Cash Flow Planning for Life - Helping you reach your personal & professional financial goals.

Cash Flow Planning for Life

Helping you reach your personal & professional financial goals.

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This is the fourth installment of Tax Planning for Changing Times: 5 Things You Should Know which can also be downloaded as a free eBook.

As of 2013, there is going to be a 3.8% Medicare surtax. Who will pay this surtax?

This new 3.8% tax will apply to the lesser of net investment income (NII) or the excess modified adjusted gross income over the thresholds of $250,000 (joint flier) and $200,000 (single filer).

WHAT IS NII?

Net Investment Income (NII) includes the following:

  • Interest and dividends (NOT tax-free interest [muni bonds])
  • Distributions from nonqualified annuities
  • Rent and royalties
  • Income from passive activities
  • Income from business of trading in financial instruments (stock and bond sales)
  • Income from rental real estate (unless you materially participate)

Not included in Net Investment Income (NII) are:

  • Wages
  • Distributions for IRA’s (Roth or Traditional)
  • Taxable portion of Social Security
  • Self-employment income
  • Income from interests in a partnership, S-Corp or Limited Liability Company if you materially participate
  • Income for tax-exempt bonds (muni bonds)
  • Income for qualified annuities
  • The tax-free portion of any gain on the sale of your principal residence

Examples of how your Net Investment Income (NII) affects the surtax:

  • You are a single filer with NII of $75,000 and modified adjusted income of $190,000 in 2013. No surtax is due because your modified adjusted income is below the $200,000 threshold.
  • You are a joint filer with NII of $75,000 and modified adjusted income of $300,000 in 2013. The surtax is due on the $50,000 excess income above the $250,000 threshold, thus an additional $1,900 tax will be due.
  • You are a joint filer with NII of $75,000 and modified adjusted income of $500,000 in 2013. The surtax is due on the $75,000 NII, thus an additional $2,850 tax will be due.

As you can see from the above information, there are many planning opportunities you should consider. Your individual situation will determine which planning avenue you should take. Consult with your tax advisor, as careful planning and a detailed plan will need to be put in place if you anticipate that your income will be over the threshold amounts.

.9% MEDICARE SURTAX

Beginning January 1, 2013, a little noticed additional .9% Medicare tax will be applied to “earned income” on joint taxpayers with modified adjusted gross income above $250,000 ($200,000 for singles).

If you’re self-employed, pushing income into 2012 over 2013 will save taxes on the expected increased tax rates along with the additional 9% Medicare tax.Tax Planning for Changing Times

Download my FREE eBook, Tax Planning for Changing Times, to learn more about the tax changes this year.

Do you have questions about tax planning or your net investment income? I’ll be happy to meet with you and answer all your questions.  Contact me online or call (239) 384-9688 in Naples or (239) 768-5008 in Fort Myers.

To learn more about Makara and Assoicates, visit www.makara-assoc.com, “LIKE” me on Facebook, and follow me on LinkedIn and Twitter.

-Mark

This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.

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