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Friday Financial Five – November 9th, 2012

Friday, November 09, 2012


Revisiting the “Fiscal Cliff”

It’s too optimistic to think any long term tax change will take place before the end of the year. Expect Congress to again put a temporary fix in place while they work out the details for a more permanent solution next year. You can realistically expect a rise in the top income tax rates, increased taxation on investment income, and estate tax parameters more generous to the government than currently exist.


Obamacare and you

If certain states weren’t fully preparing for the implementation of President Obama’s health care plan, you can be sure they are now. States will begin creating exchanges for those that don’t have coverage through work. There will be an individual mandate that will penalize those that don’t get coverage. People with pre-existing conditions will no longer get turned down or pay higher premiums. Total premiums are expected to rise, but over half of people buying on the individual market should qualify for tax credits.

Tax strategies given the new health care law

Obamacare will mean increased Medicare taxes starting in 2013. For those single with AGI more than $200,000 and couples making more than $250,000, there will be an extra .9 percent tax on the excess over those amounts. Investment income can be hit with an extra 3.8% if the investor crosses certain thresholds. Therefore, assuming municipal bonds retain their tax exempt status, there could be an increased focus on using them in taxable accounts. If you’re a small business owner, check to see if you qualify for the small-employer health insurance credit. Finally, maximizing retirement plan contributions will both reduce your taxable income and make you less likely to be surcharged.

The market since the election

The day after the election, the Dow lost 300 points and Thursday saw another three-digit decline. Some of this is might be angry Republicans, but it also looks like an attempt to lock in a perceived lower capital gains tax rate. The fiscal cliff is grabbing headlines for the market downturn, but there’s also uncertainty in European debt markets and a change in leadership in China. If you’re a steady retirement plan contributor, view it as an opportunity to buy at prices lower than last month.

3rd quarter house sales in Rhode Island

On a positive note, the local housing rebound continued in the third quarter. There were huge gains in the number of sales across the state from third quarter 2012 over the same period in 2011. Some gains in wealthier areas were especially evident. It’s possible that parents are moving their children from private schools to areas with superior public education, including a 3rd quarter increase in East Greenwich sales of over 100%. Other areas that saw the number of houses sold increase by over 50% include Charlestown, Hopkinton, and Warren.

Dan Forbes is a regular contributor on financial issues. He is a CFP Board Ambassador. He leads the firm Forbes Financial Planning, Inc in Providence, RI and can be reached at [email protected]


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