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Get ready for higher taxes

By Jennie L. Phipps · Bankrate.com
Sunday, July 15, 2012
Posted: 6 am ET

Several tax provisions of the Affordable Care Act take effect Jan. 1, 2013. Leon LaBrecque, an attorney and certified public accountant whose firm LJPR is based in Troy, Mich., lists the changes that most affect retirement planning -- especially those whose retirement income is at levels most of us would consider comfortable. The expiration of the Bush tax cuts will raise taxes still more, but this discussion is limited to those associated with health care reform.

Investment tax. The new unearned income Medicare contribution imposes a 3.8 percent tax on dividends, interest and capital gains for single taxpayers with adjusted gross income, or AGI, more than $200,000 or $250,000 for married filing jointly.

Increased medical expense itemized deduction limit. The income threshold for claiming the itemized deduction for medical expenses rises from 7.5 percent of AGI to 10 percent of AGI. People 65 and older still will be able to claim the itemized deduction for medical expenses at 7.5 percent of AGI through 2016.

Increase in Medicare payroll tax. The hospital insurance tax part of FICA payroll taxes goes from 1.45 percent to 2.35 percent on AGI of more than $200,000 for single filers, $250,000  for married filing jointly or surviving spouse, and $125,000 for married people filing separately.

New tax on medical devices. The Affordable Care Act imposes a 2.3 percent excise tax on every medical device, including things such as pacemakers and artificial joints.

Increased tax on health savings account, or HSA, withdrawals. The penalty for nonmedical early withdrawals from an HSA doubles from 10 percent to 20 percent. Withdrawals from other tax-advantaged accounts such as IRAs will continue to carry a 10 percent penalty.

LaBrecque recommends that high-income people living in retirement or close to it take these five potentially tax-saving steps.

  1. Consider moving municipal bonds into taxable accounts and equities into tax-advantaged accounts.
  2. If you're not yet old enough for Medicare, do as many optional medical treatments as you can in 2012. For instance, schedule and pay for dental implants this year when more of the cost will be tax-deductible.
  3. If you have the option, get that pacemaker or artificial hip installed this year before the device is taxed at premium rates.
  4. While nonmedical withdrawals from an HSA are usually a bad idea, if you must, better to do it this year than next.
  5. If you can control your earned income -- you're self-employed or you have stock options that you can take this year or next -- there could be significant tax advantages to taking the income this year. But get your accountant to calculate your situation. Everybody is different.

One thing is for sure, LaBrecque says, "Tax cut expiration, payroll tax increases, budget cuts and a debt ceiling expiration could all contribute to a tumultuous year-end."

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2 Comments
LaurieAConservative
August 02, 2012 at 3:08 pm

Hey Jack,
You had me til the end. Would you like to government to have the option to deny care with a one payer system as Medicare current can? I've known many medicare patients who have had to go home from rehab or hospitals way too early or end up spending their children's savings to stay in facilities.

jacksmith
July 15, 2012 at 4:37 pm

"Give me Liberty, or Give me Death!" - Patrick Henry

What a brilliant ruling by the United States Supreme Court on the affordable health care act (Obamacare). Stunningly brilliant in my humble opinion. I could not have ask for a better ruling on a potentially catastrophic healthcare act than We The People Of The United States received from our Supreme Court.

If the court had upheld the constitutionality of the individual mandate under the commerce clause it would have meant the catastrophic loss of the most precious thing we own. Our individual liberty. Thank you! Thank you! Thank you! Supreme Court.

There is no mandate to buy private for-profit health insurance. There is only a nominal tax on income eligible individuals who don’t have health insurance. This is a HUGE! difference. And I suspect that tax may be subject to constitutional challenge as it ripens.

This is a critically important distinction. Because under the commerce clause individuals would have been compelled to support the most costly, dangerous, unethical, morally repugnant, and defective type of health insurance you can have. For-profit health insurance, and the for-profit proxies called private non-profits and co-ops.

Equally impressive in the courts ruling was the majorities willingness to throw out the whole law if the court could not find a way to sever the individual mandate under the commerce clause from the rest of the act. Bravo! Supreme Court.

Thanks to the Supreme Court we now have an opportunity to fix our healthcare crisis the right way. Without the obscene delusion that Washington can get away with forcing Americans to buy a costly, dangerous and highly defective private product (for-profit health insurance).

During the passage of ACA/Obamacare some politicians said that the ACA was better than nothing. But the truth was that until the Supreme Court fixed it the ACA/Obamacare was worse than nothing at all. It would have meant the catastrophic loss of your precious liberty for the false promise and illusion of healthcare security under the deadly and costly for-profit healthcare system that dominates American healthcare.

As everyone knows now. The fix for our healthcare crisis is a single payer system (Medicare for all) like the rest of the developed world has. Or a robust Public Option choice available to everyone on day one that can quickly lead to a single payer system.

We still have a healthcare crisis in America. With hundreds of thousands dieing needlessly every year in America. And a for-profit medical industrial complex that threatens the security and health of the entire world. The ACA/Obamacare will not fix that.

The for-profit medical industrial complex has already attacked the world with H1N1 killing thousands, and injuring millions. And more attacks are planned for profit, and to feed their greed.

To all of you who have fought so hard to do the kind and right thing for your fellow human beings at a time of our greatest needs I applaud you. Be proud of your-self.

God Bless You my fellow human beings. I'm proud to be one of you. You did good.

See you on the battle field.

Sincerely

jacksmith – WorkingClass :-)