Here’s a summary of what Barack Obama is proposing for its budget fiscal 2013:
1. dividends received by senior employees (over 200 k singles and married couples above $ 250 k) would be taxed at 39.6%, from 15%.
2. The top rate for capital gains I would go from 15% to 20%.
3. the minimum rate for people with an income of at least $ 1 million would be 30%. (That’s what Buffett proposed).
4. Obama wants to interest from municipal bonds which are currently federal tax free (and state tax free if you buy a bond from the State that you live in) to be taxed! Taxed Yes! The maximum rate would be 28%. I don’t think this (see below).
In 2013, there would also be a 3.80% tax on unearned income for married couples making over $ 250 k and singles making over $ 200 k.
So how should invest based on the 2013 budget proposals by Obama if you’re gone?
-In most cases, the rate of tax you pay on dividends might be higher than you would pay capital gains tax. By purchasing this dividend becomes less important.
-If you’re going to sell an investment (apple?) that has appreciated, take the gain in fiscal 2012, not 2013. That’s just assuming you’re going to sell the stock.
# 1 warning: If you plan to leave much appreciated reserves for your heirs, you probably don’t want to sell and pay capital gains taxes because when your heirs inherit the stock, they will automatically get a pass by. For example, if you bought Apple at $ 20 and you plan to give your grandson while you are alive, your granddaughter is $ 20. But if you give your stock at your nephew after will and Apple is $ 500 per day that you die, your granddaughter is $ 500, not $ 20.
-Invest in a Roth IRA, or consider converting your IRA to a Roth IRA. The rate of tax on the conversion may be lower today as it will be in 2013 and beyond.
-I think that municipal bonds will continue to be tax-free. If they were to become passive, the borrowing costs of the municipalities would rise. The investors would get would be superior because it would be taxable.
Bottom line? With the 2013 budget plan Obama’s (and even later) tax rates are increasing. Consider taking some profits now if it fits your goals. Roth IRA is the easiest way to hedge against rising rates in the future.
Please consult with your tax professional.