Watch Your Wallet...
Watch Your Wallet…Obamacare and the Medicare Surtax of 2013 (and beyond!)
Obamacare!
Seems like something that all business owners are talking about these days. Every week, clients ask me:
“Do you think it’ll be repealed?”
Repealed? No way!
Delayed? Maybe….
Even though some provisions may be delayed, there are certain provisions that will clearly take place in 2013. The Medicare surtax has received a lot of focus in recent months, and it’s important clients understand what this surtax means to them and their wallets.
What is the 2013 Medicare surtax?
The Medicare surtax is basically .9% on earnings over $250,000. It is also 3.8% on net investment earnings over certain thresholds…be sure to check out our memo to understand exactly what can push you over the threshold.
This applies to individuals, trust and estates. Individual income includes income flowing through partnerships and S-corporations.
Who does the 2013 Medicare surtax apply to?
Individuals:
a.) If you have investment income and
b.) Your Modified Adjusted Gross Income is over $250,000 if you are filing as married, or
c.) A Modified Adjusted Gross Income is over $200,000 if not filing as married.
In general, your modified adjusted gross income (MAGI) is similar to your adjusted gross income, and will be adjusted if you have foreign income.
For trusts and estates, the tax starts really, really early—This can apply if the trust has investment income and total taxable income of over $11,950!
As with most tax issues, there’s a lot more to it than this. But to save you from reading a ten-page IRS article on the topic, we’ve boiled it down into a quick and easy memo, and wanted to share with you what we’ll do to help out.
How we will work with you on the Medicare 2013 surtax:
1. Does the tax even apply to your situation?
In general, if your individual adjusted gross income (or trust income) is under the thresholds listed above (and you expect that to be consistent in the future, we might not spend much time on this topic with you).
2. We will be publishing some webinars on this issue.
Our intent is to provide these seminars two times, and then we will record them. Our thoughts are that this will be more cost-effective (i.e. free) for you by having a general discussion first as opposed to having the general discussion for each person.
3. Tax planning time starts October 15th, but we’ll start getting in touch with those affected by the surtax earlier than usual.
Most people get their information to us in November. We will begin identifying the candidates shortly after the seminars. If we feel you are a candidate to discuss this issue, we will contact you (or you can contact us if you sense you already know this is a concern).
We will work with your general numbers to suggest strategies. If you agree to implement these strategies, we’ll use those strategies as part of our planning. It is important to know that we can use last year’s numbers, and your general idea of your future numbers, to discussion general strategies.
What are some general strategies for dealing with the Medicare surtax?
We’ll continue to write and present on this issue. But for the time being, here’s some very general thoughts on how to handle this issue:
- Consider tax free investments (this is more of a 2014 and beyond strategy).
- If you have a trust, consider distributions to beneficiaries.
- If you elected groupings for real estate, you might consider regrouping them.
- If you have shareholder, inter-company, or partner loans; discuss restructuring.
- Consider acceleration of certain expenses.
Take Away Ideas:
- If this memo suggests you might be a candidate for this tax, then keep tuned for our upcoming articles and webinars.
- Consider listening to the webinars; these will happen within the next two weeks.
- Discuss general strategies with us before we do your tax planning (and if we don’t normally do tax planning, you might consider having us do it this year). We anticipate these discussions to begin taking place in September.
If you have questions in the meantime…
Just give us a call!
Pursuant to Circular 230, as promulgated by the US Department of the Treasury, any U.S. federal tax advice that is contained in this article is not intended or written to be used by any taxpayer for the purpose of avoiding penalties that may be imposed on the taxpayer by the Internal Revenue Service, and it cannot be used by any taxpayer for such purpose.
The writer is not responsible for providing such advice to the reader unless specifically retained by the reader. Readers of this article are advised to seek professional assistance of a qualified practitioner before implementing any ideas expressed in this article.
