LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
SUITE 445
12100 WILSHIRE BOULEVARD
LOS ANGELES, CALIFORNIA 90025
www....
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
LAW OFFICES
GIVNER & KAYE
A PROFESSIONAL CORPORATION
Planning To Avoid The New Medicare Tax And Other
2013 Tax Increases
M...
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Planning to Avoid the New Medicare Tax & Other 2013 Tax Increases

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Information on all of the new tax increases for 2013, including the new Medicare tax, and how it will affect you!

For more information, please visit us at www.givnerkaye.com

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Planning to Avoid the New Medicare Tax & Other 2013 Tax Increases

  1. 1. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION SUITE 445 12100 WILSHIRE BOULEVARD LOS ANGELES, CALIFORNIA 90025 www.GivnerKaye.com www.MajorTaxProblems.com BRUCE GIVNER (bruce@GivnerKaye.com) OWEN D. KAYE (owen@GivnerKaye.com) KATHLEEN GIVNER (kathy@GivnerKaye.com) NEDA BARKHORDAR (neda@GivnerKaye.com) PHONE (310) 207-8008 (818) 785-7579 FAX (310) 207-8708 (818) 785-3027 March 7, 2013 Planning To Avoid The New Medicare Tax And Other New 2013 Tax Increases 1. Background. 1 1.1. Employment Income. OASDI is 6.2% on wages paid up to an annual cap: $113,700 per employee in 2013. HI (Medicare) is 1.45% - no cap. So 12.4% up to the cap for OASDI and 2.9% on all wages. Salary of $113,700 it’s $14,098.80 + $3,297.30 = $17,396.10 (15.3%). Salary of $250,000 it’s $14,098.80 + $7,250 = $21,348.80 (8.54%). Salary of $450,000 it’s $14,098.80 + $13,050 = $27,148.80 (6.03%). Salary of $1,000,000 it’s $14,098.80 + $29,000 = $43,098.80 (4.3%) 1.2. Net Earnings From Self-Employment Income. Same as above. But 1.45% is deductible. 1.3. 2013 Increase. FICA and SECA increase by 0.9% for earnings about $200,000 for single taxpayers and $250,000 for married taxpayers. 1.4. Obamacare. Modeled after the FICA and SECA regimes, but applied to unearned income. Though we’ve heard “net investment income,” it’s nearly all other income for high income taxpayers. 1 Heavily adapted from, and all praise to, Holthouse and Ritchie, “Inoculating Real Estate Against The Obamacare Tax,” 54 Tax Management Memorandum 79 (March 11, 2013).
  2. 2. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 2 of 14 Limited good news: Real estate professional exception to passive loss rules.2 like kind exchanges (§1031) $250,000 on sale of residence (§121) retirement plan distributions tax-exempt bonds cash value life insurance oil & gas 1.5. Other Tax Increases. Marginal bracket of 39.6% for $400,000 - $450,000. Phase-out itemized deductions and personal exemptions. 3% of AGI above $300,000. California 12.3% over $500,000 and 13.3% over $1,000,000. 2. New 3.8% Law. 2 IRC §469(c)(7). (7) Special rules for taxpayers in real property business. (A) In general. If this paragraph applies to any taxpayer for a taxable year— (i) ¶(2) [“Passive activity includes any rental activity”] shall not apply to any rental real estate activity of the taxpayer for the taxable year, and (ii) this section shall be applied as if each interest of the taxpayer in rental RE were a separate activity. Despite clause (ii), a taxpayer may elect to treat all interests in rental real estate as one activity. Nothing in the preceding provisions of this subparagraph shall be construed as affecting the determination of whether the taxpayer materially participates with respect to any interest in a limited partnership as a limited partner. (B) Taxpayers to whom paragraph applies. This paragraph shall apply to a taxpayer for a taxable year if— (i) more than 1/2 of the personal services performed in trades or businesses by the taxpayer during such taxable year are performed in real property trades or businesses in which the taxpayer materially participates, and (ii) such taxpayer performs more than 750 hours of services during the taxable year in real property trades or businesses in which the taxpayer materially participates. In the case of a joint return, the requirements of the preceding sentence are satisfied if and only if either spouse separately satisfies such requirements. For purposes of the preceding sentence, activities in which a spouse materially participates shall be determined under subsection (h). (C) Real property trade or business. For purposes of this paragraph, “real property trade or business” means any real property development, redevelopment, construction, reconstruction, acquisition, conversion, rental, operation, management, leasing, or brokerage trade or business. (D) Special rules for subparagraph (b). (i) Closely held C Corporations. In the case of a closely held C corporation, the requirements of subparagraph (B) shall be treated as met for any taxable year if more than 50% of the gross receipts for the taxable year are derived from real property trades or businesses in which the corporation materially participates. (ii) Personal services as an employee. For purposes of subparagraph (B), personal services performed as an employee shall not be treated as performed in real property trades or businesses. The preceding sentence shall not apply if such employee is a 5% owner (as defined in §416(i)(B))) in the employer.
