NEW YORK: There are few certainties for year-end tax planning this year, but if you're a wealthy investor there is one sure thing — the new Medicare tax, slated to begin in 2013.
Part of the 2010 health care reform law, it is a 3.8 percent tax on investment income for individuals with adjusted gross income above $ 200,000, or $250,000 for married couples filing jointly. The same high-income taxpayers will also face an additional Medicare tax of 0.9 percent on wages and self-employment income, on top of the Medicare tax they currently pay.
"This is very real," says Robert Keebler, a partner at Keebler & Associates, a tax and estate planning firm in Green Bay, Wisconsin, who recently wrote a book on the Medicare tax for tax research firm CCH. "People are still in denial, but this is starting to change."
Workers already pay 1.45 percent of their pay in Medicare taxes. Employers also pay 1.45 percent, but won't be required to pay half of the new 0.9 percent additional tax.
The new Medicare tax is structured as a surcharge on net investment income including capital gains, dividends, interest, royalties, partnerships and trusts. The tax does not apply to tax-exempt income, such as interest from municipal bonds, or distributions from retirement plans. The rules are complex; on Monday the Internal Revenue Service issued a 159-page proposed rule designed to clarify the tax.
Depending on how much you make from wages and investments, the surcharge could apply to all of your investment income or only to part of it.
To understand how the tax works consider two examples, included in a Wells Fargo Advisors explainer on the issue. Couple A has wages of $ 230,000 and capital gains of $ 30,000, for a total of $ 260,000; they're $10,000 over the threshold, so would owe 3.8 percent of that excess, or $ 380, for the Medicare tax. Couple B has wages of $ 350,000 and investment income of $ 35,000; they would owe 0.9 percent on the $ 100,000 in wages over the threshold (or $ 900), plus 3.8 percent on their investment income (or $ 1,330), for a total of $ 2,230.
These new Medicare taxes, coupled with the slated expiration of the George W. Bush-era tax cuts at the end of this year, have accountants and tax advisers preparing for a flurry of activity from their wealthy clientele.
For high earners, the combination of the Medicare tax and an expected higher capital gains rate could result in an effective long-term capital gains rate of 23.8 percent, versus today's low rate of 15 percent.
If you're lucky enough to be above the threshold, here's how to think about your planning over the next few weeks.
If you expect to be above the Medicare tax threshold and think your capital-gains rate will be higher in 2013, that turns traditional tax-loss harvesting on its head. Instead of the typical strategy of taking capital losses at year-end, you'll want to take gains and defer losses — you can lock in the gains at 15 percent this year, versus potentially paying 23.8 percent next year.
If you have stocks with substantial gains in your taxable portfolio, you could even choose to lock in the 15 percent tax on those gains, then buy back the same stock over the coming months in order to reset your cost basis for tax purposes before rates go up. (The so-called wash sale rule, which prohibits immediately buying the same shares back when you take a loss, doesn't apply to gains.) Ideally, you'll want to pay for the tax outside of the investment you sold so as to keep the amount invested the same.
Medicare surcharge strategies get more complex for those who have trusts. Trusts are subject to the Medicare tax on the lesser of their undistributed net investment income for the year or the excess of their adjusted gross income over a threshold, currently $11,650. The result is that most trusts — with the exception of charitable trusts, which are exempt — will be affected by the new Medicare tax.
"The threshold is very low on trusts," says Ron Finkelstein, a tax partner at Marcum LLP in Melville, N.Y. "The threshold for trusts is much lower than for individuals."
One possible strategy for trusts: They may be able to reduce or eliminate the Medicare tax by distributing income to beneficiaries — especially if those recipients have income levels that put them below the cut-off for the Medicare tax.
Interest payments on intra-family loans, which have been quite popular among affluent families at a time of low rates, could also be subject to the Medicare tax for those receiving the loan repayment. That means that those parents who have used intra-family loans to help their kids without paying gift taxes may want to revisit those arrangements.
"Things that people have done in the past that were revenue-neutral, like intra-family loans, no longer are," says Paul Gevertzman, a tax partner at accounting firm Anchin, Block & Anchin, in New York. "What was a good plan two years ago isn't a good plan now. So either you want to undo it or lower the interest rate to the lowest allowable amount."
Increasing taxes on investments could prove a boon to insurance sales. That's because investment income that accrues within insurance products isn't subject to the same taxes - and death benefits are never taxed, Keebler says. While he's advising his clients to wait until the final regulations on the Medicare tax come out, he figures that insurance will be a good option for at least some of them.
Then again, when making investments, tax should always be a secondary reason for deciding what to do. As Anchin, Block & Anchin partner Laurence Feibel puts it: "Warren Buffett is right. No one chooses not to invest because the tax rate is 50 percent. That's the reality."
