Articles

Everyone Wants to Know How To Reduce Their Taxes

By David M. Warrick, CFP

Election Day is almost here, and taxes are taking center stage in this campaign. We’re not here to tell you how to vote. But we want you to know that The Tax Reduction Network is following the race with an eagle eye. Our goal is to help you make the most of whatever changes eventually come with the next administration.

Several important tax changes are scheduled to take effect on January 1st, and we’re paying close attention to all of them:

  • The Bush tax cuts are scheduled to expire. This will mean higher tax rates for everyone, along with a higher top rate of 39.6% for the highest-earning taxpayers.
  • Top rates for long-term capital gains and qualified corporate dividends climb back from 15% to 20%.
  • The employee portion of Social Security and self-employment tax goes back up from 4.2% to 6.2%.
  • The Medicare tax will go up by 0.9% for individuals earning over $200,000 ($250,000 for joint filers, $125,000 for married individuals filing separately).
  • Finally, there will be a new “Unearned Income Medicare Contribution” of 3.8% on investment income of those earning more than $200,000 ($250,000 for joint filers).

Below is a copy of our 2012 Campaign Tax Comparison to help you compare the current law with the Obama and Romney proposals. We’ll be following the campaign carefully in order to help make the most of your opportunities, no matter who wins. Remember, no one in Congress will show you how to reduce tax liability. The Tax Reduction Network will, so give us a call at 610-945-1954.

2012 Election Tax Outlook

 

Current Law

Obama Plan

Romney Plan

Top Marginal Rate – Ordinary Income

35%

39.6%

28%1

Top Marginal Rate – Capital Gains

15%

20%
  (plus 3.8%2)

15%3

Top Marginal Rate – Qualified Dividends

15%

39.6%
  (plus 3.8%2)

15%3

Top Marginal Rate – Corporations

35%

28%

25%

Payroll Tax

13.3%4

Increase top rate from 2.9% to 3.8%

No Change

Alternative Minimum Tax

26-28%

30%5
  (incomes >$1 million)

None

Estate Tax Unified Credit

$5 million6

$3.5 million

None

Estate Tax Rate

45%6

45%

None

1Romney’s plan would extend current rates for 2013. Ultimately, he would lower rates by 20% across the board, and replace lost revenue by eliminating unspecified “loopholes and exclusions”

2Beginning on January 1, 2013, the Patient Protection and Affordable Care Act imposes a new “Unearned Income Medicare Contribution” applies on investment income for taxpayers with incomes over $200,000 ($250,000 for joint filers)

3Romney has proposed to eliminate all tax on capital gains, dividends, and interest for taxpayers earning under $200,000

4Currently, FICA and self-employment taxes total 13.3% on incomes up to the Social Security wage base, plus 2.9% Medicare tax on earned income above that figure.

5Obama has proposed to replace the current AMT with a “Buffet tax” of 30% on incomes above $1 million

6Estate taxes are scheduled to revert to a $1 million unified credit and 55% rate on January 1, 2013

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