Magazine article Medical Economics

Money Management Q&A

Magazine article Medical Economics

Money Management Q&A

Article excerpt

Review investments mix as tax laws change

Q: In today's economic climate, is it better to invest in stocks that produce long-term capital gains and yield dividends, or does it make more sense to invest in municipal bonds?

A: There is a strong possibility that starting in 2011, the tax rate on dividends and longterm capital gains will increase to at least 20%, and maybe as high as 23%, due to changes in the tax law. In addition, many higher income taxpayers will, for the first time, have to pay Medicare tax on some unearned income. Furthermore, one proposal would replace the current exemption for interest on new municipal bonds with a tax credit, reducing the attractiveness of such bonds. In short, once it is dear how the tax laws will change, it will be prudent to review your mix of after-tax investments.

SOCIAL SECURITY TAX PAYMENTS NOT OPTIONAL

Q: I have paid enough into Social Security that my benefits -won't increase no matter how much more I pay. IfI take all profit as distribution from my S corporation from now on and no salary, would the IRS view this as tax evasion, or am I allowed to do so since I have paid my maximum into the system?

A: Discontinuing payment of Social Security on all income up to the Social Security wage base, and Medicare taxes on all earned income, never has been an option and has nothing to do with how much you've paid into the system in the past and whether your future benefits will increase.

You can take distributions on the S corporation profits, but this is contingent on your taking "reasonable" wages for the services you render.

Far example purposes only, in my opinion it might be reasonable for a doctor to take wages of $150,000 and have corporate net profits of $30,000, but not the opposite. Congress is considering proposals to make all distributions from S corporations subject to Social Security taxes.

FIND OUT IF 401(K) LOAN INTEREST IS DEDUCTIBLE

Q: I want to upgrade our practice's phone system but don't want a bank loan. …

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