Taxes are gonna change

Taxes are now looking to get worse.  Okay, so Obama won.  This now means that your taxes in your financial situation are likely to change significantly in January whether or not any new legislation gets passed between now and the end of this year.  I initially outlined this problem in Something To Think About.  The question would be whether they let the Bush tax cuts expire or raise taxes on individuals making more than $250,000 per year.  If the Bush tax cuts expire, our taxes across the board will go up, and it will be necessary to make adjustments on your net income in any case.  I would say that it is imperative to make solid plans regarding your taxes by January since the tax bill that would come due the following April might not be covered by usual means.  Saving the extra amount necessary to cover your taxes over the course of the year is certainly doable, but it does require discipline.  Instead, if you are able to make adjustments to increase your amount of withholding per paycheck, this may be an easier path to follow.

Taxes on investments 

In addition, if the tax cuts are allowed to expire, ordinary stock dividends will be taxed at your regular income bracket on your taxes.  Capital gains will also be taxed at a higher rate.  It looks like there would be a whopping 3.8% tax hike added on to capital gains.  Estate taxes are set to go up massively as the current ceiling of 5 million dollars is scheduled to go down to a ceiling of 1 million.  The taxes on the amount over the ceiling are scheduled to increase to 55% from 35%.  Ouch!  You may wish to discuss with your accountant whether or not you wish to make any adjustments to your stock portfolio prior to the end of the year to take advantage of the current tax environment.  Increases in capital gains taxes are likely to come one way or another.  So, it might be worth considering taking advantage of the lower rates now.  One other thing to consider when assessing the taxes regarding your partnership/corporation status as a physician might be whether or not taking a distribution before the end of the year would be advantageous from a taxes standpoint.

I’ve got my eye on our taxes

I’m planning on trying to closely follow the legislative process over the next eight weeks to see if a compromise on extending some of the Bush tax cuts will occur.  I’m getting the sense that Boehner and the House Republicans may look to cut their losses and run.  What seems very possible to me at this point in time is that there might be an increase in taxes on the bracket above $250,000.  I think Obama will stand firm on this since he sees his reelection as a mandate for support of higher taxes.  It also seems to me that this is the only way to get a long-term solution versus a short extension.  The Republicans may try to close some loopholes on taxes of those making more than $250,000 a year, however I really don’t think Obama is going to go for that.  Whatever ends up becoming of this, I plan to keep on top of it so that we can effectively plan to continue to grow and preserve wealth.  Until next time, here’s to your wealth.

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