Talk about hating to pay taxes! The golf world’s most lovable dude, Phil Michelson (a California resident) recently talked about retiring just because of the HUGE 2013 tax claw coming to grab his winnings. Especially with the CA tax hikes.
There was a great article that talked about these issues and the fact that after winning his last event, our hero Phil would only take home 37% of his winnings. Now granted – he may still be able to pay the mortgage, but it is crazy how much Uncle Sam makes from Phil’s short game.
How does any of this have to do with real estate investors and business owners? Well, like Phil, many of you are very successful. And again, like Phil, you will be coughing up a lot of your hard earned gains in taxes. What got Phil all riled up was the post “Fiscal Cliff” taxes in addition to the California state taxes. Many of you aren’t fully aware of all of these new taxes you will be paying if you do nothing.
Here’s a quick headache inducing reminder:
1. The Marginal Rate above $450,000 is now up to 39.6%….up 4.6%.
2. Payroll taxes up 2%.
3. Itemized deductions capped.
4. Capital Gains taxes up to 20% from 15% for most of you.That’s a 33% increase from 2012.
5. 3.8% surtax on all unearned income (Obamacare).
6. .9% tax on all earned income (Obamacare).
Good financial management goes beyond just your sale. It’s imperative to look at all of this….new taxes….new fees…your financials, through the proper lens and look at each of these issues as a piece of the big picture. Beyond that you need to understand your tax deferral options, such as a 1031 exchange or Structured Sale.
Back to Phil moving….. What was he thinking? It’s pretty simple. For all of our friends in California, your state taxes alone went up 3% to 13.3%. That’s a pretty high premium to live in a certain state, no matter how beautiful. What if you and Phil decided to move to Florida or Texas? State tax is 0%. That’s a $130,000 difference on $1,000,000 of gain.
That’s just a thought, but one of countless ideas/strategies to talk about next time you are eyeing up that birdie (or double bogie saving) putt.
Keep your money.