RSS Facebook Twitter LinkedIn

Featured Advisor

Kim Butler

Partners for Prosperity, Inc.

City:Mt. Enterprise

State: TX

I have 20+ years of handling alternative investments in cash, growth and income for clients nationwide.  I strive to help my clients with all things financial in every way possible over the phone and the web.  I own an alpaca farm which I enjoy working during my downtime.  I also enjoy gardening, writing and reading books.  I also train other advisors on Prosperity Economics.

Click to see the full profile

Share |

Tax Strategies for High Income Investors

Deduction rules and tax rates have changed for 2013.

| BY Kent McDill

It’s time to start making a pre-emptive strike against your 2013 tax burden, especially if you have an adjustable gross income of more than $200,000.

New tax laws effective for 2013 have produced major changes for high income individuals at the $200,000 level and married couples with adjustable gross incomes over $250,000. For individuals over $400,000 and married couples over $450,000, the tax burden is even greater. But there are moves individuals and couples can make to lighten the tax burden.

First, the bad numbers.

For individuals with an adjusted gross income of $200,000 or married couples at $250,000, there is a new 3.8 percent surtax on investment income and a 0.9 percent added levy on wages to help pay for the 2010 health care law. There is also a phase-out of personal exemptions and itemized deductions for individuals at $250,000 and married couples at $300,000.

For individuals with an adjustable gross income of $400,000 or married couples at $450,000, there is a new higher tax rate of 39.6 percent. They also get the two additional taxes for the tax law mentioned above, which could create a tax liability of 44.3 percent. Also, there is an increase of capital gains and dividend taxes for high-income earners that could reach 20 percent, up from the previous level of 15 percent.

Now, what to do to make your tax bite smaller.

Timing Mutual Fund Activity – Mutual fund companies are scheduled to release distribution estimates sometime in November, and investors who plan to sell their mutual fund should do so before distributions, while those looking to buy should wait until after distributions, according to Tracy Green, a vice president in tax and financial planning for Wells Fargo who spoke to Businessweek on the topic.

Sell off losers – If you have an asset that has lost money, you can sell it, and the loss can offset other capital gains.

Tax payments – Investors who are not subject to the alternative minimum tax should pre-pay state income or real estate taxes before Dec. 31 to lower their taxable income, according to William Zatorski of PricewaterhouseCoopers.

Age opportunities – Investors over the age of 70 ½ can give as much as $100,000 to a qualified charity and make the payment directly from their Individual Retirement Account. The donation can meet all of the annual required minimum distribution for IRA owners and is not then recognized as income.

Defer income – Investors can defer income to private-placement life insurance or private annuities.

Deductions – Although there have been changes in deduction amounts, you can still make sure you reach your maximum by donating household items to charity.

Defined Contribution – Make sure you have made your maximum contribution to your retirement plans beyond whatever is taken out automatically from your paycheck at work.

Medical bills – The amount of medical expenses one must incur to qualify for a deduction has risen from 7.5 percent to 10 percent of adjusted gross income, unless you or your spouse are 65 years of age or older. But if you are close to that amount, now is the time to visit a physician, dentist or optometrist.

Miscellaneous – Miscellaneous deductions still exist, and they come from a variety of sources, including unreimbursed work expenses, tax preparation charges, dues and lawyer fees can all apply.


About the Author

Kent McDill

Kent McDill is a staff writer for Millionaire Corner. McDill spent 30 years as a sports writer, working for United Press International and the Daily Herald of Arlington Heights, Ill. From 1988-1999, he covered the Chicago Bulls for the Daily Herald, traveling with them every day through the nine-month season. He also covered the Bulls for UPI from 1985-88, and currently covers the team for He has written two books on the Bulls, including the new title “100 Things Bulls Fans Should Know And Do Before They Die’, published by Triumph Books. In August 2013, his new book “100 Things Bears Fans Should Know And Do Before They Die” gets published.

In 2008, he resigned from the Herald and became a freelance writer. The Herald hired him to write business features and speeches for the Daily Herald Business Conferences and Awards presentations.

McDill also writes a monthly parenting column for the Herald’s Suburban Parent magazine.

McDill is the father of four children, and an active fan of soccer, Jimmy  Buffett and all things Disney.