U.S. Apple investors, beware looming expiration of Bush era tax cuts

“What’s better? Capital gains and dividend income, or just capital gains? News that Apple plans to pay out $2.65 per share per quarter starting later this year has more than a few scurrying to answer that question,” Robert Powell reports for MarketWatch. “Under current law, taxpayers in the 10% and 15% tax brackets don’t pay any taxes on long-term capital gains and qualified dividends, while those in the 25% to 35% tax brackets will pay a 15% tax on long-term capital gains and qualified dividends. In essence, having long-term capital gains and/or dividends didn’t really matter all that much. (Short-term capital gains and qualified dividends, by the way, are under current law taxed at a maximum rate of 35%.)”

Powell reports, “But come 2013, all that is scheduled to change, making the question about Apple and its dividend less academic. Yes, the so-called Bush tax cuts are scheduled to expire. And that has investment and tax professionals talking in general about the need to start harvesting gains — now.”

“Consider: In 2013, the maximum tax rate will rise to 21.2% on long-term capital gains and 40.8% for short-term capital gains. The extra 1.2% is due to the return of the 3% disallowance of itemized deductions for income earned above a threshold, according to Bernie Kent, J.D., CPA, and managing director of Telemus Wealth Advisors,” Powell reports. “In addition, beginning in 2013, the new federal health-care program imposes a 3.8% tax on the investment income, including capital gains, of high-income taxpayers. ‘These two changes would result in a combined 66 2/3% increase in the maximum federal income tax in the long-term capital gains rates on the sale of stock in 2013 compared to a sale in 2012 (a 25% rate compared to a 15% rate),’ Kent wrote in the LISI Income Tax Planning Newsletter #25. ‘Further, if President Obama’s proposed ‘Buffett Rule’ is enacted, millionaires could face a minimum tax rate of 30% on their long-term capital gains as early as 2013.'”

“What’s more, starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates, which are scheduled to change in 2013 as well. Absent any legislation, the 10% rate will be collapsed into the 15% rate for 2013; the 25% rate will become 28%; the 28% rate will become 31%; the 33% rate will become 36%; and the 35% rate will become 39.6%,” Powell reports. “And so the question of having capital gains and dividend income with Apple (or any other stock for that matter) is more than academic. Now one has to figure out what the best course of action might be. Sell this year and pay taxes at current rates? Hold and pay taxes on dividends at this and next year’s rates? Or pursue some other course of action?”

Read more in the full article here.

[Thanks to MacDailyNews readers too numerous to mention individually for the heads up.]

Related articles:
Apple’s dividend move puts spotlight on foreign cash holdings, repatriation tax reform – March 20, 2012
Apple: Good start; and what about the overseas cash? – March 19, 2012
Apple’s foreign cash hoard piles up: $54 billion and rapidly growing – January 11, 2012
Senator John McCain eyes Apple’s $54 billion overseas cash pile – November 3, 2011
Google joins Apple in push for U.S. repatriation tax holiday – October 3, 2011
Apple lobbies Obama for tax holiday, wants to bring overseas bounty home – August 24, 2011
U.S Senate Democrat Schumer allies with Apple, other multinationals on repatriation tax talks – June 21, 2011
U.S. companies push for tax break on foreign cash – June 20, 2011
Apple, Oracle, Duke Energy, others organize lobbying blitz for tax holiday – February 17, 2011


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