New Investment Tax

The affirmation of President Obama’s healthcare law yesterday by the Supreme Court sent investors scrambling, as the law included a 3.8 percentage-point investment tax on investment income. The new tax affects the net investment income of most joint filers with adjusted gross income of more than $250,000. Beginning January 1, 2013, these earners will see a spike from their 15%, a historic low, to 18.8%, assuming that the current law is extended by Congress.

However, if Congress allows the tax rates set in 2001 and 2003 to expire on December 31, the top rate on capital gains would rise to 23.8% and the top rate on dividends will almost triple, to 43.4%. With the uncertainty over the fate of the 2001-2003, tax advisers are warning clients to begin making plans to minimize the new levy.

According to an article in The Wall Street Journal, the new levy’s ramifications are far-reaching, and will be a “game-changer” for many taxpayers. In order to minimize this tax, says CPA Dave Kautter of American University’s Kogod Tax Center, wealthy investors will have to manage both their adjusted gross income and their investment income. Some of these affluent individuals will likely seek more shelter in assets and structures where the tax doesn’t apply, opines the article. Both municipal-bond income and Roth individual retirement accounts are not subject to the 3.8% tax, making them appealing to those seeking shelter.

If you have any questions regarding how the new law will affect your personal investments, please contact your experienced tax professional.


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