— The writer is a Reuters columnist.
The opinions expressed are her own.
Getting ready for the Medicare tax on investment income
Getting ready for the Medicare tax on investment income
Bitcoin approaches $100,000 on optimism over Trump crypto plans
- Bitcoin has doubled this year, up 40 percent since US election
- Trump, pro-crypto Congress seen clearing regulatory clouds
SINGAPORE/LONDON/NEW YORK: Bitcoin came within a whisker of closing above $100,000 for the first time on Thursday as the election of Republican Donald Trump as US president spurred expectations that his administration will create a friendly regulatory environment for cryptocurrencies.
The world’s largest cryptocurrency was trading between $98,000 and $99,000 in late afternoon trading in the US on Thursday, after briefly touching $99,073. Bitcoin has more than doubled in value this year and is up about 40 percent in the two weeks since Trump was voted in as the next US president and a slew of pro-crypto lawmakers were elected to Congress.
Trump embraced digital assets during his campaign, promising to make the United States the “crypto capital of the planet” and to accumulate a national stockpile of bitcoin.
Crypto investors see an end to increased scrutiny under US Securities and Exchange Commission Chair Gary Gensler, whom Trump has said he will replace.
Trump also unveiled a new crypto business, World Liberty Financial, in September. Although details about the business have been scarce, investors have taken his personal interest in the sector as a bullish signal.
Billionaire Elon Musk, a major Trump ally, is also a proponent of cryptocurrencies.
Over 16 years after its creation, bitcoin appears on the cusp of mainstream acceptance.
“Everyone who’s bought bitcoin at any point in history is currently in profit,” Alicia Kao, managing director of crypto exchange KuCoin, said.
“But those who bought it early, when there were significant obstacles to doing so and there was the might of the world’s financial and governmental forces intent on crushing it, are the real winners. Not because they’re rich, but because they’re right.”
Bitcoin’s rebound from a slide below $16,000 in late 2022 has been rapid, boosted by the approval of US-listed bitcoin exchange-traded funds in January this year.
The Securities and Exchange Commission had long attempted to block ETFs from investing in bitcoin, citing investor protection concerns, but the products have allowed more investors, including institutional investors, to gain exposure to bitcoin.
Crypto rush
More than $4 billion has streamed into US-listed bitcoin exchange-traded funds since the election. This week, there was a strong debut for options on BlackRock’s ETF, with call options — bets on the price going up — more popular than puts.
“There is a persistent bid in the market,” said Joe McCann, CEO and founder of Asymmetric, a digital assets hedge fund in Miami. “$100,000 is a foregone conclusion.”
Crypto-related stocks have soared along with the bitcoin price and shares in bitcoin miner MARA Holdings were up nearly 2.3 percent on Thursday.
“Once you break out to new highs, you attract a lot of new capital,” John LaForge, head of real asset strategy at Wells Fargo Investment Institute, said.
“It’s like gold in the 1970s, where this new high is in a price discovery mode. You don’t know how high it’s going to go,” he said.
Yet the rise is not without critics.
Two years ago, the industry was wracked by scandal with the collapse of the FTX crypto exchange and the jailing of its founder Sam Bankman-Fried.
The cryptocurrency industry also has been criticized for its energy usage, with miners under scrutiny over their potential impact on power grids and greenhouse gas emissions due to their energy-intensive operations.
Crypto crime also remains a concern, with an analysis by crypto researchers Chainalysis finding that at least $24.2 billion worth of crypto was sent to illicit wallet addresses last year, including addresses identified as sanctioned or linked to terrorist financing and scams.
Saudi Arabia’s GACA ushers in new era of passenger experience with AI
JEDDAH: Saudi Arabia’s aviation authority is revolutionizing the passenger experience by incorporating artificial intelligence into its services, in alignment with the nation’s strategic aviation plan, a senior Saudi official said.
At the 2024 Global Civil Aviation Forum in Shanghai, Abdulaziz bin Abdullah Al-Dahmash, vice president of the General Authority of Civil Aviation for Quality and Passenger Experience, highlighted the authority’s ongoing initiatives designed to improve passenger satisfaction.
A session dedicated to GACA’s role in enhancing the passenger experience featured international experts and focused on the authority's efforts to align with Saudi Arabia's aviation strategy and Vision 2030.
The discussion underscored Saudi Arabia's use of data analytics and AI to transform the aviation sector, supporting the National Aviation Strategy and the broader Vision 2030 objectives. This approach is part of the Kingdom's goal to achieve excellence in both aviation services and infrastructure.
The National Aviation Strategy serves as a roadmap to solidify Saudi Arabia’s position as a global leader in tourism, business travel, and logistics. Built around three core pillars — empowering national tourism, improving domestic aviation, and aligning with Vision 2030 — the strategy aims to enhance interconnectivity, increase the market share of national carriers, and expand airport infrastructure.
