisions that benefit the middle class will again become law.

I had hoped that the elections would usher in fiscal “sanity” in Washington, and that these issues would be resolved in ways that would serve our country by restoring fiscal responsibility and economic growth.  But, as we now know, the Country chose another path.

While our monthly newsletters have addressed some of these issues in more detail, the following compares some of the more significant tax issues for 2011, 2012 and 2013, as they are currently enacted.

Selected Individual Incremental Tax Rates for 2011:

 

 

Single

Not over $8,500

 

> $8,500 - $34,500

 

> $34,500 - $83,600

 

> $83,600 - $174,400

 

> $174,400 - $379,150

 

> $379,150

 

10%

15%

25%

28%

33%

35%

 

 

Married, filing Joint

Not over $17,000

 

> $17,000 - $69,000

 

> $69,000 - $139,350

 

> $139,350 - $212,300

 

> $212,300 - $379,150

 

> $379,150

 

10%

15%

25%

28%

33%

35%

 

 

 

Selected Individual Incremental Tax Rates for 2012:

 

 

Single

Not over $8,700

 

> $8,700 - $35,350

 

> $35,350 - $85,650

 

> $85,650 - $178,650

 

> $178,650 - $388,350

 

> $388,350

 

10%

15%

25%

28%

33%

35%

 

 

Married, filing Joint

Not over $17,400

 

> $17,400 - $70,700

 

> $70,700 - $142,700

 

> $142,700 - $217,450

 

> $217,450 - $388,350

 

> $388,350

 

10%

15%

25%

28%

33%

35%

 

 

 

Individual Incremental Tax Rates for 2013:

 

 

10%

15%

28%

31%

36%

39.6%

 

Long-term Capital Gains Rates

 

2011

2012

2013

 

Where ordinary income rate is below 25%

Where ordinary income rate is below 25%

N/A

 

 

0%

0%

 

 

Otherwise

Otherwise

All

 

 

15%

15%

20%

 

 

In 2011 and 2012, qualified dividends are treated as long-term capital gains at the lower long-term capital gains tax rate.  This makes sense to me in that dividends are paid from “after-tax” income of corporations, and accordingly this is the second Federal Income Tax to be applied to these amounts.  In 2013, these will again be taxed as ordinary income at the highest rates.  In my opinion, this is very short sighted by policy makers as the business community will increasingly restructure to become “pass through” entities to avoid this double taxation, much as small businesses have done by forming “S corporations”, “LLCs” and partnerships.   

Certain tax deductions and credits have expired at the end of 2011 and are not now available for 2012, such as the deduction for state and local sales taxes, the deductions to adjusted gross income (“AGI”) for tuition and related expenses and “teacher’s” expenses, the interest deduction for mortgage insurance premiums, and certain energy efficient property credits.  Additionally, in 2013, medical expenses which are now deductible to the extent they exceed 7.5% of AGI, will only be deductible to the extent they exceed 10% of AGI.

Another aspect of the tax increases under the Clinton administration that were temporarily repealed under the “Bush era tax cuts” was the phase-out of itemized deductions for those with income over certain thresholds. 

The AMT was initially enacted many years ago to create a “flat tax” on middle and higher income taxpayers who have large deductions.  Generally, AMT taxable income is computed by taking your taxable income, adding back certain deductions, such as medical costs, taxes, miscellaneous deductions and other “preference items”.  Then a tax is computed for the amounts below an “exemption”, and a higher rate is applied for income in excess of the “exemption” (e.g.: 28% in 2012).  However, the exemption amount was not indexed for inflation.  As a result, the exemption amount has not been increased over the decades, except by “AMT patches”.  The last patch, which expired at the end of 2011 provided for exemptions of $48,450 for single taxpayers and $74,450 for married taxpayers filing joint.  For 2012 and 2013, the exemptions are $33,750 for single taxpayers and $45,000 for married taxpayers filing joint.  It is expected that the number of taxpayers affected by AMT will now increase from 4 million to 32 million. 