  3. 3. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 3 of 14 2.1. Limited Exceptions. NRAs and tax-exempt charitable trusts.3 2.2. General Rule. When MAGI4 exceeds threshold, tax is on lesser of NII or excess of MAGI5 over applicable threshold amount (“ATA”). Threshold: $200,000 for single taxpayers, $250,000 for married; $11,950 for trusts and estates. Compare: new maximum tax rates are $400,000 for singles, $450,000 married. Example:6 Joe, single: $150,000 salary $ 60,000 income from passive business $ 25,000 interest $235,000 total Tax applies to the lesser of NII ($85,000) or AGI – ATA ($235,000 - $200,000 = $35,000). So $35,000 X 3.8% = $1,330. 2.3. Implications. Compliance costs might exceed the tax for those marginally over the thresholds. Low trust threshold encourages trustees to distribute to lower income beneficiaries. Since 3.8% not deductible, earnings above $113,700 are better under SE than as NII. No impact on AMT. Must consider for purposes of estimated tax. 3 CRTs addressed by proposed regs, not the statute. Only NII received by the CRT (not the beneficiary) after 2012 is subject to the tax. WIFO ordering rule treats NII as the first (worst)!!! 4 Undistributed NII for trusts and estates. 5 For most taxpayers it is Form 1040, page 1, line 37. 6 Examples throughout are adapted from Keebler, “Observations on the 3.8% Medicare Contribution Tax Proposed Regulations,” February, 2013, Taxes – Tax Magazine, page 5.
  4. 4. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 4 of 14 2.4. NII. 2.4.1. In General. Traditional investment income, e.g., dividends, interest, investment asset gains, plus other unearned income, e.g., annuities, royalties, rents, passive activity income and net gains, and financial instrument and commodity income and net gains. Not qualified plan distributions. 2.4.2. §1411(c)(1)(A)(i). Gross income from dividends, interest, annuities, rents and royalties. 2.4.3. §1411(c)(1)(A)(ii). Other gross income from passive activity or activity of trading financial instruments and commodities. Gross income from a trade or business in which the taxpayer does not materially participate. 2.4.4. §1411(c)(1)(A)(iii). Net gains from disposition of property, other than gains derived in a trade or business in which the taxpayer materially participates that is not the business of trading financial instruments. Includes interests in pass-through entities. 2.4.4. §1411(c)(1)(B). Deductions allocable to items included in the 3 categories above. 2.4.5. Trade Or Business. Not defined in the proposed regulations. Contrast §469, passive loss rules. Determining whether a trade or business is passive is at the owner level. Determining whether a trade or business is financial instruments is at entity level. 2.4.6. Exceptions. Gain from the sale of the pass-through interest related to appreciation of the underlying trade or business assets (if not passive or financial instruments or commodities and if no §338(h)(10) election).
