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The Fiscal Cliff Deal & Your Taxes

January 18th, 2013 | No Comments | Posted in Financial News

What will change (and won’t change) as a result of the new legislation.

shutterstock_113380624Several tax hikes, some tax breaks. Now that the fiscal cliff deal assembled in Congress is becoming law, it is time to look at some of the tax law changes that will result. Here are the major details in the bill, which will bring significant tax hikes to some households in an effort to increase federal revenues by $600 billion over the next ten years.1

The Bush-era tax cuts will be preserved for at least 98% of taxpayers. Individuals with incomes of $400,000 or less and households with incomes of $450,000 or less will not see their federal income tax rates rise. The EGTRRA/JGTRRA cuts have been made permanent for such earners.2,3

The wealthiest Americans are looking at a major income tax hike. The top marginal tax rate will rise 4.6% in 2013 to 39.6%. Individuals with more than $400,000 in taxable income and couples with more than $450,000 in taxable income will be affected. This is the first major income tax increase on the highest-earning taxpayers in 20 years.2,3,4

Now when you take that 39.6% top rate and pair it with the oncoming 3.8% Medicare surtax, what is the impact for the wealthiest taxpayers in dollar terms? It is major. The non-partisan Tax Policy Center calculates that in 2013, households with incomes between $500,000 and $1 million should see their federal income taxes rise by an average of $14,812. What about households with incomes above $1 million? The TPC projects taxes rising an average of $170,341 for these couples and families this year.3

Practically speaking, all working Americans will see taxes rise in 2013. The payroll tax holiday of the past two years officially ends with the new bill’s passage. In 2011 and 2012, employee payroll taxes were reduced by 2% as an economic stimulus – an idea that came from the White House. In 2013, the payroll tax rate returns to its old level and employees will pay 6.2% in Social Security taxes rather than 4.2%. This tax break saved a worker making $50,000 annually about $1,000 last year. Employee earnings up to $113,700 will be taxed.3,4

Estate taxes now top out at 40%. Additionally, the individual estate tax exemption falls slightly to $5 million. Both of these changes are permanent.4

The AMT has been patched – permanently. Congress no longer has to arrange an annual fix for the Alternative Minimum Tax that was never indexed to inflation. This patch is retroactive to 2012, of course.4

The Pease provision & personal exemption phase-outs are back. As a result of the deal, 80% of itemized deductions will be eliminated in 2013 for individuals with adjusted gross incomes of more than $250,000 and couples with adjusted gross incomes of more than $300,000. That threshold is also where personal exemption phase-outs will start in 2013.4

Dividends will not be taxed as ordinary income. Single filers with taxable incomes of more than $35,350 and joint filers with table incomes above $70,700 will see a top dividend tax rate of 15% this year. Dividends coming to individuals making more than $400,000 and households making more than $450,000 will return to the 20% level, 5% higher than they were in 2012. Investors in the 10% and 15% tax brackets will pay no taxes on dividends.2,4

The top capital gains tax rate is now 20%. Wealthy investors paid a 15% tax on long-term capital gains and qualified dividends in 2012. That will rise 5% this year. Single filers making more than $400,000 and joint filers making more than $450,000 will face this tax hike. Those in the 25%, 28%, 33% and 35% federal tax brackets will pay 15%, and those in the 10% and 15% brackets will face no capital gains taxes.4

Long-term unemployment benefits live on. They will be sustained through the end of 2013 for roughly 2 million people.2

Another “doc fix” has been made. Drastic cuts in Medicare payments to physicians will be avoided for 2013 as a result of the new legislation.2

The EITC, AOTC & Child Tax Credit will be extended through 2017. President Obama has long sought to preserve the $2,500 American Opportunity Tax Credit for college expenses, the Earned Income Tax Credit and the Child Tax Credit – and that will occur thanks to the fiscal cliff deal. The $250 deductions for teachers’ classroom expenses will also be extended into 2013.4

50% bonus depreciation is preserved for 2013. The tax break that permits companies to accelerate depreciation schedules for major capital investments lives on for another year.4

The R&E tax credit & wind production tax credit are both sustained. Both federal tax breaks are available again for 2013.2

The charitable IRA rollover provision returns. You can practically hear the cheers ringing out at non-profits across the country: thanks to the fiscal cliff deal, people over age 70½ will again be permitted to make tax-free transfers from an IRA to a charity, university, or other qualified non-profit organization in 2013.4

The “sequester” will be delayed 2 months. The automatic federal spending cuts that were set to occur January 2 will be postponed until March while Congress tries to craft a plan to replace them.2

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is neither a solicitation nor recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.npr.org/templates/story/story.php?storyId=168366341 [12/31/12]
2 – www.cnbc.com/id/100348205 [1/2/13]
3 – latino.foxnews.com/latino/politics/2013/01/02/what-fiscal-cliff-deal-means-for-american-taxes/ [1/2/12]
4 – online.wsj.com/article/SB10001424127887323820104578216092043022764.html [1/1/13]

Bad Money Habits to Break in 2013

January 18th, 2013 | No Comments | Posted in Financial News

Behaviors worth changing for the New Year.

