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Now that the election is over, there's an intense debate on the future of the Bush-era tax cuts in light of the looming December 31, 2012, expiration date. It's likely the discussion about whether any or all of the tax cuts should be extended will reach a fever pitch until a decision is made.
It's uncertain how government will address the expiring tax cuts and the steep spending cut compromise from last year's federal debt ceiling conflict. This two-sided issue, known as the fiscal cliff, has industry analysts anticipating volatility in the markets.
Although there are many proposals that may affect your future tax bill, three of the biggest potential impacts of the tax laws that are set to expire are described below:
Taxes that are certain for high income earners in 2013 are the 0.9% Medicare tax increase on earned income and the 3.8% Medicare tax on investment income. Both of these are for earners with an adjusted gross income exceeding $200,000 single ($250,000 jointly).
Regardless of your financial situation, it could be a good time to review your strategy for managing your tax obligation. Making informed investing adjustments to keep more of what you earn can be part of a disciplined, diversified, long-term approach.
With the potential for rising taxes, it makes sense to consider the benefits of municipal bond funds. These funds offer the unique advantages of generating income that's free from federal taxes and, in some cases, free from state and local taxes. They can also help diversify a stock-heavy portfolio and have a history of low relative volatility*.
Our municipal bond funds are designed to provide you with a high level of risk-adjusted total return and tax-free income over the long term-the basic components of a tax-advantaged approach. Ultimately, we seek to maximize return for the level of risk taken. Discover more about our municipal bond funds .
*Based on a comparison of the S&P 500® Index and the Barclays Municipal Bond Index for the 10-year period ended 9/30/2012.
If you want help evaluating your current portfolio or need help deciding what tax-advantaged fund may be right for you, please contact us.
Also, visit our blog to get the latest analysis of current events and economic/market conditions from our investment professionals. For tax guidance, please consult a tax advisor. Thank you for your continued investment.
This information is for educational purposes only and is not intended as investment, accounting, legal or tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.
IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.
Generally, as interest rates rise, the value of the securities held in the fund will decline. The opposite is true when interest rates decline.
Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.
As with all investments, there are risks of fluctuating prices, uncertainty of dividends, rates of return and yields. Current and future holdings are subject to market risk and will fluctuate in value.
Investment income may be subject to certain state and local taxes and, depending on your tax status, the federal alternative minimum tax (AMT). Capital gains are not exempt from state and federal income tax.
Diversification does not assure a profit nor does it protect against loss of principal.
© 2012 Standard & Poor's Financial Services LLC. All rights reserved. For intended recipient only. No further distribution and/or reproduction permitted. Standard & Poor's Financial Services LLC ("S&P") does not guarantee the accuracy, adequacy, completeness or availability of any data or information contained herein and is not responsible for any errors or omissions or for the results obtained from the use of such data or information. S&P GIVES NO EXPRESS OR IMPLIED WARRANTIES, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE IN CONNECTION TO THE DATA OR INFORMATION INCLUDED HEREIN. In no event shall S&P be liable for any direct, indirect, special or consequential damages in connection with recipients' use of such data or information.
Source: Barclays Indices