  5. 5. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 5 of 14 2.4.7. Operation. Each activity is divided: (i) investment gross income; (ii) other gross income from passive activities, including financial trading; (iii) net gains and losses from disposition; and (iv) deductions. If disposition result is net loss, the activity is ignored. Deductions for a year cannot exceed the amount of NII for the tax year. Any deductions in excess of NII are considered in determining NII for another tax year to the extent allowed under regular income tax rules. Example: In Year 1 Joe, single, has a $40,000 capital loss on the sale of P stock and a $10,000 capital gain on the sale of Q stock resulting in a net capital loss of $30,000. Both are C corporations. Joe also has $300,000 of wages and $5,000 of interest. For income tax purposes Joe may use $3,000 of the net capital loss against other income and $27,000 is a capital loss carryover. For NII, the $10,000 of gain is eliminated by the loss, but he may not reduce NII by the $3,000 of excess losses over capital gain. In Year 2 Joe has a $30,000 capital gain on the sale of Y stock, a C corporation. For income tax purposes he may reduce the $30,000 gain by the Year 1 $27,000 capital loss carryover. For NII purposes his $30,000 gain may be reduced by the $27,000 capital loss carryover.7 Any deductions subject to the 2% floor on miscellaneous itemized deductions or the overall limit on itemized deductions allowed in determining NII only to the extent deductible for regular income tax purposes after application of §§ 67 and 68.8 If overall net investment loss, the tax does not apply, but no carryover. NOLs are not considered in determining NII for any tax year.9 Suspended passive loss carryovers freed on disposition of passive activity? Unsure. One-time regrouping of activities done under §469.10 Limited to 1st year beginning 7 Prop. Reg. §1.1411-4(h), Example 1. 8 Prop. Reg. §1.1411-4(f)(3)(ii). 9 Prop. Reg. §1.1411-4(f)(1)(ii). 10 Prop. Reg. §1.469.-11(b)(3)(iv). “(A) In general. If an individual, estate, or trust has net investment income (as defined in §1.1411-4) and such individual's (as defined in §1.1411-2(a)) modified adjusted gross income (as defined in § 1.1411-2(c)) exceeds the applicable threshold in §1.1411-2(d) or such estate's or trust's (as defined in §1.1411-3(a)(1)(i)) adjusted gross income exceeds the amount described in section 1411(a)(2)(B)(ii) and §1.1411-3(a)(1)(ii)(B)(2), such individual, estate, or trust may, in the first taxable year beginning after
  6. 6. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 6 of 14 after 12/31/2013. 2.5. MAGI. AGI increased by foreign earned income and housing costs excluded under §911(a) and decreased by related deductions. Not decreased by itemized deductions under §212. (Contrast NII which is reduced by expenses related to income items). Includes qualified plan distributions. So taxpayer with large pension distribution or Roth IRA conversion could be subjected to the tax. 3. Real Estate Under The 3.8% Tax. 3.1. In General. 3.1.1. Where New Law Does Not Apply. Real estate as an active (non-passive) trade or business, income and net gains ≠ NII. However, they will probably be subject to 3.8% partly-deductible SECA. 3.1.2. Where New Law Applies. Net Income From: Passive (no material participation) rental operations (direct or pass-through. Passive non-rental operations (direct or through a pass-through). Net Taxable Gains From: Passive rental (or other passive real estate) properties December 31, 2013, in which section 1411 would apply to such taxpayer, regroup its activities without regard to the manner in which the activities were grouped in the preceding taxable year. For this purpose, the determination whether section 1411 would apply is made without regard to the effect of regrouping. A taxpayer that is an individual, estate, or trust may regroup its activities for any taxable year that begins during 2013, if section 1411 would apply to such taxpayer for such year. A taxpayer may regroup activities only once pursuant to this paragraph (b)(3)(iv), and a regrouping made pursuant to this paragraph will apply to the taxable year for which the regrouping is done and all subsequent years.”
  7. 7. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 7 of 14 Unproductive real estate. Pass-through entity generating above types of income. Personal residence. 3.2. Material Participation. Statute: regular, continuous and substantial. Regulations: 1. More than 500 hours during the year. 2. Substantially all of the participation in the activity of everyone during the year. 3. More than 100 hours which is not less than anyone else’s. 4. Significant participation activity and activity in all exceeds 500 hours. 5. Material participation for any 5 of preceding 10 years. 6. Personal service activity and material participation for any 3 taxable years. 7. Facts and circumstances: regular, continuous and substantial. If a limited partner, only test 1, 5 or 6 unless also a GP. Spouse’s hours are attributed to the taxpayer. Hours must be performed while an owner. No pro ration for short taxable year. Work normally performed by an owner is not counted. Work as an investor is not counted Contemporaneous log, not required, is helpful, especially if close to the standard. Trust can only meet the standards through trustee’s activity. Each activity must be tested separately, though taxpayers can generally determine.
