As 2013 draws ever nearer, we need to keep a few potential tax changes in mind. These items are subject to change – they’ve changed in the past at the last minute, so there’s no reason to believe they won’t change again – but if they don’t we should be planning ahead.
Flex-Spending Health Accounts
If your employer provides you with a Flex-Spending Account for healthcare expenses, there will be some changes coming up in 2013. This is the kind of account where you set aside a sum of money each payday, pre-tax, that can be used throughout the year on deductibles, non-covered medical expenses, and co-pays.
Beginning in 2013, these plans will be limited to a total of $2,500 per year in salary deferral. This comes about as a part of the Obama-care legislation. Currently there is no cap on contributions to these plans, although some employers place a cap on their own plans, often in the neighborhood of $5,000.
Along with this cap, there are presently several provisions working their ways through Congress to eliminate the “use it or lose it” feature of these plans. In the past, if you set aside more money than you actually used for non-covered healthcare costs, you would forfeit that extra money. This was put into place to discourage the use of these plans as a salary deferral vehicle. It’s not at all clear how the new provision(s) will work at this time – but it is expected that any funds not used by the end of the tax year would be distributed to the employee and taxed as ordinary income, without penalty. Other options could include a carryover of the funds to pay for future healthcare expenses.
Capital Gains Tax Rates
Again this year, the so-called “Bush Tax Provisions” are set to expire. When (if) that happens, Capital Gains tax rates will climb up to their previous levels of 10% for those in the 10% and 15% tax brackets, and 20% for those in the upper tax brackets. Currently those rates are 0% and 15%, respectively.
With this in mind, we want to pay close attention to the law changes. If it looks like these rates are going to increase, we should strongly consider realizing capital gains for those cases where the tax increase will have a significant impact. This is especially true if you find yourself presently in the 0% capital gains bracket.
Income Tax Rates
Along the same lines as the Capital Gains rates, if the Bush Tax Provisions expire, ordinary income tax rates will also increase in 2013. This may make Roth Conversions, for one item, a special consideration in 2012. Again, we’ll want to pay close attention to what Congress is doing toward the end of the year. I wouldn’t expect for anything at all to happen before the Presidential election, so we won’t have a lot of time to act if the current rates are not to be extended.An IRA Owner's Manual or if you'd prefer the Kindle version (and let's face it, ALL the cool kids do!), you can find that at this Kindle version link.