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Special Report from Trading Tax Coach – Steve Ribble

TradingPub Admin | November 10, 2012

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Special thanks to TradingPub Commentator, Steve Ribble on the following guest post!  We are not tax experts at the TradingPub so we appreciate Steve for taking the time to share some of his expertise!  The following post is for educational purposes only and we highly recommend consulting a tax professional before making any decisions.

ObamaCare and the Tax Impact on Traders

Now that the Supreme Court has upheld ObamaCare, a series of tax hikes are poised to take effect. Some of these tax hikes are starting in 2013, so traders should start planning now to minimize the effects. I am going to cover three of the tax increases set to start in January 2013 that could impact traders.

First, starting in 2013, a 0.9% surtax on high income earners will begin. Single earners with wages exceeding $200,000 and couples earning over $250,000 will have to pay this tax. This surtax will apply to the self employed too. This tax is on wages only and will only impact those traders who have W-2 income over these amounts (including spouse’s income).

Second, unearned income will be subject to a 3.8% Medicare surtax for single filers with modified gross incomes over $200,000 and couples earning over $250,000. The levy applies to the lesser of the filer’s net investment income of the excess of modified AGI over the thresholds. This is the one new tax that affects traders the most so let’s look at some possible scenarios:

SCENARIO ONE:

Single Filer

AGI before trading gains:

$150,000

Trading Gains: $100,000

AGI: $250,000

Tax Due:

Excess over $200,000:

$50,000

Investment Income:

$100,000

Lesser Amount:

$50,000

Tax Due: $50,000 X .038 =

$1900

This is in addition to any other taxes due!

SCENARIO TWO:

Married Couple

AGI before trading gains:

$140,000

AGI: $260,000

Tax Due:

Excess over $250,000:

$10,000

Investment Income:

$120,000

Lesser amount: $10,000

Tax Due:

$10,000 X .038 = $380

SCENARIO THREE:

Married Couple

AGI before trading gains:

$100,000

Trading Gains: $450,000

AGI: $550,000

Tax Due:

Excess over $250,000:

$300,000

Investment Income:

$450,000

Lesser amount: $300,000

Tax Due:

$300,000 X .038 = $11,400

Basically, if you are a successful trader and it is your only source of income, you are going to end up paying an additional 3.8% on your trading gains over the thresholds. How is that for “affordable care”?

The third tax increase that traders have to look forward to in 2013 is an increase in the AGI floor for deducting medical expenses on Schedule A. Starting next year the floor jumps from 7.5% to 10% of AGI.

This means that in order to deduct your excess medical expense on your Schedule A, the expenses will have to exceed 10% of your AGI to be deductible. For example, if your AGI is $200,000, you will be able to deduct the amount of your medical expenses that exceeds $20,000. If your out of pocket medical expenses are $30,000, you can deduct $10,000 from your taxes on your Schedule A.

You miss out on a $20,000 deduction due to this floor on the Schedule A!

There are ways that you can deduct 100% of your out of pocket medical expenses. It’s called a Section 105 plan. Please see my video on this subject:

http://www.youtube.com/watch?v=D8ix5qAzUM8

Republicans are vowing to repeal the entire health reform law, but in the mean time, traders need to start planning now to minimize the effect of these three tax increases that are coming in 2013.

If you have any questions on how the new ObamaCare taxes affect you, please contacts us at our office at 813-746-8208 or email us at info@ShrinkMyTaxes.com.

Cheers,

The TradingPub
“Trade, Talk, Learn – Cheers to Success”
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Risk Disclaimer: Past performance is not indicative of future results. Futures trading involves substantial financial risk. Views of guest commentators do not represent those of TradingPub.com. Article intended for educational purposes only and not meant in anyway as a solicitation to buy or sell certain securities. Please consult your personal financial adviser before using this information for your own trading purposes.