There are a variety of changes to the tax code that will impact higher income individuals. The details are too numerous to cover here in great depth, however, here are some highlights to look forward to...

Itemized Deductions -  No longer phased out. State and Local Taxes limited to $10,000.  Employee Business Expenses eliminated for all taxpayers.

Personal Exemption Phaseout -  Exemptions eliminated for all taxpayers.

Child Tax Credit -  Phaseout still in effect for MFJ AGI over 400,000, however, credit, if applicable, may be applied to regular or AMT tax. Single and HofH phaseout begins at $200,000. MFS $200,000. $2,000 Child tax credit will now apply to more taxpayers.

Medicare Tax on Investment Income -  Takes effect in 2013. (No change in 2020) This is a 3.8% additional tax on investment income for taxpayers with AGI over $250,000 ($200,000-Single).

Foreign Assets - The reporting requirement is triggered when a U.S. person holds foreign financial assets with a combined value exceeding $50,000. Form 8938 is required to be filed.

A U.S. person that has a financial interest in or signature authority over foreign financial accounts must file an FBAR report (Form TD F90-22.1). Effective for 2013, reports must be filed electronically by June 30th. The FBAR filing process is separate from the income tax filing process.

Medicare Tax Increase -  The employee portion of the medicare tax is increased from 1.45% to 2.35% for taxpayers with wages or self-employment income of $200,000+, starting in 2013.

Estate Tax - Reinstated (after temporarily lapsing in 2010) with a $11,180,000 exemption for 2018 and $11,400,00 for 2019. (Inquire about the specifics of your state estate tax situation if this is a concern for you.)

AMT - Exemption amounts increased for 2019.     Married $111.700  Single $71,700.

Roth IRA Conversion - In tax years after 12/31/09, taxpayers can convert (roll over) a traditional IRA to a Roth IRA regardless of the taxpayer's AGI and filing status.

Planning tip:  Taxpayers who were previously unable to contribute to Roth IRAs because their AGI was too high and have not been contributing to traditional IRAs because they are covered under a qualified employer  plan may wish to start making nondeductible contributions to a traditional IRA.  These taxpayers can now convert the traditional IRAs to Roth IRAs.

Capital Gains -   The rate increases to 20% effective 1-1-13.

Dividends - The rate changes to 20% effective 1-1-13.

Limited Partnerships - Limited Partnership investments (including Master Limited Partnerships) can generate complex tax reporting requirements. K-1's associated with these investments often come out late in the filing season and can trigger complex tax reporting on your 1040. Holding these investments inside an IRA may involve complex reporting if any unrelated business income tax (UBIT) is due as a result of certain annual income from the partnership. Expect slower and more expensive tax filing if you make these investments.

Kiddie Tax - Applies to children with more than investment income of $1,100. Please ask for clarification if this situation applies to your family. Use the 529 and Roth to avoid this situation whenever possible.


The American Taxpayer Relief Act of 2012 ( Passed in early January 2013)  and The Tax Cuts and Jobs Act of 2018 give us a basis for future tax planning. High Income earners especially have been hit hard with tax increases. Marginal tax rates on ordinary income (wages for example) could easily approach 50% when adding the federal income tax, medicare tax, and state income tax. Tax planning is more crucial than ever before given these new rates.

Myth: The rich don't pay any taxes.