2013 Tax Law Changes: Watch Out for These Hits

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Shares of a promising biotech we recommended back in February 2013 – jumped as much as 27% to a three-month high of $14.20 yesterday after the company said a new cancer drug met its main goal in a midstage clinical trial.

Its shares backtracked a bit as the day progressed but still closed 17.6% higher for the session. These shares have advanced 361% since we first told you about them. The stock has generated a peak gain of 456%, making it one of the 31 recommendations we’ve made to you that have doubled or better since we launched Private Briefing in August 2011. (More on that later…)

Some of the 2013 tax law changes slated to take effect Jan. 1 could hit your portfolio if you aren't prepared - and some will go into effect regardless of the fiscal cliff resolution.

In fact, the Internal Revenue Service (IRS) has released 159 pages of rules that will apply to trusts, annuities and individual equity traders.

One tax that could affect you is a new 3.8% surtax on investment income - or as it's fondly called, the investment income Medicare tax. The new tax is part of the 2010 healthcare reform law passed by Congress, and represents the first surtax on capital gains and dividend income.

There's also a new 0.9% healthcare tax on wages for high-income individuals; it is called the earned income Medicare tax increase.

Combined, these two taxes could raise an estimated $317.7 billion over the next decade, reported Reuters, based on a June Joint Committee on Taxation analysis.

To find out if you qualify for these taxes - and how to avoid them - check out this look at the proposed changes.

2013 Tax Law Changes: Medicare Surtax

The 3.8% Medicare surtax is a big deal because it's the first time a Medicare tax will be assessed on investment income.

For the purposes of the rule, investment income includes the following:

  • Interest, Dividends, Royalties, and Annuities
  • Capital gains, including any profit you make on the sale of your residence if it exceeds the amount you are allowed to exclude
  • Passive-activity income. This can defined as earnings that stem from rental property, limited partnerships or other business that an individual is not actively involved.

You'll be affected by the Medicare surtax if your modified adjusted gross income (MAGI) is more than $200,000 as an individual, or $250,000 for married couples filing jointly.

Your MAGI is the total of adjusted gross income plus any foreign income. So if you work in the United States, MAGI will equal AGI, which includes your net investment income (gains minus losses).

It's a bit tricky, though.

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