By leveraging its strategic location and investment potential, Saudi Arabia’s aviation strategy directly contributes to Vision 2030, which aims to strengthen services and bolster the travel and logistics sectors.
Al-Dahmash noted that to achieve the National Aviation Strategy’s ambitious goals, which include tripling passenger traffic to 330 million annually by 2030, Saudi Arabia is prioritizing major infrastructure projects.
This includes constructing new airports, such as the King Salman International Airport, and expanding existing ones to accommodate the surge in passenger numbers. Alongside this, there is a strong focus on improving operational efficiency and enhancing the overall passenger experience.
In this context, GACA is actively developing and implementing programs to meet evolving passenger expectations. One such innovation is the introduction of AI-powered systems that manage and monitor passenger flow, tracking wait times across Saudi airports.
Additionally, the “Bagless Traveler” initiative is transforming the travel process by enabling passengers to complete check-in and baggage handling from their accommodation. During its pilot phase, the service successfully assisted over one million passengers, with more than 2 million bags processed without incident.
Al-Dahmash also emphasized the importance of regulatory frameworks that GACA has implemented, noting that these efforts have significantly improved services at Saudi airports, leading to higher levels of passenger satisfaction. This success has garnered recognition, with several airports receiving local and international awards.
Moreover, GACA has presented its innovative passenger experience programs at global conferences, sharing its best practices with civil aviation authorities worldwide, demonstrating how others can leverage these advancements for similar success.
Closing Bell: Saudi main index slips to close at 11,840
- Parallel market Nomu gained 681.17 points, or 2.28%, to close at 30,540.28
- MSCI Tadawul Index lost 4.52 points, or 0.30%, to close at 1,486.82
RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Thursday, losing 27.40 points, or 0.23 percent, to close at 11,840.52.
The total trading turnover of the benchmark index was SR5.39 billion ($1.43 billion), as 98 of the stocks advanced and 131 retreated.
The Kingdom’s parallel market Nomu gained 681.17 points, or 2.28 percent, to close at 30,540.28. This comes as 63 of the listed stocks advanced, while 23 retreated.
The MSCI Tadawul Index lost 4.52 points, or 0.30 percent, to close at 1,486.82.
The best-performing stock of the day was Al-Baha Investment and Development Co., whose share price surged 10 percent to SR0.33.
Other strong performers included Saudi Reinsurance Co., with a 7.05 percent increase in its share price to SR43.30, and Saudi Chemical Co., which saw its share price rise 5.46 percent to SR10.24.
Saudi Cable Co. recorded the largest decline, with its share price dropping 4.02 percent to SR97.90.
CHUBB Arabia Cooperative Insurance Co. also saw its stock fall 3.13 percent to SR49.50.
Naseej International Trading Co. experienced a 2.64 percent drop in its share price, which fell to SR92.30.
On the announcements front, Saudi Awwal Bank has disclosed its intention to issue an SR-denominated Additional Tier 1 Sukuk through a private placement in the Kingdom, as part of its SR20 billion Additional Tier 1 Sukuk issuance program.
According to a Tadawul statement, the bank has appointed HSBC Saudi Arabia as the sole lead manager for the proposed offer. The statement said the purpose of the issuance is to strengthen the bank’s capital base and support the achievement of its long-term strategic objectives.
The amount and terms of the sukuk will be determined at a later stage, based on market conditions at that time.
Saudi Awwal Bank closed the session at SR31.40, down 0.63 percent.
The Saudi Investment Bank has announced the completion of its US dollar-denominated Additional Tier 1 capital sustainable sukuk offering under its Additional Tier 1 capital sukuk program.
A bourse filing revealed that the offer is valued at $750 million, comprising 3,750 sukuk with a par value of $200,000 each and a return of 6.275 percent.
The sukuk have a perpetual maturity, callable after five years. Settlement of the sukuk issuance is scheduled for Nov. 27, and the sukuk will be listed on the London Stock Exchange’s International Securities Market.
Saudi Investment Bank closed the session at SR13.88, down 0.29 percent.
Aramco to increase borrowing, focus on dividend growth, CFO says
RIYADH: Saudi Aramco plans to increase borrowing and focus on enhancing its dividend distribution strategy, revealed the company’s chief financial officer.
In an interview with Bloomberg, Ziad Al-Murshed explained that this move is part of the company’s efforts to optimize its capital structure.
Aramco is considered one of the pillars of the Saudi economy, encompassing the entire oil production chain, from hydrocarbon extraction to energy generation, as well as refining and commercial distribution activities.
“You’ll see us do a couple of things. One is, just take on more debt compared to use of equity,” Al-Murshed said during the interview.
