Manage Your 2014 Tax Bill by Knowing Medicare Surtaxes

We’re now in our second year of the new Medicare surtaxes. If these surtaxes affect you, we will help you develop a tax plan to take them into account and keep them to a minimum.

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Take Steps to Deal with Medicare Surtaxes 

1. Earned income

  • To help minimize the surtax on earned income, try to defer excess discretionary earnings (such as commissions or bonuses) to a lower-income year.
  • If you are self-employed, consider maximizing payments of deductible expenses in high-income years while deferring late-year customer billings to the following year.
  • Think about increasing your withholding or quarterly estimate payments to cover any additional liability.


2. Investment income

  • The surtax on net investment income is trickier but provides more planning opportunities. To reduce this surtax:
    • Consider liquidating depreciating stocks to offset capital gains.
    • Shift some investments to tax-deferred annuities, municipal bonds, or other vehicles that don’t generate taxable income.
    • Maximize deductible contributions to traditional IRAs, 401(k) plans, or similar sheltered investments. Their earnings are excluded from NII, and the contributions reduce your MAGI.
    • Donate appreciated stocks to charities rather than selling them.
    • Try to make otherwise taxable investments through a Roth IRA. The earnings won’t be part of NII, and subsequent tax-free withdrawals won’t count toward the thresholds.

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