As we have completed tax projections for clients this year, it is looking like income taxes are about 10% more for 2013 than for the previous year for those individuals. Several new taxes began in 2013 and the phase-out of exemptions and deductions has been reinstated. This is why we highly recommended that taxpayers see their tax consultants during the year, so they can know what they may owe and still have time to plan for it.
In 2013, tax rates increased for the higher end with the reinstatement of the 39.6% bracket. With the stock market up 30%, if you sold investments for gains, you could easily push yourself into a higher bracket. If your IRA grew considerably, your required minimum distribution may also throw you into a higher marginal rate.
In our experience, people don’t like to deal with taxes until it is time to pay them. It is possible we could see this affect the economy if taxpayers are unprepared for higher tax liabilities. In January, consumers are a bit tight as bills from the holidays are rolling in. We expect that to be extended through the spring once people see what they owe in taxes. Consumers with less discretionary income could translate into lower earnings for companies heavily dependent on them.
Most people put off selling investments at the end of 2013, and they are selling them now, which is why we believe the market is down. Investors have 15 months to figure out how to cover the capital gains taxes. Again, we would encourage all in this situation to see their tax consultants before year-end to explore options for minimizing your tax liability.
At Henssler Financial we believe you should Live Ready, and that includes understanding your investments affect the tax you owe. If you have questions regarding your tax situation, the experts at Henssler Financial will be glad to help. You may call us at 770-429-9166 or email at email@example.com.