From my law office to your family, I want to wish everyone a Happy Thanksgiving. I will be closed on Thanksgiving Day and also for Black Friday (although I will not dare to try to shop). If you have questions, you can email me or leave a voicemail and I will try to respond as soon as possible the week of November 26th.
The standard mileage rates for business, medical, and charity deductions are going up 1 cent per mile starting on January 1. The rate for business mileage will be 56.5 cents per mile. The rate for medical will be 24 cents per mile. And the rate for charitable driving will be 14 cents per mile.
When looking at the tax deductions, a person can either take the standard mileage deduction or can itemize deductions and take the actual expenses (gas, oil, repairs, depreciation, etc.). But once a way is chosen, it should be retained for the life of the vehicle. From a tax planning standpoint, it is easier to take the standard mileage rate, but if you’re good at records, the actual expenditures and depreciation may pay off in the end.
A few of the tax statistics from the past ten years were just released by the IRS. Because I work mainly in the areas of wills and trusts, probates, estate planning and business planning, this information on taxes is very important to know and share as each individual looks at their own tax returns and those for the nation. Here is the link to the IRS data site: http://www.irs.gov/file_source/PUP/taxstats/indtaxstats/10in03etr.xls
Some of the interesting facts I took away from the report:
To be in the top 10% of filers for 2010, a filing unit (individual, married couple, head of household) had an AGI (adjusted gross income) of $116,623. Those top 10% of filers paid 70.62% of all income taxes, even though they only had a 45.17% share of all income.
To be in the top 50%, the filing unit had an AGI of $34,338. those 50% of filers paid 97.64% of all income taxes.
Look over the whole chart and find your own information. What I want you to take away from this post is that even though politicians say that the rich do not pay enough in taxes, you need to remember that nearly 50% pay no taxes at all. The burden is squarely on the top 10%, but a majority of voters have plans for those other people’s money.
It has taken me almost ten days since the election to put up this post. I have had to spend this last week and a half trying to find insight into where the tax laws may go as well as trying to deal with a sick body and a broken heart. At this point, I think I am ready to share my opinions with all of my readers in southwest Oklahoma and the nation as to what I think will happen now that the power in Washington, D.C. is essentially unchanged from the last two years. The only difference will be that because of sequestration, warhawk Republicans and Democrats will be more likely to allow tax hikes than cuts to the military. (I am not against the military, but I think there are other, significant cuts the government needs to make rather than double taxing wealth.)
The Estate Tax – The estate tax is very low on the “sexy” wish list for Congress and the President. This is because, essentially, even with only a $1,000,000 lifetime exemption, because of the unlimited marital deduction and charitable deduction, less than 5% of estates will get hit with this in any year. (In addition, people normally do not get to choose when they die, so allowing this tax increase can be said to just be a part of life.) Having over $1M in assets is easy for fingerpointers to say “this only affects the rich,” so I do not see significant relief coming. What to expect: Expect a $1,000,000 lifetime exemption and a top tax rate up to 55%. The only change that may be enacted will be extension of the portability language so that an A/B trust does not have to be created between married spouses.
The Gift Tax – Like the Estate Tax, this will be low on the priority list for Congress and the President. I expect the gift tax to once again be unified with the Estate Tax to only allow a $1,000,000 lifetime exemption. The annual exclusion gift will probably still be $13,000 next year because we have not seen significant inflation through this fiscal year (but hold on to your butts for years after 2013).
The Marginal Income Tax Rates – Despite Republicans not wanting to raise taxes on anyone, I think the Democrats will win this debate as well. I think we will see a merged tax schedule based on the tax years of 2000 and 2011. This will be similar to as follows: Under $8,500 in taxable income ($17,000 married) will be a 10% rate; Between $8,500 and $22,000 ($17,000 to $34,000 married) will be a 15% rate; Between $22,000 and $85,000 ($34,000 to $110,000 married) will be a 25% rate; Between $85,000 and $125,000 ($110,000 to $150,000 married) will be a 30% rate; Between $125,000 and $200,000 ($150,000 to $250,000 married) will be a 35% rate; and Above $200,000 ($250,000 married) will be a 39.6% rate. All tax rates are increasing is what you should expect unless you make less than $8,500 in taxable income.
Payroll Tax – I think that Congress and the President will finally see that it is time to stop playing with the Social Security funding and will allow the 2% payroll tax cut to expire. Everyone who earns a wage should expect to see 2% less of their pay after January 1.
Capital Gains – The long-term capital gain rate is scheduled to increase from a maximum of 15% to a maximum of 20%. Everyone should expect this to go through.
Dividend taxation – For people still invested in regular corporations, profit distributioins from the corporation are taxed twice; once at the corporate level, once when distributed to shareholders. During the Bush Tax Cuts, the dividends to shareholders were given favorable rates equal to the long-term capital gain rate (max 15%). This will expire and dividends will go back to being taxed at marginal income rates (max 39.6% plus Obamacare surcharges). What to expect: Shareholders are going to pay higher taxes. Companies will decrease dividend payments. Owners of small corporations will have less incentive to earn more money because it will be taxed above 65% before it is distributed to them.
This is getting long, so I will continue at a later date. If you are worried about these taxes, then please call my office to discuss how you can lower you tax burden in the future.
This week, as well as all weeks, we need to honor our veterans. As you celebrate Veteran’s Day, remember those who paid the ultimate sacrifice and those that were able to come home, but honorably served our country. The United States of America is the home of the free because of the brave.