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Do bad money habits constrain your financial progress? Many people fall into the same financial behavior patterns year after year. If you sometimes succumb to these financial tendencies, the New Year is as good an occasion as any to alter your behavior.

#1: Lending money to family & friends. You may know someone who has lent a few thousand to a sister or brother, a few hundred to an old buddy, and so on. Generosity is a virtue, but personal loans can easily transform into personal financial losses for the lender. If you must loan money to a friend or family member, mention that you will charge interest and set a repayment plan with deadlines. Better yet, don’t do it at all. If your friends or relatives can’t learn to budget, why should you bail them out?

#2: Spending more than you make. Living beyond your means, living on margin, whatever you wish to call it, it is a path toward significant debt. Wealth is seldom made by buying possessions. Today’s flashy material items may become the garage sale junk of 2025. Yet, the trend continues: a 2012 Federal Reserve Survey of Consumer Finances calculated that just 52% of American households earn more money than they spend.1

#3: Saving little or nothing. Good savers build emergency funds, have money to invest and compound, and leave the stress of living paycheck-to-paycheck behind. If you can’t put extra money away, there is another way to get some: a second job. Even working 15-20 hours more per week could make a big difference. The problem is far too common: a CreditDonkey.com survey of 1,105 households last fall found that 41% of respondents had less than $500 in savings. In another disturbing detail, 54% of the respondents had no savings strategy.2

#4: Living without a budget. You may make enough money that you don’t feel you need to budget. In truth, few of us are really that wealthy. In calculating a budget, you may find opportunities for savings and detect wasteful spending.

#5: Frivolous spending. Advertisers can make us feel as if we have sudden needs; needs we must respond to, needs that can only be met via the purchase of a product. See their ploys for what they are. Think twice before spending impulsively.

#6: Not using cash often enough. No one can deny that the world runs on credit, but that doesn’t mean your household should. Pay with cash as often as your budget allows.

#7: Gambling. Remember when people had to go to Atlantic City or Nevada to play blackjack or slots? Today, behemoth casinos are as common as major airports; most metro areas seem to have one or be within an hour’s drive of one. If you don’t like smoke and crowds, you can always play the lottery. There are many glamorous ways to lose money while having “fun”. The bottom line: losing money is not fun. All it takes is willpower to stop gambling. If an addiction has overruled your willpower, seek help.

#8: Inadequate financial literacy. Is the financial world boring? To many people, it is. The Wall Street Journal is not exactly Rolling Stone, and The Economist is hardly light reading. You don’t have to start there, however: great, readable and even entertaining websites filled with useful financial information abound. Reading an article per day on these websites could help you greatly increase your financial understanding if you feel it is lacking.

#9: Not contributing to IRAs or workplace retirement plans. Even with all the complaints about 401(k)s and the low annual limits on traditional and Roth IRA contributions, these retirement savings vehicles offer you remarkable wealth-building opportunities. The earlier you contribute to them, the better; the more you contribute to them, the more compounding of those invested assets you may potentially realize.

#10: DIY retirement planning. Those who plan for retirement without the help of professionals leave themselves open to abrupt, emotional investing mistakes and tax and estate planning oversights. Another common tendency is to vastly underestimate the amount of money needed for the future. Few people have the time to amass the knowledge and skill set possessed by a financial services professional with years of experience. Instead of flirting with trial and error, see a professional for insight.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – business.time.com/2012/10/23/is-the-u-s-waging-a-war-on-savers/ [10/23/12]
2 – www.creditdonkey.com/no-emergency-savings.html [10/9/12]

IRA Contribution Limits Rise for 2013

January 18th, 2013 | No Comments | Posted in Financial News

Save a little more for retirement.

shutterstock_123871495Time to boost your IRA balance. In 2013, you can contribute up to $5,500 to your Roth or traditional IRA. If you will be 50 or older by the end of 2013, your contribution limit is actually $6,500 this year thanks to the IRS’s “catch-up” provision. The new limits represent a $500 increase from 2012 levels.1

