Tax Hikes for 2013: Learn How to Duck Newly Introduced Taxes?

You must be aware of the tax hikes introduced this year? In the light of these new introductions, you need to get prepared early, lest the taxes due next year will deal you a blow.

New features of this year’s taxation include, a new tax bracket, expiration of the payroll tax cut, and more taxes on investment income. Under the new top tax bracket, those individuals earning above $400,000 or couples above $ 450000 need to shell out 39.6% of the higher income as tax. Besides, people have to deal with a 3.8% Medicare surtax on investment income. This will mainly affect individuals earning above $200,000 and couples with income above $250,000. A tax of 0.9% tax will also be imposed on some people earning above $200,000.

How to tackle the new taxes?

The good old way to minimize taxation is by making out contributions to their 401(k) and Individual Retirement Accounts. This is arguably the best way to pull yourself back from crossing the income thresholds. Buying more municipal bonds is a second way out. Other ways to mitigate the blow are:

Defer compensation

The new taxes can eat up compensation earnings significantly. This can be perfectly taken care of if the compensation amount is deferred out over a period of five or 10 years.

Home repairs

The 3.8% Medicare surtax is applicable on real estate and rental income earned by people earning over $200,000 or couples earning more than $250,000. This can be avoided by making tax-deductible repairs to the property, like repairing broken structures or leaks. Massive repairs like renovating the roof should be depreciated over several years. One can also deduct other related expenses such as insurance premiums, advertising, and utilities.

More individual bonds and stocks

Paying taxes for gains, even when you haven’t sold shares for profit is likely to get more common. To tackle this, investors with individual bonds and stocks and can leverage their losses to negate stock gains. Using ETFs instead of mutual funds, can help people save on taxes. This is because, unlike managed funds, with ETF there isn’t a need to buy and sell stocks to make allocation changes.

The above ways can help you save a lot of tax money efficiently. You can choose any one way or deftly leverage all of them to duct the tax blow.

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