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
Closing Bell: Saudi main index slips to close at 11,849
- Parallel market Nomu lost 205.92 points, or 0.65%, to close at 31,238.29
- MSCI Tadawul Index shed 4.86 points, or 0.33%, to close at 1,484.56
RIYADH: Saudi Arabia’s Tadawul All Share Index slipped on Sunday, losing 43.07 points, or 0.36 percent, to close at 11,849.37.
The total trading turnover of the benchmark index was SR4.14 billion ($1.1 million), as 84 of the stocks advanced and 137 retreated.
The Kingdom’s parallel market Nomu lost 205.92 points, or 0.65 percent, to close at 31,238.29. This comes as 37 of the listed stocks advanced while 49 retreated.
The MSCI Tadawul Index also lost 4.86 points, or 0.33 percent, to close at 1,484.56.
The best-performing stock of the day was Saudi Vitrified Clay Pipes Co., whose share price surged 9.89 percent to SR38.90.
Other top performers included SHL Finance Co., whose share price rose 6.43 percent to SR18.20, as well as Taiba Investments Co., whose share price surged 4.97 percent to SR39.05.
Riyadh Cables Group Co. recorded the biggest drop, falling 6.30 percent to SR136.80.
Al Hassan Ghazi Ibrahim Shaker Co. saw its stock prices fall 5.15 percent to SR26.70.
Dr. Sulaiman Al Habib Medical Services Group also saw its stock prices decline 4.02 percent to SR286.60.
Meanwhile, Al-Baha Investment and Development Co. has announced moving its headquarters to Riyadh.
The company’s shares will be suspended for two business days starting Dec. 22, following the board of directors’ recommendation to reduce capital by 26.5 percent from SR 297 million to SR 218.3 million during an extraordinary general meeting held on Dec. 19.
The National Agricultural Development Co. has announced the release of its Sustainability and Environmental, Social, and Governance report.
According to a Tadawul statement, it outlines the company’s approach to embedding sustainability criteria within its strategic direction and operations as well. It reflects the firm’s commitment to its ESG responsibilities along with its devotion to sustainable development objectives in line with the Global Reporting Initiative standards.
NADEC’s strategy complements the requirements for economic growth, keeps pace with developments in the Kingdom, and aligns with Vision 2030, which emphasizes environmental sustainability and renewable energy as fundamental components of development.
The analysis further provides a comprehensive insight into NADEC’s sustainability initiatives and commitments for the year 2023. The statement also disclosed that NADEC will periodically issue reports to keep stakeholders informed of ongoing developments going forward.
NADEC ended the session at SR25.50, up 0.98 percent.
Alhasoob Co. has announced the termination of the non-binding memorandum of understanding to acquire all shares of Alkhorayef Printing Solutions Co. by issuing shares to its owner Alkhorayef Group Co.
A bourse filing revealed that this comes without reaching an agreement between the two parties and without any obligation on either party.
Alhasoob Co. ended the session at SR64.20, down 3.07 percent.
Saudi Basic Industries Corporation has announced the board decision to distribute SR5.1 billion in interim cash dividends to shareholders for the second half of the year.
According to a Tadawul statement, the total number of shares eligible for dividends amounted to 3 billion shares, with the dividend per share standing at SR1.70. The statement also revealed that the percentage of dividend to the share par value stood at 17 percent.
SABIC ended the session at SR67.00, up 0.30 percent.
Saudi Arabia accelerates digital transformation with new transport initiatives
RIYADH: Saudi Arabia’s Ministry of Transport and Logistics has taken a significant step forward in its digital transformation with the launch of a new Digitalization and Technical Processing Center, alongside the unveiling of the Unified Documents and Records Platform.
These initiatives were announced by Minister of Transport and Logistics Services Saleh Al-Jasser during a ceremony attended by senior officials and industry leaders, as reported by the Saudi Press Agency.
The new center and platform are part of the ministry’s broader strategy to accelerate digitalization in line with the National Transport and Logistics Strategy and the Vision 2030 goals.
A primary aim of these efforts is to increase the transport and logistics sector’s contribution to Saudi Arabia’s gross domestic product from 6 percent in 2021 to 10 percent by 2030. This would generate an additional SR45 billion ($11.9 billion) in non-oil revenues annually.
To achieve these goals, the NTLS prioritizes infrastructure development and operational improvements. Key plans include expanding the railway network by approximately 8,080 km, which features the 1,300 km “Landbridge” project, and enhancing port infrastructure to accommodate over 40 million containers annually.
Additionally, the strategy envisions increasing air freight capacity to over 4.5 million tonnes annually, as well as expanding international flight destinations to over 250.
Improving service quality and safety is another critical focus. The NTLS aims to position Saudi Arabia among the top 10 countries in the Logistics Performance Index and secure 6th place in the Road Infrastructure Quality Index. It also seeks to reduce road traffic accidents and fatalities by over 50 percent and cut fuel consumption in the transport sector by 25 percent.
In conjunction with the digitalization efforts, the ministry also inaugurated a historical exhibition that highlights key documents, photographs, and equipment used throughout the history of Saudi Arabia’s transport sector.
