Healthcare Reform Tax Increases

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The implications of the recent health care reform are many, but for a moment, let us focus on the impact to investors, especially those earning more than $250,000 a year.

Starting in 2013, these taxpayers will pay a new 3.8% tax for Medicare on their investment income. These investors will also pay a higher general Medicare tax rate, as follows:

Now 2013 Increase
1.45% 2.35% 0.90%

Next, let’s take a look at the tax increases on income generated from the investments of those earning more than $250,000. Starting in 2011, the tax rate on investments is expected to rise as follows:

Now 2011 With the Medicare Increase
15.00% 20.00% 23.80%

Under the new law, investors keep 76.2% of the
income from investments that are currently subject to long-term
capital gains, which is a 10.4% decrease in their current income
stream.

So, what does all this mean for you?

Despite a 70% rise in value over the last 12
months, many stocks are still considered undervalued. For investors
on both sides of the $250,000 income line, stocks are still
considered a good value.

Investors earning less than $250,000, with the
majority of their investments held in non taxable accounts, such as
IRAs and 401(k)s, should continue their current investing strategies.
For taxable accounts, however, we may want to consider more
‘tax-managed’ approaches.

In summary, many investors earning over $250,000
will find these tax rates pretty familiar since you’ve seen them
before. In the past 40 years, the maximum federal tax on capital
gains has averaged 24.7% and the maximum tax rate on dividends was
44.6%, so this is like de´ja`vu all over again.

We at Private Advisory Group have always carefully
considered tax issues in our investment proposals, and we will do so
in the future with an even more keen sense of awareness. After all,
it’s less about what you make and more about what you keep
that matters!

Filed Under: Tax Management

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