January is an ideal time to max out your annual IRA contribution. If you are in the habit of making a single annual contribution to your IRA rather than monthly or quarterly contributions, try to make the maximum contribution as early as you can in a year. More of your money should have an opportunity for tax-deferred growth, not less. While you can delay making your 2013 IRA contribution until April 15, 2014, there is no advantage in waiting – you will stunt the compounding potential of those assets, and time is your friend here.2

Do you own multiple IRAs? If you do, remember that your total IRA contributions for 2013 cannot exceed the relevant $5,500/$6,500 contribution limit.3

Your IRA contribution may be tax-deductible. Are you a single filer or a head of household? If you contribute to both a workplace retirement plan and a traditional IRA in 2013, you will be able to deduct the full amount of your IRA contribution if your modified adjusted gross income is $59,000 or less. A partial deduction is available to such filers with MAGI between $59,001-69,000.4

The 2013 phase-outs are higher for married couples filing jointly. If the spouse making the IRA contribution also participates in a workplace retirement plan, the traditional IRA contribution is fully deductible if the couple’s MAGI is $95,000 or less. A partial deduction is available if the couple’s MAGI is between $95,001-115,000.4

If the spouse making a 2013 IRA contribution doesn’t participate in a workplace retirement plan but the other spouse does, the IRA contribution may be wholly deducted if the couple’s MAGI is $178,000 or less. A partial deduction can be had if the couple’s MAGI is between $178,001-188,000. (The formula for calculating reduced IRA contribution amounts is found IRS Publication 590.)5

You cannot contribute to a traditional IRA in the year in which you turn 70½ or in subsequent years. You can contribute to a Roth IRA at any age, assuming your income permits it.1

What are the income caps on Roth IRA contributions this year? Single filers and heads of household can make a full Roth IRA contribution for 2013 if their MAGI is less than $112,000; the phase-out range is from $112,000-127,000. For joint filers, the MAGI phase-out occurs at $178,000-188,000 in 2013; couples with MAGI of less than $178,000 can make a full contribution. (To figure reduced contribution amounts, see Publication 590.) Those who can’t contribute to a Roth IRA due to income limits do have the option of converting a traditional IRA to a Roth.7

As a reminder, Roth IRA contributions aren’t tax-deductible – that is the price you pay today for the possibility of tax-free IRA withdrawals tomorrow.8

Can you put money in an IRA even if you don’t work? There is a provision for that. Generally speaking, you need to have taxable earned income to make a Roth or traditional IRA contribution. The IRS defines taxable earned income as…

*Wages, salaries and tips.

*Union strike benefits.

*Long-term disability benefits received before minimum retirement age.

*Net earnings resulting from self-employment.

Also, you can’t put more in your IRA(s) than you earn in a given year. (For example, if you are 25 and your taxable earned income for 2013 amounts to $2,592, your IRA contributions for this year can’t exceed $2,592.)9

However, a spousal IRA can be created to let a working spouse contribute to a nonworking spouse’s retirement savings. That working spouse can make up to the maximum IRA contribution on behalf of the stay-at-home spouse (which does not affect the working spouse’s ability to contribute to his or her own IRA).

Married couples who file jointly can do this. The IRS rule is that you can contribute the maximum into this IRA for each spouse as long as the working spouse has income equal to both contributions. So if both spouses will be older than 50 at the end of 2013, the working spouse would have to earn taxable income of $13,000 or more to make two maximum IRA contributions ($12,000 if only one spouse is age 50 or older at the end of 2013, $11,000 if both spouses will be younger than 50 at the end of the year).6,9

So, to sum up … make your 2013 IRA contribution as soon as you can, the larger the better.

This material was prepared by MarketingLibrary.Net Inc., and does not necessarily represent the views of the presenting party, nor their affiliates. Marketing Library.Net Inc. is not affiliated with any broker or brokerage firm that may be providing this information to you. All information is believed to be from reliable sources; however we make no representation as to its completeness or accuracy. Please note – investing involves risk, and past performance is no guarantee of future results. The publisher is not engaged in rendering legal, accounting or other professional services. If assistance is needed, the reader is advised to engage the services of a competent professional. This information should not be construed as investment, tax or legal advice and may not be relied on for the purpose of avoiding any Federal tax penalty. This is not a solicitation or a recommendation to purchase or sell any investment or insurance product or service, and should not be relied upon as such. All indices are unmanaged and are not illustrative of any particular investment.