The exhibition also includes specialized laboratories for document restoration and sterilization, as well as a centralized destruction center to safeguard the security and confidentiality of information.
Bandar Al-Roqi, general supervisor of the ministry’s Document and Archive Center, emphasized the collaborative nature of the project, acknowledging the contributions of various ministry departments in its successful realization.
The project reflects the ministry’s commitment to integrating modern technologies to drive digital transformation while preserving the country’s transport history.
Saudi flyadeal records lowest complaint in November, 99% resolution rate: GACA
- flynas was second, with 12 complaints per 100,000 travelers and a resolution rate of 100%
- Saudia was third, with 13 complaints per 100,000 passengers and a resolution rate of 99%
RIYADH: Saudi low-cost airline flyadeal recorded the fewest complaints among its competitors in November, with just 11 per 100,000 travelers, and achieved a 99 percent resolution rate, a recent report revealed.
Issued by the Kingdom’s General Authority of Civil Aviation, the classification index for air transport service providers and airports is designed to inform passengers about performance, helping them make more informed decisions.
Low-cost carrier flynas was second, with 12 complaints per 100,000 travelers and a resolution rate of 100 percent, and Saudia was third, with 13 complaints per 100,000 passengers and a resolution rate of 99 percent.
Saudi Arabia’s aviation sector is rapidly growing as the nation aims to become a regional hub and major tourist destination. Through the Saudi Aviation Strategy, which opens the sector to global investors, streamlines licensing, and promotes competition, over $100 billion in aviation investment is being attracted to support the Kingdom’s Vision 2030’s goals.
The report is in line with GACA’s efforts to promote transparency, demonstrate its credibility and keenness to deal with travelers’ complaints, stimulate fair competition, and develop and improve services.
The figures from the analysis also align well with the National Aviation Strategy by the Kingdom, which aims to increase the air passenger throughput more than three-fold to 330 million by 2030.
The GACA data further revealed that despite serving over 6 million annual passengers, King Khalid International Airport in Riyadh had 13 complaints, a low rate of 0.4 percent per 100,000 passengers, and a 100 percent resolution record.
Prince Sultan Bin Abdulaziz International Airport, with nearly 6 million annual passengers, also had a complaint rate of 0.4 percent per 100,000 passengers and a 100 percent resolution rate.
King Saud Airport had the lowest complaints among domestic airports, with a rate of 3 percent per 100,000 passengers and a 100 percent resolution rate.
The most common complaints in November were related to luggage, flights, and tickets.
According to the 2024 State of Aviation Report by GACA, a key measure of the aviation sector’s success is the 7 percent growth in air cargo, reaching 900,000 tonnes, alongside a record-breaking 112 million passengers in 2023.
This passenger volume was surpassed by a 17 percent increase in the first half of 2024, with the number of flights growing by 12 percent compared to the same period last year, reaching 815,000.
Six initiatives unveiled to strengthen Saudi-Yemeni economic ties
RIYADH: The Saudi-Yemeni Business Council has announced six key initiatives aimed at enhancing trade and investment ties between Saudi Arabia and Yemen, while also supporting Yemen’s ongoing economic development.
The initiatives were unveiled during a joint council meeting held in Makkah on Sunday, attended by over 300 Saudi and Yemeni investors, according to Al-Ekhbariya.
Abdullah bin Mahfouz, chairman of the Saudi-Yemeni Business Council, which is part of the Federation of Saudi Chambers, disclosed that agreements had been made to establish three new Saudi-Yemeni companies.
The first company will focus on renewable energy, with an initial capital investment of $100 million, to generate solar-powered electricity for Yemen.
The second venture will operate in telecommunications, utilizing Starlink satellite networks. The third company will organize exhibitions and conferences in Yemen to promote Saudi products and support the country’s reconstruction efforts, as reported by the Saudi state-owned channel.
In addition to these initiatives, the council has proposed upgrading the infrastructure at border crossings between the two countries, improving logistics services to facilitate smoother trade.
The trade volume between Saudi Arabia and Yemen currently stands at SR6.3 billion ($1.6 billion), with Yemeni imports from Saudi Arabia accounting for just SR655 million. However, sectors such as mining, agriculture, livestock, and fisheries in Yemen remain largely underdeveloped and present significant growth opportunities.
Among the key recommendations is the establishment of quarantine centers to inspect Yemeni livestock, agricultural products, and seafood, aimed at increasing Yemen’s exports to Saudi Arabia. There are also plans to create “smart food cities” in border regions to bolster food security and promote sustainable agricultural practices through advanced resource management and technology.
Addressing banking and credit challenges is another priority. The council has called for improvements to Yemen’s banking infrastructure, including better collaboration with Saudi banks and the development of Yemen’s exchange sector, to facilitate smoother financial transactions for traders from both countries.
A significant proposal also includes the creation of a Yemeni Investors Club in Saudi Arabia, designed to encourage joint investments and foster business partnerships between the two nations.
