INCOME TAX RATES
Increased the highest federal ordinary income tax rate to 39.6% (+Medicare tax). Increased the highest federal long-term capital gain rate to 20% (+ Medicare tax).
Imposes a 3.8% Medicare tax on “net investment income” which generally includes interest, dividends, annuities, royalties and rents, other than passive income derived in the ordinary course of trade or business.
Higher income tax rates and the progression in marginal income tax brackets provides an opportunity for taxing income at lower effective rates. With the highest income tax rates becoming effective at $450,000 of taxable income for joint filers, and the 3.8% Medicare tax applied when Modified Adjusted Gross exceeds $250,000, the potential income tax savings from expert tax and specialized financial planning advice can be significant.
Wills and Trusts
CHOICE OF BUSINESS ENTITY
There are many factors that should be considered in entity formation, including the advantages and disadvantages of their taxation. For example, Limited Liability Companies (LLCs) in certain situations may be taxed as partnerships, disregarded entities, S corporations or C corporations.
INTERNATIONAL DISCLOSURE AND ACCOUNT REPORTING
By the terms of the Foreign Bank Account Reports (FBAR) provisions, a U.S. person must disclose any financial interests in, or other authority over, foreign financial accounts if their aggregate value exceeds $10,000. This information must be acknowledged on one’s tax return and reported separately on a Report of Foreign Bank and Financial Accounts tax form. Also, the Foreign Account Tax Compliance Act mandates a second report be made if one holds an interest in a “specified foreign financial asset”, such as through a domestic entity formed for purposes of holding these assets.
THE IMPORTANCE OF TAX BASIS
Prior to the effective elimination of the estate and inheritance tax, estate planning often focused on keeping assets out of the “gross estate” to reduce the estate tax. Now, it is often best to attend to keeping assets in one’s “gross estate” to obtain date-of-death fair market value (often “stepped up”) basis — or at least keep track of asset basis — and plan for tax basis to be as high as possible, to reduce potential capital gain on sale. Its not hard to figure out and get right — if your advisor knows all the tax laws.