  8. 8. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 8 of 14 Rental activity may not be grouped with other TorB activities unless one is insubstantial and ownership is proportionate Example: Joe acquired businesses X, Y and Z two years ago. All three have several full-time employees. Joe participates 400 hours in X, 75 in Y and 75 in Z. Were the activities treated separately, Joe would not materially participate in any of them, and all income would be subject to the 3.8% Medicare tax. If Joe can regroup them into one activity, he will have 550 hours and qualify under Test 1. Unrelated real and personal property rental is not permitted. Example: Joe owns a building with a yogurt shop on the first floor and a rental unit on the second floor. Joe groups the two activities together and materially participates. This converts the net rental income to non-passive but it is still treated as NII.11 Groupings made at the entity level. One-time regrouping. Permanent. Must be disclosed. Rev. Proc. 2010-13. 3.3. Rental Activities. Real property rental is “per se passive.” §469(c)(2). Therefore NII under §1411. Presumption overcome for RE professionals. §469(c)(7): 750 hours if it is a TorB. Is ownership of a single rental property requiring minimal activity enough? Mud. Once material participation is proven, the TorB question may be satisfied. Distinguish: grouping used to determine the boundaries of an activity vs. aggregation of all interests in rental RE activities to determine material participation. Danger: if an activity is as an LP, aggregation may cause the entire combined activity to be treated as an LP interest, meaning only tests 1, 5 and 6 are available. Danger: treating all rental RE as a single activity will delay the deduction of suspended losses, where a single property is disposed of before others. Surprise: pre-§1411, RE pros with positive taxable income may not have used or 11 Preamble to the proposed regulations at §6A(i)(b)(4).
  9. 9. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 9 of 14 cared about the RE professional exception. (Those with losses cared.) Now it is mandatory. Given the new tax cost of NII, more with positive income will care. Spouses: either can meet. Contrast 7 material participation tests where spouses’ hours are pooled. Investor hours do not count. Employee hours count only if more than 5% owner. Important: does qualifying as a RE professional and achieving material participation status make the rental properties a TorB not subject to §1411’s 3.8%? Hopefully “yes.” The activities must be a TorB under §162. If successful, since excluded from SECA tax under §1402(a)(1), the rental income avoids the 3.8% HI tax completely. 3.4. Gains From Sale Of Rental Properties Or Properties Used In Other Passive Real Estate Operations. Net gain from disposition of TorB real property is not included in NII. Like kind exchanges defer the NII tax. Ordinary income recapture under §§1245 and 1250 is included in NII. Mitigate §1411 tax by foregoing bonus deprecation or electing to capitalize expenses. 3.5. Gains From Sale Of Unproductive Real Estate. Only net gains from the disposition of property held in an active TorB avoids NII tax. So raw land sale falls under NII tax. 3.6. Gains From Sale Of Interest In Pass-Through Entity. Look through to the underlying properties held by the entity. 3.7. Gains From Sale Of Personal Residence. Same as unproductive real estate. But §121 $250,000 available.
  10. 10. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 10 of 14 3.8. Gross Rents From Non-Trade or Business Activities. §1411(c)(1)(A)(i) includes interest, dividends, annuities, royalties and rents. Reg. §1.469-1T(e)(3)(ii): “(ii) Exceptions. For purposes of this ¶(e)(3), an activity involving the use of tangible property is not a rental activity for a taxable year if for such taxable year— (A) The average period of customer use for such property is seven days or less; (B) The average period of customer use for such property is 30 days or less, and significant personal services (within the meaning of ¶(e)(3)(iv) of this section) are provided by or on behalf of the owner of the property in connection with making the property available for use by customers; (C) Extraordinary personal services (within the meaning of ¶(e)(3)(v) of this section) are provided by or on behalf of the owner of the property in connection with making the property available for use by customers (without regard to the average period of customer use); (D) The rental of such property is treated as incidental to a nonrental activity of the taxpayer under ¶(e)(3)(vi) of this section; (E) The taxpayer customarily makes the property available during defined business hours for nonexclusive use by various customers; or (F) The provision of the property for use in an activity conducted by a partnership, S corporation, or joint venture in which the taxpayer owns an interest is not a rental activity under ¶(e)(3)(vii) of this section.” One of these may meet material participation yet not be a trade or business. 4. Planning Strategies For The 3.8%. 4.1. Deferral Strategies. 2012 capital gains tax rate: 15% Federal + 9.3% State = 24.3%.
