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Can He Do It?
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Under Obama's tax plan, middle-income taxpayers would see their after-tax income rise by about 5 percent, or nearly $2,200 annually, by 2012, according to the Tax Policy Center. Middle-income taxpayers are defined roughly as those making $40,000 to $70,000 a year. Taxpayers in the top 1 percent -- those with an adjusted gross income of at least $388,806, according to the Internal Revenue Service -- would face an average tax increase of $19,000 by 2012. That would amount to a reduction in after-tax income of about 1.5 percent.
Some households, particularly those with higher incomes, may want to make some financial adjustments, advisers said. The planners stressed that it's impossible to know exactly what shape the policies will eventually take, but they offered some general thoughts. If your family falls into Obama's definition of wealthier Americans making more than $250,000 a year, then you might want to think about reducing your taxable income. Obama has proposed raising capital gains and dividend taxes, estate taxes, income taxes and possibly payroll taxes for this group.
"The question for those folks is how many different places can it possibly hit their income or portfolios?" said Barry Glassman of Cassaday & Co. in McLean.
Even if you earn less than $250,000, you may also benefit by reducing your taxable income. For instance, if Obama and Congress wipe out income taxes for seniors earning less than $50,000, as he has proposed, and you are a senior who earns a bit more, one strategy could be to turn taxable income into tax-free income by putting money in municipal bonds, Glassman said.
Deloitte's Stretch has been fielding questions about whether any increase in the capital gains tax will apply retroactively to 2009. He doubts it, as do other tax experts. He advises people to weigh the transaction costs of selling stock against any potential tax benefit. "How much of a 6 percent transaction cost will you be willing to incur for a 5 percent tax gain?" he said, referring to Obama's proposal to raise capital gains tax rates.
People who may want to prepare for a capital gains tax increase are those with deferred compensation. You may want to speed up the timetable for payments. "You would presumably take this money and put it in some investment that would get a lower capital gains or dividend treatment," he said.
The bottom line on the Obama plan, Stretch said: Check in with your adviser.
"There may be a play there," he said.
