Wednesday, July 30, 2014 01:13pm
North Adams, MA now: 70 °   
Send news, tips, press releases and questions to info@iBerkshires.com
The Berkshires online guide to events, news and Berkshire County community information.
SIGN IN | REGISTER NOW   

Home About Archives RSS Feed
The Independent Investor: What They Didn't Tell You About the Cliff Deal
By Bill Schmick On: 02:23PM / Thursday January 10, 2013
Important
0
Interesting
0
Funny
0
Awesome
0
Infuriating
1
Ridiculous
0

Now that the country has avoided the Fiscal Cliff, everyone is breathing a sigh of relief. However, there have been some changes in the tax code that many of us have missed in the last-minute negotiations. For starters: your tax bill will be going up in 2013.

Although 99 percent of Americans avoided paying a higher tax rate thanks to Congress, we will all see a 2 percentage point rise in our payroll taxes. That is because neither party had the stomach to extend the tax cut President Obama had enacted in 2011. It means that households making between $50,000 and $75,000, for example, will see a tax increase of about $822 this year, while those making less ($40,000-$50,000) will see a $579 tax hike.

The headline that most Americans understood after the 11th-hour American Taxpayer Relief Act was passed was that those individuals earnings $400,000 and families earning $450,000 would see their tax rates jump from 35 to 39.6 percent. In addition, as part of the law, a new 3.8 percent tax is being levied on investment income for individuals making $200,000 and couples earning $250,000. High-income families will also have to pay higher taxes as part of Obama's health care law.

However, beneath those headline numbers lurks even greater tax increases as a result of the loss of personal tax exemptions for many middle-class income families. Most Americans recognize that $250,000 is a lot of money - if you reside in certain locales — but not much at all if you happen to live in Manhattan, Boston, Chicago or any other high-cost, urban center. Prior to the Tax Relief Act, a family of four, earning $250,000, were benefiting from $3,800 tax exemptions per family member.  

Those advantages have now been erased, effectively raising taxes 4.4 percent for every dollar that family earns over $250,000. If you have six kids, your marginal tax rate jumps to 6 percent and so on.

Higher-income Americans that make more than $1 million could lose up to 80 percent of their itemized deductions for everything from health care, home mortgage deductions, charities and even state and local taxes. When all is said and done, if you add in the loss of exemptions, health-care tax increases, etc., the effective tax rate for the highest earners could be as high as 45 percent.

Unfortunately, taxpayers in many Northeastern states, as well as those on the West Coast, will be hit the most since they normally use itemized tax deductions much more than the national average.

Some real estate-related deductions were preserved, such as allowing taxpayers to exclude income from the discharge of debt on their principal residence. This especially helps those who are considering a short sale or a lender-approved sale for less than the principal mortgage balance. It also allows a deduction for mortgage insurance payments for those making less than $100,000.

Another tax advantage for most Americans is the increase in contribution limits for retirement plans. You can now contribute $500 more to your Individual Traditional or Roth IRA for 2013, bringing the total to $5,500 with a $1,000 "catch-up" contribution for those over age 50.

The same $500 increase in contributions will also apply to 401(k), 403(b) and 457 Plans as well as for SIMPLE IRA plans for small businesses. Obviously, everyone should be contributing the maximum amount to these tax-deferred plans or as much money as you can reasonably afford to save toward retirement.

So it seems that none of us were able to dodge some increase in our taxes this year. Given the dire straits of the government's finances, I guess we should be grateful it wasn't worse.

Bill Schmick is registered as an investment adviser representative with Berkshire Money Management. Bill’s forecasts and opinions are purely his own. None of the information presented here should be construed as an endorsement of BMM or a solicitation to become a client of BMM. Direct inquires to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com.


0 Comments
     
News Headlines
Dark Matters; Williamstown Theatre Festival Gets Serious
Williamstown Public Safety Building Committee to Pursue RFP
Weather Service Reports Dalton Hit by Tornado
Mohawk Trail Being Honored at 59th Fall Foliage Parade
Melito Family Reunion in North Adams
Three Berkshires Men Fighting Fires in Northwest
Pittsfield Councilors Favor Opposition to Gas Pipeline
North Adams Housing Agency Reaching Asset Deal With City
Williamstown Town, Fire Discuss Coordinating Annual Meetings
Wilber Off to Strong Start at YMCA Nationals
Bill Schmick is registered as an investment advisor representative and portfolio manager with Berkshire Money Management (BMM), managing over $200 million for investors in the Berkshires. Bill’s forecasts and opinions are purely his own and do not necessarily represent the views of BMM. None of his commentary is or should be considered investment advice. Anyone seeking individualized investment advice should contact a qualified investment adviser. None of the information presented in this article is intended to be and should not be construed as an endorsement of BMM or a solicitation to become a client of BMM. The reader should not assume that any strategies, or specific investments discussed are employed, bought, sold or held by BMM. Direct your inquiries to Bill at 1-888-232-6072 (toll free) or email him at Bill@afewdollarsmore.com Visit www.afewdollarsmore.com for more of Bill’s insights.

