Late last week, Sinegal and the rest of the Costco Board of Directors voted to pay shareholders a special $7 per share dividend to avoid higher dividend taxes that are scheduled to go into effect on January 1, 2013. As the Wall Street Journal notes,
That’s a $3 billion Christmas gift for shareholders that will let them be taxed at the current dividend rate of 15%, rather than next year’s rate of up to 43.4% — an increase to 39.6% as the Bush-era rates expire plus another 3.8% from the new ObamaCare surcharge. More striking is that Costco also announced that it will borrow $3.5 billion to finance the special payout. Dividends are typically paid out of earnings, either current or accumulated. But so eager are the Costco executives to get out ahead of the tax man that they’re taking on debt to do so.
Other companies will no doubt follow. Obamacare = more borrowing, more debt.
Item Two: IRS issues 159 pages of Obamacare tax rules governing investment income taxes on capital gains and dividends earned by high-income individuals.
The Internal Revenue Service has released new rules for investment income taxes on capital gains and dividends earned by high-income individuals that passed Congress as part of the 2010 healthcare reform law.
The 3.8 percent surtax on investment income, meant to help pay for healthcare, goes into effect in 2013. It is the first surtax to be applied to capital gains and dividend income.
The tax affects only individuals with more than $200,000 in modified adjusted gross income (MAGI), and married couples filing jointly with more than $250,000 of MAGI.
The tax applies to a broad range of investment securities ranging from stocks and bonds to commodity securities and specialized derivatives.
…Together, the two taxes are estimated to raise $317.7 billion over 10 years, according to a Joint Committee on Taxation analysis released in June.
It’s a tax that punishes people that have been diligent over the years and did the right thing,” says Certified Public Accountant Bob Keebler on the Medicare surtax that kicks in on Jan.1.
As I wrote last week, the additional 3.8% tax is part of the president’s Patient Protection and Affordable Care Act, ak.a. “Obamacare,” and affects individuals Congress has decided are “wealthy:” single taxpayers with modified adjusted gross income (MAGI) of $200,000 or more and married couples with a MAGI of at least $250,000.
If you fall into one of these categories, you’ll pay 3.8% more in federal income tax on the lesser of your investment income or your “excess” MAGI- the amount that exceeds the $200,000 or $250,000 threshold.
“Congress has introduced a third dimension- this surtax- that will affect every investment decision and transaction you make,” warns Keebler, who holds a Master of Science degree in taxation and addresses tax professionals around the country.
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