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INCREASE WITHHOLDING NOW FOR CLIENTS HIT WITH NEW TAXES

Taxes are up for 2013. Rates are higher on ordinary income and capital gains. Personal exemptions and itemized deductions are phased out. The 3.8% Medicare tax hits net investment income for the first time this year.

Not everyone is affected, but certainly our upper income clients will owe more. It is important to confirm that the client's 2013 estimated tax payments are sufficient to cover the safe harbor—110% of prior year tax for those with AGI over $150,000.

If the estimated tax payments are not enough, then:

1.  Project 2013 taxes now.  Of course, recommend ways to reduce projected 2013 taxes by prepaying state taxes (watch AMT), donating appreciated assets to charity, recognizing losses to offset capital gains, etc.

2.  Increase withholding on wages to cover 90% of current year taxes. Withholding is considered paid equally throughout the year, even if the withholding is increased at year end.

3.  Leave enough time to take action. For 2013, it is especially important to plan now and not delay until year end when the alternatives to minimizing estimated tax penalties are limited.