Income taxes rise faster than thought
If you think that higher income tax rates don't kick in until you report income of $450,000 filing jointly with your spouse, think again.
The new fiscal cliff tax legislation passed on New Year's Day begins to bite at about $300,000 for couples filing jointly, says Roger McEowen, an Iowa State University agricultural law professor and director of the university's Center for Agricultural Law and Taxation.
That's because at that level of income, there is a 2% cut in exemptions and a 3% cut in itemized deductions, McEowen told Agriculture.com Thursday.
"You could effectively bring that rate up by 3 or 4 percent when you start to phase out your exemptions and itemized deductions," he said.
"Your effective rate starts to get higher at $300,000, not $450,000," he said. "That's what I call a stealth tax."
The capital gains tax goes up from 15% to 20% for those with income above the $450,000 threshold for joint filings. But there is a new medicare tax on passive income as well, and that kicks in at a lower $250,000 income level for couples filing jointly.
Unlike the regular 20% capital gains tax, the 3.8% medicare tax does exempt farmers who farmed until they went on social security. Land sold under those circumstances would not be subject to the new 3.8% tax.
McEowen will be going over these and other changes in the tax laws on Monday, January 14, in a webinar. About half of the 1,000 available slots are still open. Details are on the CALT website