Now is the Time to Consider Tax Issues as 2013 Draws Near
A recent press briefing with Press Secretary Jay Carney touched on tax issues that will affect every American in 2013. Right now, Americans are ill-prepared for the approaching drop off the “fiscal cliff.” As tax cuts are about to expire in the New Year, how will individuals be affected?
The Senate has passed a bill to the House of Representatives; with the House’s approval the bill will extend tax cuts for 98% of American individuals. This is only a temporary solution that the majority of decision makers in both political parties, Democrats and Republicans, are in favor of. If the bill is passed, there will be a temporary reprieve for most taxpayers, and more time for persons with assets in excess of $1 million to create or update their estate plans to prepare for the time when these tax cuts do expire—because they will. Right now, the luxury of time is not a guarantee.
The Obama Administration is not in favor of continuing the tax cuts for high income earners, the 2% of Americans earning over $200,000 a year. Americans earning under $200,000 ($250,000 for married couples) annually would benefit from the tax cut extension, if approved. The gift and estate tax exemption is about to drop with the shift as well–down to $1 million. Individuals can seek to reduce estate taxes by the use of certain trusts, avoiding a loved one’s legacy from being exhausted in taxes. As of this writing, the maximum estate tax rate is set to rise to 55%, which would mean that more than half of a decedent’s assets over the exemption amount would go to the government.
The main message of the press briefing: “The President will not sign a bill that extends tax cuts for the top 2% with an extension of the Bush-era tax cuts,” according to Press Secretary Jay Carney. Additionally, the President is bringing a proposal for $1.6 trillion in new taxes for businesses and high-earners. The combination of expiring tax relief and new taxes will make strategic tax planning and proper trust administration the keys to a strong estate plan in 2013. Those who are making year-end changes to their estate plan or who are just forming one for the first time must plan accordingly in order to preserve assets for their beneficiaries.