Did you adopt the wait-and-see approach to tax planning this summer? With the Supreme Court decision on the health care act removing a level of uncertainty and the end of the year approaching, it’s time to stop waiting and start doing.
Here are three questions to consider.
- How will the increased medical deduction threshold affect me? Beginning in 2013, your unreimbursed medical expenses will have to exceed 10% of your adjusted gross income in order to claim an itemized deduction, unless you’re 65 or over. For your 2012 federal income tax return, the threshold is still 7.5%.
Tip: Consider shifting elective medical expenses into 2012.
- Should I convert my Roth in 2012? Starting January 2013, a 3.8% tax on unearned income such as capital gains, dividends, and interest applies if your modified adjusted gross income (MAGI) is more than $200,000 ($250,000 for married filing jointly). Distributions from Roths do not increase your MAGI - but conversions do.
To do: Calculate your tax exposure before year-end.
- Will the additional Medicare tax on earned income apply to me? The new 0.9% Medicare surtax takes effect in January 2013, and will apply when your compensation and self-employment income exceeds $200,000 ($250,000 when you’re married filing jointly). Your employer is only required to take your wages into consideration when withholding the tax.
Result: Your estimated tax payments or withholding amounts might need to be adjusted next year.
© MC 2012