As an immigrant, I echo Bonasera in the opening scene of the movie Godfather, “I believe in America. America has made my fortune”. But this year’s tax increases could affect how quickly we can make fortunes in this country, even though I still believe in America.
Without calling politicians names, I list these tax increases that come into effect this year here and how they can affect my life.
1. Payroll Tax: increase in the Social Security portion of the payroll tax from 4.2 percent to 6.2 percent for workers. If one makes $50,000, the 2% just mounts to $1,000. No small change. So $1,000 less into my pocket, it is given.
2. Top marginal tax rate: increase from 35 percent to 39.6 percent for taxable incomes over $450,000 ($400,000 for single filers). I am not quite there yet, but certainly aspire to.
3. Phase out of personal exemptions for adjusted gross income (AGI) over $300,000 ($250,000 for single filers). Again, I am not quite there yet, but can almostly feel the squeeze.
4. Phase down of itemized deductions for AGI over $300,000 ($250,000 for single filers). Same as above.
5. Tax rates on investment: increase in the rate on dividends and capital gains from 15 percent to 20 percent for taxable incomes over $450,000 ($400,000 for single filers). It will be many years before I have that much of investment income.
6. Death tax: increase in the rate (on estates larger than $5 million) from 35 percent to 40 percent. I am not worried about it, not for a long time. I am in mid 40s and my estate does not qualify.
7. Taxes on business investment: expiration of full expensing—the immediate deduction of capital purchases by businesses. I am not enjoying this provision anyway. I bought a few website and the depreciation schedule is 15 years; I have a few rental homes, and those takes 27.5 years to depreciate.
8. Another investment tax increase: 3.8 percent surtax on investment income for taxpayers with taxable income exceeding $250,000 ($200,000 for singles). No worries here.
9. Another payroll tax hike: 0.9 percent increase in the Hospital Insurance portion of the payroll tax for incomes over $250,000 ($200,000 for single filers). No worries here.
10. Medical device tax: 2.3 percent excise tax paid by medical device manufacturers and importers on all their sales. Go ahead, tax them.
11. Reducing the income tax deduction for individuals’ medical expenses. Never claimed anything anyway.
12. Elimination of the corporate income tax deduction for expenses related to the Medicare Part D subsidy. Go ahead, tax them.
13. Limitation of the corporate income tax deduction for compensation that health insurance companies pay to their executives. Go ahead, tax them.
In conclusion, with the exception of Payroll tax, I am pretty safe in 2013.
How do the tax increases affect you? Share your thoughts here.