Abdulmajid Al-Saadi, co-chairman of the Yemeni Business Council, commended Saudi Arabia’s recent reforms in investment regulations, highlighting that Yemeni capital, estimated at SR18 billion, has increasingly been channeled into Saudi markets. This places Yemen third among foreign investors in the Kingdom.
For over 23 years, the Saudi-Yemeni Business Council has played a pivotal role in fostering economic relations between the two countries, organizing forums, identifying trade and investment opportunities, and promoting bilateral business exchanges. The targeted sectors for cooperation include renewable energy, agriculture, livestock, telecommunications, and trade development, in line with regional and global food security challenges.
In 2023, trade between Saudi Arabia and Yemen amounted to SR6.2 billion, with Saudi exports totaling SR5.6 billion, which included dairy products, fuels, and vegetables. Yemeni imports from Saudi Arabia reached SR661.9 million, consisting of fruits, seafood, and printed materials.
Saudi Arabia has provided significant financial support to Yemen over the past few decades, including over $50 billion in funding for central bank deposits, government budgets, and development projects.
Riyadh leads Saudi real estate surge with 20.8% rise in office rents
RIYADH: The real estate market in Riyadh is experiencing significant growth, with rents for Grade A office spaces rising 20.8 percent year on year in the third quarter of 2024, reaching SR2,131 ($567.31) per sq. meter. This increase reflects the city’s expanding economic activity, driven by both a thriving private sector and ongoing government initiatives aimed at positioning the capital as a global business and investment hub. According to JLL’s latest market analysis, this surge in demand for high-quality office spaces is contributing to a historic low in vacancy rates, which fell to just 1.6 percent in Q3 2024.
The report attributes the rise in office rents to the Kingdom’s economic diversification efforts, particularly the continued growth of the private sector in Riyadh.
The city remains an attractive destination for businesses and investors, with strong demand for Grade A office space in key districts. JLL also highlighted that Northern Riyadh, with its superior accessibility and high-quality developments, is increasingly favored by occupiers, driven by the area's efficient workspaces and ample parking, which help mitigate rising traffic congestion.
In Jeddah, Grade A office rents rose by 11.6 percent year on year, reaching SR1,338 per sq. meter, with a low vacancy rate of 3.7 percent. These trends reflect broader market strength across Saudi Arabia’s key cities.
Hospitality sector thrives
Saudi Arabia’s hospitality sector continues to see impressive growth, fueled by a combination of high-profile events and the Kingdom’s expanding tourism infrastructure. With events like Riyadh Season and AlUla Season drawing millions of visitors, coupled with the ongoing development of urban infrastructure, the Kingdom is solidifying its status as a leading global leisure and business destination.
According to the Ministry of Tourism, Saudi Arabia’s leisure tourism has skyrocketed by 656 percent since 2019, with 17.5 million international visitors arriving in the first seven months of 2024 alone.
This boom in tourism, supported by initiatives such as the streamlined tourist visa system and a growing entertainment sector, has boosted the Kingdom’s appeal as a global leisure destination. In fact, Saudi Arabia has already surpassed its original Vision 2030 target of attracting 100 million visitors and is now aiming for 150 million by 2030.
“The hospitality sector is set for continued expansion, driven by a packed events calendar and a steady influx of religious tourists,” said Saud Al-Sulaimani, country head of JLL Saudi Arabia. “These factors will fuel demand for accommodations and enhance occupancy rates in key cities.”
In Riyadh, the average daily rate for hotels increased by 19 percent year on year in Q3 2024, reaching SR736.3, while revenue per available room saw a 17.1 percent rise to SR440.3. Despite a minor dip in occupancy by 1.2 percentage points, these metrics reflect the growing strength of the hospitality sector. Jeddah, on the other hand, saw a 10.3 percent year-on-year decline in RevPAR, attributed to a 12.1 percent drop in ADR, although occupancy rates rose by 1.4 percentage points. Makkah and Madinah presented mixed trends, with RevPAR declining by 2.9 percent in Makkah, while Madinah saw a slight increase of 1.6 percent.
“Performance metrics in the hospitality sector are expected to improve as we approach the year's end, fueled by key events like the Riyadh and AlUla Seasons, as well as continued religious tourism,” JLL added.
Residential market growth
The residential markets in Riyadh and Jeddah also saw strong performance in the third quarter of 2024, driven by strong demand and shifting buyer preferences. In Riyadh, 4,000 new residential units were added in Q3, bringing the total stock to 1.46 million. Jeddah saw even greater growth, with 8,000 new units delivered, increasing its stock to 899,000 units.
Residential property prices in both cities also saw significant increases, with Riyadh experiencing a 12 percent year-on-year rise in sales prices, while Jeddah saw a 6 percent increase.
“This is an exciting time for Saudi Arabia, with unprecedented growth across multiple sectors,” said Al-Sulaimani. “The combination of soaring tourism numbers, rising hospitality revenues, and strong demand for residential properties is creating a dynamic environment that presents immense opportunities for investors and businesses alike.”
He added: “The Kingdom’s commitment to diversifying its economy is evident, and we are excited to see how these developments will shape our future.”