Also new for 2013 are the “ObamaCare” Medicare surtaxes for higher income taxpayers.  A surtax of .9% will apply to wages and self employment income of couples earning more than $250,000 or singles earning more than $200,000.  Additionally, a surtax of 3.8% will apply to the lesser of net investment income (e.g.: interest, dividends, rental income and earnings in other passive investments) or the amount by which modified AGI exceeds $250,000.   

When you put all of these changes in tax rates together, the effective tax rates increase dramatically.  Below is an example for those paying the highest tax rates:

Top Rates by type of Income

2013

2011

2012

Tax Rate

"ObamaCare" Surtax

Deduction Phase-out

Combined Effective Tax Rate

% Increase

Long-term Capital Gains

15%

15%

20%

3.8%

1.2%

25.0%

66.7%

Short-term Capital Gains

35%

35%

39.6%

3.8%

1.2%

44.6%

27.4%

Qualified Dividends

15%

15%

39.6%

3.8%

1.2%

44.6%

197.3%

Interest and Non-Qualified Dividends

35%

35%

39.6%

3.8%

1.2%

44.6%

27.4%

Earned income (with FICA of 1.45% and surtax)

36.45%

36.45%

41.05%

0.9%

1.2%

43.15%

18.38%

 

Another significant change is the tax on estates.  Through 2012, the gift and estate tax “exemption equivalent” (i.e.: the maximum amount that may be transferred as gifts during your lifetime or upon death, without tax) is $5,000,000 (indexed for inflation to $5,120,000).  The maximum tax rate on any amounts exceeding this is 35% in 2012.  Further, “portability”, where the surviving spouse can use the unused portion of the predeceased spouse’s exemption equivalent, expires at the end of 2012.  Beginning in 2013, the maximum exemption equivalent is reduced to $1,000,000, with the maximum tax rate on the excess of 55%.  This has led many wealthy mature taxpayers to make large gifts in 2012 to take advantage of the larger exemption equivalents and subject their estates to reduced taxes in the future, retaining only what they expect to need for the remainder of their lives.

As you can see, if these rules are not quickly changed, they will have a significant adverse impact on the most economically productive taxpayers, and therefore, on the economy as a whole.

The President has stated that he has a “mandate” to increase the taxes on “the wealthy”.  It seems to me that he has gained the support of 51% of Americans by promising that nearly one-half of Americans will continue to have no financial obligation to pay any income taxes or any significant “share” of the costs to operate the Federal Government, that many people will continue to benefit from net tax credits (such as the earned income credit), that the Federal Government will continue to increase the number of people on welfare and will even add the new and most costly “entitlement”, ObamaCare, and that the cost of these promises will be paid for by increasing the taxes on a minority of Americans, the so called “wealthy” (those who already pay the majority of taxes, more than their share, and at the highest tax rates).   Basically, I’ll paraphrase the President’s campaign as “elect me and I’ll get you something for nothing, using other people’s money” (Karl Marx would be so proud of him and those who elected him).  If you look through the rhetoric, It appears to me that the President has organized a majority of Americans to conduct a “financial lynching” of a minority of Americans, backed by the “rule of law”.   Those who have dared to make good financial decisions, work hard, risk their capital by investing and saving and, and consequently, have prospered economically have been chosen by their Federal Government to pay for desires of those who have not.  The fact that their investments have significantly helped to grow the economy and create jobs seems to have been lost on many in Washington, or perhaps they do understand it but do not care about the adverse implication of these tax issues on the economy.  

I hope that this has adequately alerted you to the tax issues that face us.  If you have questions or wish to discuss any last minute planning, which is terribly difficult since we do not know for sure what all of the tax rules will be even for 2012, please let me know.

Have a great and blessed Christmas season anyway.

Sincerely,

Dave

 

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