DISCLAIMER: Please note that it is not possible to invest directly in a market index. Past market performance is not guarantee of future market performance or success.
As the fourth quarter of 2013 approaches it is important to review your tax situation. Some of the issues you may wish to consider are discussed below. Please make sure, however, to consult your tax advisor prior to implementing any of these strategies.
Be aware of the new 3.8% Medicare surtax. It applies to net investment income of single filers with modified adjusted gross incomes (AGI) above $200,000 and of couples over $250,000. Marrieds filing separately have a $125,000 threshold. Modified AGI is AGI plus tax free foreign earned income. The tax is due on the smaller of net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income. However, tax-exempt interest and distributions from 401(k)s, Traditional IRAs, Roth IRAs and pension plans are not covered. (Source: The Kiplinger Tax Letter, Vol. 88, No. 20).
Investors with capital loss carry- forwards can cull their portfolios for gains. Any net gains they have this year, up to the carryover amount, aren’t taxed at all
Don’t forget about the 0% rate on long-term capital gains and dividends. If your income other than gains and dividends is in the 10% or 15% bracket, profits on sales of assets owned for over a year and dividends are tax free until they push you into the 25% bracket. That bracket starts at $72,500 of taxable income for couples and $36,250 for singles. The balance of your long-term gains and dividends is taxed at 15% or possibly 20%. If part of your gains and dividends is taxed in the 0% bracket and the balance is taxed at a higher rate, claiming additional itemized deductions or making a deductible IRA contribution gives you two tax breaks: First, the income tax savings from the deduction. Second, more gains and dividends will be taxed at the 0% rate.