2/28/2013 4:15 PM ET|
Are high earners getting the shaft?
How to prepare
To lessen the pain, LePley says most high-income taxpayers will want to maximize tax deductions, including charitable donations, but warns that both the PEP and Pease limitations are difficult to avoid, and should be considered with a comprehensive wealth-management strategy.
Shauna Wekherlien, owner of Tax Goddess Business Services, says high-income taxpayers may want to bundle medical expenses in 2013 because they must exceed 10% of adjusted gross income to qualify. "Taxpayers that are considering elective medical procedures will want try to schedule them all in one year to maximize the value of the deductions," she said.
LePley suggests that high-income households consider taking advantage of the federal estate and gift tax exemption of up to $5.25 million over a lifetime. Taxpayers who used the full exemption in 2012 still have an additional $130,000 to gift tax-free this year due to inflation adjustments.
A recent JPMorgan Chase paper from a team of wealth advisers and investment specialists recommends that wealthy taxpayers who own several homes also may want to consider switching their main domicile to the home in the state with the lowest state income tax burden.
The report also suggests tax-advantaged investment strategies such as purchasing tax-exempt municipal bonds, annuities and life insurance policies.
"There are certainly esoteric investments out there, such as structured notes and private equity, but those tend to be fraught with risk," says Karen Kruse, the president of First Tennessee Advisory services.
Kruse said dividend-paying stocks and solid blue chips should be held in tax-advantaged accounts, such as individual retirement accounts. "Outside of your tax-exempt accounts, you would tend to go towards growth-oriented stocks that typically don't throw off income," she said. "You buy and hold them, and your gains become long-term gains."
She is not advising clients to invest in long-term bonds: "You might want to invest in municipal bonds, but you'd really want to stay short," she said. "I think the market is waiting for the first sign of inflation." Kruse recommends investing in assets that will rise with inflation such as real estate investment trusts, real estate, utilities and commodities.
According to LePley, retirees will be in the best position to save, since they have more flexibility with their annual distributions. "Most working people are not going to be able to manage what they make," he said. "But, for retirees, that's where we can manage a little better."
Taxpayers older than 70 1/2 can also give up to $100,000 per year from IRAs to qualified charities for the 2012 and 2013 tax years only. These donations meet minimum distribution requirements and limit taxable income.
A quick guide to deductions
The big three:
- Charitable deductions. Contributions to charitable organizations may be deducted up to 50% of adjusted gross income. Contributions to certain private foundations, veterans organizations, fraternal societies and cemetery organizations are limited to 30% of adjusted gross income.
- Mortgage interest. Any interest on a mortgage is deductible, but filers can't deduct interest on mortgages that exceed $1 million. If you have a second loan or a home equity line of credit, the filer can deduct interest only on loans up to $100,000.
- State, local and property taxes. A handful of states have no state income tax, but for filers in high-income tax states, this deduction prevents residents from being taxed twice.
Other miscellaneous deductions:
- Gambling. Gambling winnings are fully taxable and must be reported on a tax return, however taxpayers can limit the amount of winnings taxed by deducting their gambling losses.
- Investment and advisory fees. Certain investment management and advisory fees also are deductible.
- Alimony. All payments that qualify as alimony are also deductible under the U.S. tax code. However, child support, noncash property settlements and use of a filer's property do not qualify.
- Job-related moving expenses. If you moved due to a new job, you may be able to deduct your moving expenses. The new workplace must be at least 50 miles than your previous place of employment was, and the job must be full time.
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But then that's exactly why I'm never getting married. I don't get why married people get so shafted when it comes to income taxes.
I hate that our society has made it a bad thing to succeed. Why do people want to punish others for working hard and getting paid well?
no shi- low information voters always "THINK"... the wealthy have never paid more of the tax bill than they are now... the top 1% make 13% of the income BUT ARE PAYING 37% of the tax bill.
stupid useless dysfunctinal people are destroying this country with their "thinking"
Why is everyone so surprised? It has been reported by so called "radicals" for years that they are trying to bring us to the standards of the a third world country. Only the ultra ultra wealthy and powerful will be comfortable and all of us other scmucks will be their slaves. Wake up, food has tripled in price, utilities have sky rocketed and gasoline is ridiculous. Hello!!!!!!!!!!
Taxes on wages (or a flat tax) are the greatest evil of our American Republic. When government is free to steal from you, there are no limits to waste and abuse in government. If a person chooses to work extra hours or two jobs in order to better provide for themselves or their family, they should not be penalized, but that is what happens. The more you make by working harder and longer, the more money is stolen from you, and given to those who spend their lives living off the hard work of others.
The revenue the government needs to provide legitimate constitutional services should be obtained primarily from a national sales tax instead of a tax on wages. All would pay based on consumption, the more you spend the more you pay. The more luxury you surround yourself with, the more you pay. Your choice. A national sales tax system would capture money spent by criminals and by illegal aliens who currently pay near zero in taxes. There would of course need to be exemptions: Cars (already have a federal excise tax) Primary Residence/Rental Properties (vacation homes would be subject to tax/rental profit would be taxed) Fresh Food (Preprocessed foods and prepared meals would be taxed – only fresh/fresh frozen/canned goods would be exempt) Insurance Premiums, Health Care & Certified Education.
Adding another layer of tax to a business would not be fair. Businesses would need to be compensated by keeping a portion of the tax to cover the expense of collection and reporting. A percentage of .20 to .05 would be fair.The Truth about Percent versus Dollars
Everyone wants the rich ($250,000 is not rich) to pay a higher percentage of their income in taxes because they don’t think it’s enough. Well, how much is enough? If someone is paying hundreds of thousands if not millions of dollars in taxes already, why should they pay more? So what if it’s only 10, 12, or even 5% of their income. Why should someone who works harder and sacrifices more, pay more? It’s wrong, it’s unfair. Those paying millions are supporting those paying only a few hundred dollars. If that’s 20% of your income, maybe you just need to work harder? The rest of us are tired of supporting you. Would you rather have 10% of $100,000 or 5% of $250,000?
Announcing new tax plan.
Line 1: How much did you make?
Line 2: Send it in!
The Fire Chief Said...
For those who understand, no explanation is needed.
For those who do not understand, no explanation is possible.
Not fair to make judgment of this, until you see what the Fire Chief says!!!!
In South Los Angeles , a 4-plex home was destroyed by a fire.
A Mexican family of six, all welfare recipients and gang members,
Lived on the first floor, they died.
An Islamic group of seven welfare cheats,
All illegally in the countryfrom Kenya , lived on the second floor,
And they, too, all perished in thefire.
6 LA, Hispanic, ****ers, & ex-cons,
Lived on the 3rd floor and they, too, died.
A lone, white couple lived on the top floor.
The couple survived the fire.
Jesse Jackson, John Burris and Al Sharpton were furious!!
They flew into LA and met with the fire chief, on camera.
They loudly demanded to know,
Why the Blacks, Black Muslims and Hispanics,
All died in the fire and why only the White couple lived?
The Fire Chief said,
"They were at work"
Oh No--------High earners aren't getting the shaft -----------It's called paying their fair share whatever
that means//////////// And remember you can never give enough of your hard earned money to the
government because they always want and need MORE/////////// Thank you Obama and my check is
in the mail-----------
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