Citations.
1 – www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits [11/28/12]
2 – finance.zacks.com/can-ira-contribution-carried-forward-5388.html [1/9/12]
3 – helpdesk.blogs.money.cnn.com/2012/06/06/can-i-contribute-more-than-5000-to-multiple-iras/ [6/6/12]
4 – www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-Covered-by-a-Retirement-Plan-at-Work [11/26/12]
5 – www.irs.gov/Retirement-Plans/2013-IRA-Deduction-Limits-Effect-of-Modified-AGI-on-Deduction-if-You-Are-NOT-Covered-by-a-Retirement-Plan-at-Work [11/26/12]
6 – www.irs.gov/publications/p590/ch01.html#en_US_2011_publink10002304123 [2011]
7 – www.irs.gov/Retirement-Plans/Amount-of-Roth-IRA-Contributions-That-You-Can-Make-For-2013 [11/27/12]
8 – www.irs.gov/taxtopics/tc309.html [12/17/12]
9 – www.creators.com/lifestylefeatures/business-and-finance/money-and-you/can-you-contribute-to-an-ira-if-you-don-t-have-a-job.html [2011]

Monthly Economic Update January, 2013

January 18th, 2013 | No Comments | Posted in Monthly Economic Update

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5 Ways to Counter the Payroll Tax Hike

January 18th, 2013 | No Comments | Posted in Financial News

shutterstock_120185938You didn’t imagine it. Your paycheck shrunk. Thanks to an increase in payroll tax, more of your pay is going to fund Social Security. You got a break in 2011 and 2012 when the Social Security payroll tax temporarily dropped from 6.2 percent to 4.2 percent. Now it’s back where it started.

About 160 million workers pay this tax, and this year’s two percentage point increase will cost the average worker about $700, according to the Tax Policy Center in Washington. Wealthier taxpayers may actually feel less of an impact since the 6.2 percent payroll tax only applies to wages up to $113,700.

Still, for a family with a household income of $100,000, the payroll tax hike means a loss in income of about $2,000 a year.

Financial planners and credit counselors say making up for that loss in income will require some careful planning to cut expenses and increase earnings so the hit isn’t such a blow.

“For the average person, it’s going to take more discipline than ever to offset this payroll tax hike,” says CJM Wealth Management CEO Charles Massimo.

Here are some ways to find money to counter the increase :

ADJUST YOUR TAX WITHHOLDING

Start with the IRS. Millions of Americans get big income tax refunds every year when they could have extra money each month. That’s money you could use for everyday expenses. Figure out the number of withholding allowances you should claim by using the worksheet on the IRS website at irs.gov.

MAX OUT YOUR 401(K)

If you have a qualified retirement plan at work, contribute the maximum amount to that 401(k). You’ll reduce your taxable wages by the amount you put in. This year, you can save up to $17,500 in a 401(k) — a 3 percent increase from 2012. Those age 50 and over can add an extra “catch up” contribution of $5,500 for a total of $23,000 in 2013.

SAVE ON INSURANCE

Examine all property and casualty and life insurance policies and compare rates. Ask your insurance agent about ways to lower premiums, and ask about any discounts for loyalty, good driving and bundling multiple polices. Get a second opinion from another agent to make sure you’re getting the best rate.

REFINANCE YOUR MORTGAGE

Rates are still at historic lows, but don’t keep waiting for them to go even lower. Take advantage of low rates now to lower your monthly mortgage payment. Online calculators at sites like BankRate (RATE).com can tell you in a few minutes if you can save money by getting a better rate on your mortgage.

CHECK ALL FEES

Don’t keep paying for things you no longer need — like that Netflix account your rarely use anymore — just because they’re set up as auto-pay.

Avoid unnecessary charges by not using out-of-network ATMs. Negotiate with your bank for lower fees on your accounts or change banks.

Also, “review all those automatic deposits, especially if you are working with a very tight budget. You want to make sure you are able to meet your basic expenses without incurring any of those high late fees,” says certified financial planner Diahann Lassus, president of Lassus Wherley in New Jersey.

Switch to a credit card with a lower rate. “Make sure you maintain a strong credit score to ensure lowest possible rates,” Massimo says.

Massimo also suggests lowering investment fees by investing in index or exchange-traded funds rather than actively managed funds.

Finally, no one really wants to get a second job, especially if you have to pay Social Security tax on that money too. But getting paid to do something fun won’t feel like work and exploring another possible career may prove priceless. See more tips on ways to more cash in your pocket on CNBC.com.

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How Famous Companies Got Their Names

January 18th, 2013 | No Comments | Posted in Fun

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