November Key Focus
10 Ways You Might Pay More Tax in 2013
The election is now over, and President Barack Obama has been reelected
for four more years. It is time to look forward.
There are an abundance of tax law changes scheduled to take
effect in 2013 and they are almost universally going to take a
bigger chunk of your money and hand it over to Uncle Sam. Old
or young, rich or poor, it really won't matter. If nothing changes
between now and the end of the year, you are likely to pay more in
taxes next year than you are this year. With that in mind, let's take
a look at 10 ways you could very well pay more tax in 2013 than
you will in 2012.
Ordinary Income Tax Rates
The Bush era tax cuts that were extended in 2010 are set to expire at
the end of this year. If that happens and Congress takes no
action, rates for most taxpayers, on both ends of the income
spectrum, would increase. For instance, right now those who pay
tax at the lowest rate pay just 10% in federal income tax. That
number would jump to 15% next year. Similarly, the very highest
income tax rate one can pay in 2012 is 35%. The highest rate in
2013, if nothing changes, will be 39.6%.
Sources of income that are subject to ordinary income tax rates
include your salary, self-employment income, ailimony, interest,
short-term capital gains and the portion of your Social Security
included in gross income.
If you hold a capital asset for longer than one year, you get a special
tax break on any profit when you sell it. Instead of having the
profits subject to ordinary income tax rates, you get to pay tax at
long-term capital gains rates, which are more favorable. Like the
ordinary rate increases we are set to see in 2013, the changes in the
long-term capital gains rates will impact you, no matter what end of
the income spectrum you happen to be on. Currently, if your marginal
ordinary rate (the highest ordinary income tax rate you pay
tax at) is 10% or 15%, you don't pay any tax on long-term capital
gains. If nothing changes, that nice 0% rate (sure can't beat that)
will become up to 10% next year. At the other end of the spectrum,
the maximum long-term capital gains rate is 15% (a savings of almost
60% when compared to the top ordinary rate of 35%). Barring
Congressional action between now and next year, the top long-term
capital gains rate will be 20%.
CLICK HERE to view all 10 ways you might pay more tax in
2013. This article appeared during Election Week Coverage at
The Slott Report (www.theslottreport.com)
Ruling to Remember
William Foster v. PPG Industries, Inc. v. Patricia Foster
William Foster worked for PPG Industries, Inc. from 1988 to 1999 and participated
in its employee savings plan, a 401(k) pension plan. The plan required
each participant and beneficiary to keep the Plan Administrator advised of his
Foster and his wife, Patricia, resided together in Tulsa, Oklahoma from 1993
until their divorce in 2004. He had received plan-related documents, including a
Summary Plan Description, instructing him to make sure the current address on
file is correct at all times, especially upon divorce, moving or termination.
His divorce became final in July 2004, but he never advised his old company
that he had moved out of the martial residence or that his mailing address had
changed. In 2005, documents were mailed to the address on the file that
described changes in the way plan participants would access their savings plan
accounts. Among other things, the documents explained that a User ID created
by the participant would replace the participant's Social Security number for ID
Patricia Foster received these documents, created an ID, requested a temporary
password, changed the permanent address on the account to her P.O. Box and
made a withdrawal of $4,000 from the account. Over the next several months,
Patricia withdrew all of the available funds totaling over $42,000.
William Foster sued his former employer, demanding it pay back the money
withdrawn by his ex-wife. Seems like an open and shut case, right? Wrong.
The court ruled that the provisions in the plan documents made it clear that "any
wrongful payment of the Plaintiff's benefits in this instance (was) due only to
Plaintiff's failure to notify the Plan of his change of address coupled with the
conduct of the Plaintiff's ex-wife."
LESSON TO LEARN:
Make sure you CHANGE the beneficiary form after life events and update your
address. It will help avoid problems such as the one described above.