 

 

 



Categories:
@theMarket (140)
Independent Investor (190)
Archives:
July 2014 (2)
June 2014 (6)
May 2014 (9)
April 2014 (8)
March 2014 (6)
February 2014 (6)
January 2014 (7)
December 2013 (8)
November 2013 (7)
October 2013 (6)
September 2013 (6)
August 2013 (8)
Tags:
Metals Currency Bailout Japan Commodities Europe Election Stocks Selloff Europe Debt Ceiling Oil Housing Deficit Banks Federal Reserve Economy Pullback Euro Greece Stock Market Crisis Rally Markets Fiscal Cliff Congress Recession Taxes Jobs Fed Interest Rates Stimulus Energy Debt Retirement
Popular Entries:
The Independent Investor: Understanding the Foreclosure Scandal
The Independent Investor: Don't Fight the Fed
The Independent Investor: Does Cash Mean Currencies?
@theMarket: QE II Supports the Markets
@theMarket: Markets Are Going Higher
The Independent Investor: General Motors — Back to the Future
The Independent Investor: How Will Wall Street II Play on Main Street?
The Independent Investor: Will the Municipal Bond Massacre Continue?
@theMarket: Economy Sputters, Stocks Stutter
The Independent Investor: Why Are Interest Rates Rising?
Recent Entries:
The Independent Investor: How Much Is Too Much to Spend in Retirement?
The Independent Investor: The Fed Turns Off the Spigot
The Independent Investor: Should You Pay Off Mortgage Before Retiring?
The Independent Investor: Retirement should be a part-time job
The Independent Investor: Unhappily Ever After
@theMarket: June Swoon
@theMarket: Europe Is a Good Bet
The Independent Investor: A Road to the Future
The Independent Investor: Holy Cow
@theMarket: Flirting With Record Highs Again


View All
Pittsfield Ethnic Fair 2014
North Street in Pittsfield had a double-dose of block...
LaFesta Baseball 2014
The LaFesta Baseball Exchange, celebrating 24 years, pits...
Adams Polish Picnic 2014
Adams residents enjoyed traditional Polish food and music...
Mingo's Sports Bar & Grill...
Over 50 cars packed into the Mingo's Sports Bar & Grill...
BYP Networking at Naumkeag
The Berkshire Young Professionals met at the historic...
Pittsfield Shakespeare...
Pittsfield's Shakespeare in the Park free performances at...
Lanesborough Kids Fire Camp...
Lanesborough Fire Department held its annual Kids Fire Camp...
Lanesborough Fire Drill
The Lanesborough Fire Department trains on basement fires...
Pittsfield Polish Picnic
Crowds lined up for golabki and kapusta at the annual...
North Adams Kids Emergency...
The North Adams 21st Century Community Learning Center...
Gather-in Festival 2014
The 42nd annual Gather-In festival was held at Pitt Park in...
BFAIR Mini-Golf Fundraiser
Berkshire Family and Individual Resources held its annual...
Lanesborough Seeds of Harmony...
Bradly Farm in...
Hinsdale Block Party
The Hinsdale Fire Department hosted its annual block party...
Arrowhead Country Craft Fair
Arrowhead, Herman Melville's home in Pittsfield, is hosting...
Pittsfield 3rd Thursday July...
Shakespeare was the theme for this month's 3rd Thursday...
Pittsfield Ethnic Fair 2014
North Street in Pittsfield had a double-dose of block...
LaFesta Baseball 2014
The LaFesta Baseball Exchange, celebrating 24 years, pits...
Adams Polish Picnic 2014
Adams residents enjoyed traditional Polish food and music...
Mingo's Sports Bar & Grill...
Over 50 cars packed into the Mingo's Sports Bar & Grill...
BYP Networking at Naumkeag
The Berkshire Young Professionals met at the historic...
| Home | A & E | Business | Community News | Dining | Real Estate | Schools | Sports & Outdoors | Berkshires Weather | Weddings
Advertise | Recommend This Page | Help Contact Us | Privacy Policy| User Agreement
iBerkshires.com is owned and operated by: Boxcar Media 102 Main Street, North Adams, MA 01247 -- T. 413-663-3384 F.413-664-4251
© 2000 Boxcar Media LLC - All rights reserved