Healthcare Tax Law Changes and Investing

Last Tuesday, President Obama signed into effect what is being called the most sweeping social reform since Medicare. Leading up to the passage of this bill, intense debate raged among American citizens, as well as their elected U.S. Senators and their Representatives, as to the politics of greater governmental intervention into the healthcare system.

Regardless of your political beliefs, if you are like most Americans, you are concerned about what this bill means for your own bottom line. A report published last Friday by the Congressional Office of Budget and Management pegged the cost of the new bill at $940 billion over the next 10 years, cutting the national deficit by $138 billion over the same time period.

But how to pay for it? There are $438 billion in new taxes slated to be phased in over the next few years, affecting everyone from average Americans people to the largest pharmaceutical and insurance companies. Of particular concern to our clients however, has been a new Medicare tax on unearned investment income. This 3.8% tax on capital gains, interest, and dividends is set to begin in 2013 and affect individuals making over $200,000 per year, as well as married couples filing jointly making over $250,000 per year (assuming the latest version is enacted without further changes). The maximum tax rate on unearned income is currently 15%.

The concern among our clients has been that this tax rate increase would make interest and dividend paying investments less attractive. Also, they worry that taxing capital gains will stifle investment. Under the Obama administration, no one would have been surprised to see a maximum rate of 20%, and an additional 3.8% tax on the small number of investors this new tax effects is not going to greatly impact these types of investments. There are many market participants, including foreign investors, pension funds, individuals maintaining an account qualified for special tax treatment (such as an Individual IRA), and the over 95% of Americans below the $200,000/$250,000 income threshold, who will never see the effect of this new set of taxes.

But what if you are one of the people fortunate enough to clear this income threshold? First, count your blessings and pat yourself on the back for the hard work it took to get where you are. Second, speak to your financial advisor about how these new taxes may affect your portfolio, and begin to plan for 2013. We do not advise clients to make investment decisions solely based on tax consequences, however they certainly factor into the investment process. No one should be shocked to see the maximum tax rate on unearned income rise under the Obama administration, and given three years to prepare for the shift to higher rares, these changes should not catch anyone off-guard.

If you have questions about healthcare reform, tax law changes, tax planning, or investing in general, please do not hesitate to contact us.       

           

-Kenneth Schultz, CPA

Fogel Neale Wealth Management, LLC

Comments

[Alex]

Hello word!!!