The end of the year is always a key time for financial and tax decisions, but 2012 is not like other years. The current federal tax rates, the legacy of tax cuts introduced under President Bush, are scheduled to end at the close of 2012. If these tax cuts expire, tax rates will automatically increase in 2013. The future of tax rates depends on whether Congress and President Obama can reach legislative compromises to extend all or some of the current rates—or perhaps even to achieve a reform of the tax code.
Uncertainty about the future of most federal tax rates after 2012 has brought unusual complexity to year-end planning for stock options, restricted stock/RSUs, employee stock purchase plans, and other types of stock compensation. Many tax-rate increases affecting stock compensation have the potential to occur in 2013. The flat withholding rate on supplemental wage income may rise to from 25% to 28% for amounts under $1 million in a calendar year (and from 35% up to 39.6% for amounts over $1 million in a calendar year). The top rate of capital gains tax may jump from 15% to 20%. In addition to these possible increases, people with high incomes face a rise in the Medicare tax rate, to 2.35%, along with a new Medicare surtax of 3.8% on investment income, including gains from stock sales. For all taxpayers, the Social Security rate on wages up to the yearly limit is scheduled to return to 6.2% from the temporarily reduced rate of 4.2%.
Helpful Guidance At myStockOptions.com
The current tax uncertainty, which may continue until the very end of 2012 or even into 2013, complicates year-end financial planning. For equity compensation and company stock holdings, the prospect of higher tax rates ahead would affect year-end planning strategies around the acceleration of income into the current year and the delay of deductions. Consequently, employees with stock compensation, and the advisors they work with, may want to explore a few different potential tax scenarios presented in the educational articles, FAQs, and modeling tools at myStockOptions.com.
Promptly updated for every new development in tax legislation, the section Financial Planning: Year-End at myStockOptions.com provides a helpful variety of education and guidance on the major issues, decisions, and innovative strategies of year-end 2012.
Articles feature in-depth discussions:
- Top Ideas For Year-End Tax Planning With Stock Compensation by the myStockOptions.com Editorial Team & Contributors
- Year-End Strategies For Restricted Stock: Ideas To Consider by Bruce Brumberg
- Year-End Strategies For Employee Stock Purchase Plans: Ideas To Consider by Matt Simon
- Stockbrokers' Secrets (Part 3): Year-End Planning For NQSOs, Restricted Stock, And RSUs by W.E.B. Bantling and Michael Beriss
- How Tax Rate Changes Impact Stock Grant Strategies (Parts 1, 2, and 3) by Stanley Trotta and Bob Gordon
- Stockbrokers' Secrets (Part 7): Year-End Planning For ISOs by W.E.B. Bantling and Michael Beriss
Along with these articles, FAQs in the year-end section answer many questions, including:
- What are the potential tax increases in 2013 that may affect my year-end planning for stock compensation?
- How may the withholding taxes on my equity compensation change in 2013?
- How does the health-care reform law affect planning for stock compensation and my Medicare tax rate?
- What are year-end strategies for stock options, stock appreciation rights, and restricted stock?
- How do employees harvest capital losses against capital gains from company stock holdings?
- Are there strategies for using capital-loss carry-forwards from prior years?
- What risks are posed by the wash sale rule?
- What year-end strategies can help to minimize alternative minimum tax with incentive stock options?
- How do tax-law changes of recent years, including refundable AMT credits, affect year-end planning?
- How can employees save taxes on company stock by making gifts and donations, including those to private foundations or grantor-retained annuity trusts?
All of these questions, and many others, are answered in the section Financial Planning: Year-End Planning. In addition, the calculators and modeling tools at myStockOptions.com allow users to play out various "what if" scenarios with different tax rates and stock prices.
Anyone with year-end planning questions related to nonqualified deferred compensation will want to explore the content and tools at myNQDC.com, a separate website by the publisher of myStockOptions.com.
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