“It’s nothing to do with the dividend, it is optimizing our capital structure so that we end up with a lower weighted average cost of capital,” he added.
Aramco returned to the debt market earlier this year after a three-year hiatus, raising $9 billion in two separate issuances. In June, it launched a $6 billion offering of dollar-denominated bonds, followed by a $3 billion issuance of Islamic bonds in September.
The CFO noted: “We had the luxury of sitting out those three years until the market became conducive.”
Al-Murshed provided insight into how the company increased its dividend by 4 percent in each of the past two years and is now paying over $81 billion in base dividends.
“We’re looking for it to be progressive over the years,” he said, adding that the company’s free cash flow supports this strategy.
While the company plans to issue debt regularly, Al-Murshed emphasized that it will not be overly frequent and revealed that Aramco has no plans to sell more debt for the remainder of 2024.
“We want to be active, but we don’t want to be too active,” he said.
The CFO further clarified that the company’s decision to sell debt is primarily aimed at broadening its investor base.
Al-Murshed did not specify whether Aramco would borrow to support its dividend payments, which are set to total $124 billion this year, exceeding the company’s earnings.
Earlier this month, Aramco reported a net profit of SR103.37 billion ($27.52 billion) for the third quarter of 2024, exceeding analyst expectations, which had projected a median net income of $26.9 billion.
However, in a statement released at the time, the company noted a 15.4 percent decline in net profit compared to the same period in 2023, attributed to challenging market conditions, including lower prices for crude oil, refined products, and chemicals.
Aramco’s vision remains to be the world’s leading integrated energy and chemicals company, operating in a safe, sustainable, and reliable manner.
Saudi Arabia's Ma’aden proceeds with $10bn capital raise to boost phosphate stake
- Ma’aden said its shareholders will convene virtually on Dec. 11 to approve the capital increase
- Plan includes issuing 111 million new ordinary shares valued at SR10 each
RIYADH: Saudi Arabian Mining Co., or Ma’aden, has issued a shareholder circular outlining the terms of its plan to raise its share capital to SR38.03 billion ($10.1 billion) from SR36.92 billion to boost its phosphate business.
The move follows an earlier announcement to acquire a 25 percent stake in Ma’aden Wa’ad Al-Shamal Phosphate Co. from Mosaic Phosphates B.V., increasing its ownership in the joint venture to 85 percent.
In April, Ma’aden announced the signing of an agreement to acquire 210.93 million shares owned by Mosaic Co. and its subsidiary, Mosaic Phosphates B.V. Regulatory approval for the transaction was granted in November by the Capital Market Authority.
In a bourse filing, Ma’aden said its shareholders will convene virtually on Dec. 11 to approve the capital increase. The plan includes issuing 111 million new ordinary shares valued at SR10 each, representing a 3.01 percent rise in the company’s share capital.
In exchange, Mosaic Phosphates will transfer its MWSPC stake to Ma’aden, aligning with the Saudi firm’s strategic expansion in the phosphate sector.
MWSPC, established in 2014 and based in Turaif, is a joint venture between Ma’aden, Mosaic Co., and Saudi Basic Industries Corp. Following the transaction, SABIC will retain its 15 percent stake while Ma’aden strengthens its position as a global phosphate leader.
Mosaic Netherlands Holding Co., a subsidiary of Mosaic Co., will receive the newly issued shares, which will be subject to a three-year lock-up period. Limited transfers will begin in the fourth year, with full tradability by the fifth year, the circular said.
The acquisition will enhance Ma’aden’s control over MWSPC, recognized as a low-cost, large-scale phosphate producer. It will also grant Ma’aden access to Mosaic’s marketing rights, a component of the deal’s valuation at SR5.62 billion.
Ma’aden expects increased earnings per share following the transaction, reflecting anticipated synergies and enhanced operational efficiencies, according to the document.
The company assured shareholders that all regulatory approvals for the transaction have been secured, with a detailed timeline for procedural steps provided in the circular.
The move underscores Ma’aden’s commitment to driving value creation in the Kingdom’s mining sector, aligning with Saudi Vision 2030 goals to diversify the economy and develop industrial capabilities.
In the first half of this year, Ma’aden achieved a net profit of SR2 billion, marking a 160 percent increase compared to the same period in 2023.
The surge in profitability was driven by several key factors. A major contributor to this financial success was the significant boost in sales volume, according to a Tadawul statement.
The company’s robust performance in primary aluminum and gold sales played a crucial role in driving up revenues. Ma’aden also benefited from reductions in raw material costs and lower depreciation expenses, which further enhanced its profitability.
Ma’aden’s performance and strategic advancements underscore its commitment to leading the mining sector and contributing to Saudi Arabia’s economic diversification goals, particularly in developing mining as a critical pillar of the Kingdom’s industry.
