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You Will Be Taxed Regardless if the Fiscal Cliff Is Resolved!!!

The gemstone of the Obama administration continues to be the 2010 Affordable Care Act, a.k.a. Obamacare. Despite popular opinion the government involvement in healthcare comes along with several strings attached. One of the more transparent &ldquo;hooks&rdquo; of the law is a 3.8 percent investment income Obamacare surtax that’ll be applied to &ldquo;high-income&rdquo; earners beginning in 2013.<br><br><b>Are You Under the Surtax?</b><br><br>The 3.8 Obamacare surtax is going to be applied to investment income above the following thresholds:<br><br>Single filers making more than $200,000 <br>Married filers making more than $250,000 <br>Married (filing separately) making more than $125,000 <br>Trust and estates making more than $12,000 (No, that&rsquo;s not a typo!) <br><br><b>Investment Income; What is and is not<br><br>Typical items regarded as investment income:</b><br><br>Passive Rental Income <br>Interest <br>Dividends <br>Capital Gains (long and short-term) <br>Annuity Withdrawals (but not while in tax-deferral) <br>Royalty Income (rights in mineral, oil, gas, etc.) <br><br><b>Common items not regarded as investment income:</b><br><br>Wages and self-employment income <br>Active Business Income <br>Distributions from IRAs, Roths, etc. <br>Municipal Bond Interest <br>Life Insurance Proceeds <br>Social Security &amp; Veterans&rsquo; Benefits <br><br>The most important thing to be familiar with is the fact that taxable income from the above sources can push you over the income threshold and cause your investment income to be subjected to the 3.8 percent Obamacare surtax.<br><br>Some may counter that these &ldquo;high-income&rdquo; earners can afford to pay more in taxes, but many (especially small business owners) are up in arms about yet another tax being imposed on them at quite possibly the worst time. If you&rsquo;re affected, here are some prescriptions for relief from the Obamacare surtax:<br><br><br><b>Theres an oldtime saying “An Apple A Day…” </b><br>When it comes to the surtax it’s called, “An IRA a day keeps the taxees away.” Max out your 401(k), 403(b), Simple IRA &amp; SEP IRA contributions, which can help decrease your overall income. In retirement, withdrawals from these plans aren’t considered investment income and thus not subjected to the Obamacare surtax.<br><br><br><b>Roth Away Your Tax Worries </b><br><br>There&rsquo;s a bounty of reasons to convert to a tax-free Roth. Add the Obamacare surtax to the list. By paying tax on your retirement savings now, you&rsquo;re eliminating the uncertainty of future tax rates and the mandatory requirement to begin withdrawing money when you&rsquo;re age 70 &frac12;. This dramatically lowers your future taxable income.<br><br><br><b>Give and Get a Gift </b><br><br>Consider making the most of the large lifetime gift tax exemption that is available now. The 2012 exemption is $5.12 million per person (and could fall to $1 million in 2013). Gifts can be used to pass money down to a child or even up to a parent. The gift could be utilized to help fund a tax-free life insurance policy or to pay the tax on the Roth conversion.<br><br><br><b>Invest wth One Eye Open</b><br><br>In a high-tax environment (think 2013 and beyond) tax-free and tax-deferred becomes more and more in vogue. Consider taking some gains now while rates are low and shifting your investment strategy towards assets that provide more tax-efficiency and control (examples include deferred fixed annuities, separately managed investment accounts, or using distributions from an IRA to fund life insurance.)<br><br><br><b>Know Your Estate Plan</b><br><br>Trusts are harshly punished since the Obamacare surtax kicks in at just $12,000 in income. If you&rsquo;re leaving your IRAs or retirement accounts to a discretionary trust you must consider avoiding the trust altogether and leaving it directly to a named beneficiary. If you work with a highly-specialized attorney inquire about a separate IRA Trust that can skillfully handle IRAs.<br><br>Like you, I&rsquo;m not against paying my fair share, if the game is fair, and with the rules changing regularly smart investors (and advisors) ought to be proactive in finding ways to benefit from the tax laws for the informed.<br><br><br><br>Matt Golab<br><br>Matt is an Investment Advisor Representative and the Chief Advisor of Aaron Matthews Financial Resources based in Elk Grove, California <a href=”http://aaronmatthewsfinancial.com/” target=’_blank’>Just click right here to learn a lot more about Matt Golab and his company Aaron Matthews Financial Resources!</a>

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