  11. 11. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 11 of 14 2012 capital gains tax rate: 20% + 3.8% + 13.3% = 37.1% (153% of 2012). §1031 like-kind exchanges, including “drop & swap” (but see Rev. Proc. 2002-22). Installment sales. Bonus, accelerated and component depreciation. Cash-out refinancing. 4.2. Timing Strategies. Better to accelerate income and defer deductions due to potential rate increases? Do not prepay mortgage and real estate taxes. Opt out of bonus depreciation. Elect out of installment sale treatment. Negotiate leases with prepaid rents. Forego carryback of NOLs. Manage income when near the §1411 $200,000/$250,000 floor. AMT projections so benefit of deductions not lost. 4.3. Splitting Income. Distributions from non-grantor trusts above $11,950 threshold. 65 day rule. Are non-grantor trusts now more attractive than grantor trusts in some situations? Toggling grantor trusts to become non-grantor trusts? Probate Code §15404(a) consents if no ability to make the change in the trust instrument itself. Gifts and FLPs to spread income.
  12. 12. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 12 of 14 4.4. Working With Passive Loss Rules. Professional real estate exception to passive loss rules is focus of §1411 planning. Make the §469(c)(7) aggregation election to make meeting the material participation standard easier. Downside: disposition of one will not free up suspended passive losses under §469(g). Hours as employee don’t count unless 5% owner. So if management company is owned by Dad, and son owns interest in the SPEs managed, son will fail the test. 4.4. Allocating Expenses. Expenses should be targeted to NII, including paying the state income tax in an earlier year. 4.5. Coordinating With Self-Employment Tax. NESE is income from a TorB plus from a partnership. NESE excludes rental income, guaranteed payments from rental activity and LP share. “S” income is not subject to SECA. Better to have income subject to FICA/SECA since 1.45% is deductible. NESE includes guaranteed payments for services or use of capital in TorB. 5. Conclusion On The 3.8%. Table 1 From Holthouse & Ritchie Article, see Footnote 1
  13. 13. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 13 of 14 Comparison SE Tax to NII Tax Held Outright Held in S Corp Held as Gen Pshp Int Held as Ltd Pshp Int Subj. to SE tax Subj. to NII tax Subj. to SE tax Subj. to NII tax Subj. to SE tax Subj. to NII tax Subj. to SE tax Subj. to NII tax Non-Rental, MP, TB Yes No No No Yes No No No Non-Rental, no MP, TB Yes No No Yes Yes No No Yes Non-Rental, MP, no TB No Yes No Yes No Yes No Yes Non-Rental, no MP, no TB No Yes No Yes No Yes No Yes Non-Rental, Guar Pymt for services Yes No Yes No Non-Rental, Guar Pymt for capital Yes No No Yes Rental, QREP, MP, TB No No No No No No No No Rental, QREP, no MP, TB No Yes No Yes No Yes No Yes Rental, QREP, MP, no TB No Yes No Yes No Yes No Yes Rental, QREP, no MP, no TB No Yes No Yes No Yes No Yes Rental, no QREP, MP, TB No Yes No Yes No Yes No Yes Rental, no QREP, no MP, TB No Yes No Yes No Yes No Yes Rental, no QREP, MP, no TB No Yes No Yes No Yes No Yes Rental, no QREP, no MP, no TB No Yes No Yes No Yes No Yes Rental, Guar Pymt, services No Yes No Yes * Rental, Guar Pymt, capital No Yes No Yes Legend: MP = Material Participation TB = §162 Trade or business QREP = Qualified Real Estate Professional * Unless QREP, MP, TB, “Sweet spot,” no SE tax, no NII tax Income s.t. SE tax, not NII tax
  14. 14. LAW OFFICES GIVNER & KAYE A PROFESSIONAL CORPORATION Planning To Avoid The New Medicare Tax And Other 2013 Tax Increases March 7, 2013 Page 14 of 14 6. Planning For The 39.6% Marginal Tax Bracket. Few income tax planning techniques left compared to twenty years ago. Economically neutral structures limited to (i) retirement plans; (ii) wealth captives; (iii) charitable planning, including CharLLCs; (iv) cash value life insurance and annuities; and (v) expatriation. Tax favored investments such as (i) real estate; (ii) oil & gas; (iii) farming; and (iv) munis. 7. Planning For The Higher California Brackets. All of the above. Fleeing to no-tax states: NV, TX, FL, AK, SD, Washington and Wyoming. Low-tax states: Tennessee (6% but only on dividends and interest); Pennsylvania (3.07%); Indiana (3.4%); Colorado (4.63%); Arizona (4.54%). DNGTs, taking advantage of California’s rule on tax trusts (contingent beneficiaries do not count).

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