FINANCIAL CONSIDERATIONS
FOR 2013

It isn't too early to think about next year.

We are now in plain view of the "fiscal cliff". After the election,Congress may or may not end up keeping income and estate tax rates at their recent levels. Next year may bring some notable financial developments, and it isn't too soon for households to think about them.  

You may want to prioritize tax reduction.

If the Bush-era tax cuts sunset, everyone will see higher taxes. The federal income tax brackets (10%, 15%, 25%, 28%, 33%, 35%) that we have known for the last nine years would be replaced by five higher ones (15%, 28%, 31%, 36%, 39.6%) come 2013.1

High earners may want to watch their incomes.

If your earned income for 2013 tops $200,000 - or exceeds $250,000, in the case of a couple - you may face two Medicare surtaxes. While the Medicare payroll tax on earned incomes above these levels is set to rise to 2.35% from the current 1.45%, the second surtax may prove to be the real annoyance: there is scheduled to be a 3.8% charge on net investment income for individuals and couples whose modified adjusted gross incomes surpass these levels.1,2  Some fine points about this second surtax must be mentioned. It would actually be levied on the lesser of two amounts - either your net investment income or excess MAGI above the $200,000/$250,000 levels. Most investment income derived from material participation in a business activity would be exempt from the 3.8% surtax, along with tax-exempt interest income, tax-exempt gains realized from selling your home, retirement plan distributions and income that would already be subject to self-employed Social Security tax.2 The bottom line is that a bonus, an IRA distribution, or a sizable capital gain may push your earned income above these thresholds - and it will be wise to consider the impact that would have.

You may have less take-home pay next year.

Social Security taxes for paycheck employees are slated to return to the 6.2% level in 2013. They've been at 4.2% since the start of 2011. If you earn $75,000 during 2013, you will take home about $1,500 less of it than you would have in 2012. If you earn $50,000, we're talking $1,000 less.

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