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New tax rules in 2013

somemomsomemom Posts: 9,271Registered User Senior Member
edited November 2012 in Parent Cafe
I know the current estate tax laws expire soon and the $5MM+ exempt amount and 35% tax rate will change to $1MM exemption and 55% tax. Is any one hearing anything about how or even if they plan to adjust this again?

Will the Obamacare taxes be hitting us in 2013? What rate will we see?

Anything else for which to plan?
Post edited by somemom on
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Replies to: New tax rules in 2013

  • smdur1970smdur1970 Posts: 741Registered User Member
    I don't know if this is helpful or adds new info, but I found this article interesting:

    Tax law changes could require change in strategy - The Washington Post
  • ucbalumnusucbalumnus Posts: 36,749Registered User Senior Member
    If the "fiscal cliff" occurs, it will come close to balancing the budget with both tax increases and spending cuts.

    Perhaps think of it this way -- were you dissatisfied with the level of taxation and government services in the late 1990s, when the government ran a budget surplus, and before tax cuts and spending increases resulted in trying to get bigger government services on smaller government taxes in the 2000s? If not, then it should not be too difficult to plan your personal finances accordingly.
  • MizzBeeMizzBee Posts: 4,325Registered User Senior Member
    Certain tax credits are set to expire. American Opportunity credit expires in 2012, and Tuition and Fees deduction was eliminated in 2011. The Child Tax Credit will reduce to $500 and be nonrefundable. The adoption credit is set to become nonrefundable as well.
  • 3bm1033bm103 Posts: 3,572Registered User Senior Member
    That article was pretty good but said nothing about AMT which I believe is the one that will affect the most people if the levels aren't changed before the end of the year. Not much you can do about it though so maybe that's why it wasn't mentioned.
  • BCEagle91BCEagle91 Posts: 22,762Registered User Senior Member
    That article talks about 2013 changes. The AMT change is for 2012.
  • SilpatSilpat Posts: 503Registered User Member
    Because of the increasing tax rates, someone suggested to dh that we consider a type of trust that is used for charitable giving. As I understand, it would be funded this year and we'd get to take the full deduction for the entire amount we put into the trust in 2012, and then would direct that a portion of those funds be donated to whatever charities we specify over the next X years until all of the money has been donated.

    Is anyone familiar with such a trust, and if so can you explain it to me or point me toward something authoritative? I must be using the wrong terms because I haven't found anything that sounds exactly like what this person described.
  • NJresNJres Posts: 5,267Registered User Senior Member
    Silpat, most of the large brokerage houses have charitable gift funds. Check out Fidelity Charitable Gift Fund as an example. You make a charitable donation to the gift fund, which is your taxable event. You tell them how to invest the money, and with a little luck your account will grow. Later you direct the fund to make gifts to the charity of your choice.

    If you own stock with unrealized capital gains you can easily transfer those stocks to the gift fund which gives you additional tax advantages.
  • TatinGTatinG Posts: 2,848Registered User Senior Member
    The answer is "We don't know". We won't know until after the first of the year. Hopefully Congress will compromise and do something sane.

    Cautionary tale regarding charitable giving. An elderly couple, unsophisticated in tax rules, left their cash to the church, needy friends and charities. They left the family farm to their children. However, when they died, the estate taxes kicked in and the church, the friends and the charities got their money. The kids had to sell the farm and got nothing.
  • FlyMeToTheMoonFlyMeToTheMoon Posts: 1,716Registered User Senior Member
    The kids had to sell the farm and got nothing.
    Can you explain this? I'm confused, so I obviously don't know anything about estate taxes. So if the farm was worth, for example, $100,000, and the children sold it for $100,000, the estate taxes were $100,000?
  • sewhappysewhappy Posts: 4,428- Senior Member
    For starters, you can count on more social security taxes beginning 2013.
  • BCEagle91BCEagle91 Posts: 22,762Registered User Senior Member
    It sounds like the estate taxes were due on the whole distribution amount while the sale of the property was about the amount of the tax liability.
  • TatinGTatinG Posts: 2,848Registered User Senior Member
    As I understand it, the couple had left CDs naming the charities and others as beneficiaries. That tied up all the cash. The will said that all 'debts' would be paid by the residual legatees, who were the kids to whom they had left only the farm. So the kids were left cash poor, land rich and had to sell the farm.

    If the estate is say $3MM, the taxes due would be 55% of $2MM or roughly $1.2MM.

    In my view, farms, ranches, income-earning property, the family home should be exempt from estate taxes. The tax operates to turn these lands from families over to corporations.

    I also think bequests to minors should be exempted: Situations in which minors lose both parents and then have the government take a huge chunk of what they will need for college and what their guardians would need to raise them.
  • SilpatSilpat Posts: 503Registered User Member
    Thanks, NJres. I'll look into that Fidelity fund.

    Let's say a hypothetical couple who makes a required United Way contribution of $10K/yr. and currently receives an approx. tax break equal to 1/3 of their charitable giving decides to put $30K into such a fund. If I understand what was described to me, the couple would get a $10K deduction this year. The fund would then give United Way $10K per year in 2013, 2014 and 2015.

    If the couple anticipates that their ability to take such deductions may be curtailed in future years, it might make sense to pre-pay their charitable donations. Of course, if the recipient was any other organization, the couple could simply give an additional $30K outright in 2012 and receive the same deduction, then not make additional donations in the next three years. Since the employer makes participation in UW giving an unwritten but very clear requirement, the couple must give at least $X/yr. each and every year. It appears they could do so through one of these charitable gift funds instead of directly through payroll deduction, as long as they supply proof that they are still donating. That still needs to be verified in writing.
  • TatinGTatinG Posts: 2,848Registered User Senior Member
    Continuing: I just thought of a situation that recently happened in my own neighborhood. There was a terrible car accident, the whole family was in the car. The mom and dad were killed instantly. The two children were in the backseat and were critically injured but will survive.

    I don't know these people personally and don't know the financial situation, but considering that homes in that neighborhood are worth around $800K and the people may have had some savings, those girls could lose hundreds of thousands of dollars to the estate tax when they will have medical bills to pay, possibly for years, educational expenses, living expenses for their guardians. (That is if the accident had happened next year. This year, I think the exemption is still $5MM.)
  • notrichenoughnotrichenough Posts: 5,526Registered User Senior Member
    I am already getting screwed by AMT this year. If Congress doesn't patch it again I will be upgraded to a royal screwing.

    AMT needs to be permanently patched, or modified to restore it to its original purpose, which was to make sure very high income earners pay something.
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