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Tax Planning by Isdaner & Company, Philadelphia area certified public accounting firm headquartered on the Main Line
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Tax Planning by Isdaner & Company, Philadelphia area certified public accounting firm headquartered on the Main Line

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Tax planning basics brought to you by Isdaner & Co. ...

Tax planning basics brought to you by Isdaner & Co.
-rising rates
-tax breaks
-business tax
-payroll tax
-individual tax
-medicare tax
-estate tax
-gift tax
-transfer tax exemption & rates
-section 179
-depreciation
-state & local sales tax deduction
-IRA charitable distribution
-AMT triggers and how to avoid AMT
-mortgage insurance premiums as interest
-child/dependent care credit rules

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  • Business-related vehicle expenses can be deducted using the actual-cost method, which includes total out-of-pocket expenses for fuel, insurance and repairs, plus depreciation. Or you can use the mileage-rate method, which is 55.5 cents per business mile driven in 2012.Purchases of new or used vehiclesmay be eligible forSection 179 expensing, and purchases of new vehicles may be eligible for bonus depreciation. However, many rules and limits apply. For example, under Section 179 expensing, you can deduct up to $25,000 of the purchase price of an SUV that weighs more than 6,000 pounds but no more than 14,000 pounds. For autos placed in service in 2012, the depreciation limit is $3,160. The limit is increased by $8,000 for autos eligible for bonus depreciation. The depreciation limit is reduced if the business use is less than 100%. And if business use is 50% or less, you can’t use Section 179 expensing, bonus depreciation or the accelerated regular MACRS; you must use the straight-line method.
  • With proper planning, you may be able to avoid the AMT,reduce its impact, or even take advantage of its lower maximum rate. Unfortunately, planning for the AMT will be a challenge until Congress passes long-term relief.Unlike the regular tax system, the AMT system isn’t regularly adjusted for inflation. Instead, Congress must legislate any adjustments. In the past, it has done so in the form of a “patch,” which is mainly an increase in the AMT exemption. As of now, such a patch is in effect for 2011, but not for 2012. This means that if Congress doesn’t take action, there’s a greater chance you could be subject to the AMT for 2012.
  • If you think you might be subject to the AMT in 2012, consider accelerating income and short-term capital gains into this year, which may allow you to benefit from the lower maximum AMT rate. Also consider deferring expenses you can’t deduct for AMT purposes until next year — you may be able to preserve those deductions. In addition, if you defer expenses you can deduct for AMT purposes to next year, the deductions may become more valuable because of the higher maximum regular tax rate. On the other hand, if you think you might be subject to the AMT in 2013, take the opposite approach. Defer income to 2013, because you’ll likely pay a lower AMT rate. And prepay expenses that will be deductible this year but that won’t help you next year because they’re not deductible for AMT purposes. Finally, before the end of the year consider whether you should sell any private activity municipal bonds whose interest could be subject to the AMT.Confused? I don’t blame you if you are. It’s a very confusing tax system. Fortunately, we’re here to help you. So talk to me or one of my colleagues after the seminar.
  • Smart timing of income and expenses can reduce your tax liability, and poor timing can increase it. For example, if you don’t expect to fall victim to the AMT this year or next, consider deferring income to 2013 and accelerating deductible expenses into 2012. This will allow you to defer tax, which is usually a good thing. But if you think you’ll be in a higher tax bracket next year, you might want to take the opposite approach. Also keep in mind that the top 35% ordinary-income tax rate is scheduled to return to its pre-2001 level of 39.6% in 2013. (Rates for most other brackets are also scheduled to go up.)To help ensure you can enjoy this year’s lower income tax rates, consider accelerating income into 2012 where possible.And you may want to defer deductible expenses to 2013, because they’ll provide a greater tax savings if tax rates are higher. But, keep in mind whether such actions could trigger the AMT.
  • First, you must consider the estate and income tax effects and the economic aspects of any gifts you’d like to make. For example, to minimize your estate tax, give away property with the greatest future appreciation potential — you’ll keep that appreciation out of your taxable estate. To minimize your beneficiary’s income tax, give property that hasn’t already appreciated significantly since you’ve owned it. With gifts, your tax basis carries over to the recipient. So, if you gift highly appreciated assets, the recipients could owe significant capital gains tax even if they sell the assets shortly after receiving them. On the other hand, if recipients are in the 10% or 15% tax bracket, giving them highly appreciated assets could be beneficial because of the 0% rate.And if you want to minimize your own income tax, don’t gift property that has declined in value. Instead sell it, so you can take the tax loss and then gift the sale proceeds.
  • Also, take special care when planning gifts to your grandchildren. Annual exclusion gifts are generally exempt from the GST tax, so they also help you preserve your GST tax exemption for other transfers. For gifts that don’t qualify for the exclusion to be completely tax-free, you generally must apply both your GST tax exemption and your gift tax exemption.
  • If you own a business, you can leverage your gift tax exclusions and exemption by gifting ownership interests. The ownership interests may be eligible for valuation discounts. So, for example, if the discounts total 30%, in 2012 you can gift an ownership interest equal to as much as $18,571 tax-free because the discounted value doesn’t exceed the $13,000 annual exclusion. Be forewarned, though: The IRS may challenge the value, so we strongly advise that you seek a professional appraisal.

Tax Planning by Isdaner & Company, Philadelphia area certified public accounting firm headquartered on the Main Line Tax Planning by Isdaner & Company, Philadelphia area certified public accounting firm headquartered on the Main Line Presentation Transcript

  • In these uncertaintimes, tax planningis more importantthan everPresented by:<<Company Name>>[Insert your logo here]
  • [Insert your logo here]2“The MoreThings Change,The More TheyRemain TheSame.”
  • Rising rates andexpiring breakscomplicate taxplanningTAX PLANNING BASICS
  • Business: Expired as of 12/31/2011 100% bonus first-year depreciation allowance for qualified property Section 179 expensingIncreased $500,000 expensing election under Code Sec. 179, with$2 million investment ceilingExpired for leasehold-improvement, restaurant and retail-improvement property Shortened recovery period of 15 years for specialized realty assets,including qualified leasehold improvement property, qualified restaurantproperty, and qualified retail improvement property Lower shareholder basis adjustments for charitable contributions by Scorporations Reduced S corporations recognition period for built-in gains tax4
  • Business: Expired as of 12/31/2011 Research credit under Code Sec. 41(h)(1)(B) Various other credits including:o Work opportunity tax credit (WOTC) for non-veterans under CodeSec.51(c)(4),o Credit for construction of new energy efficient homes under CodeSec.45L5
  • Business: Expiring as of 12/31/2012 Bonus Depreciationo The 50% bonus first-year depreciation for assets placed in servicefrom January 1, 2012, through December 31, 2012o Qualified assets include any new tangible property with a recoveryperiod of 20 years or less, computer software or qualifiedleasehold improvements No bonus depreciation after December 31, 20126
  • 7Section 179 expensing election Allows you to deduct rather than depreciateasset purchaseso Deduct up to $139,000 of purchaseso Deduction phases out dollar-for-dollar when 2012 assetpurchases exceed $560,000o Only Section 179 expensing can be applied to used assetso If asset purchases exceed phaseout threshold (or yourincome), consider 50% bonus depreciationTIP: The expensing limit and phaseout threshold have dropped fromtheir 2011 levels of $500,000 and $2 million, respectively. For 2013,these amounts are scheduled to drop again, to $25,000 and $200,000.If possible, purchase assets before year end.
  • Vehicle-related tax breaks Deduct out-of-pocket expenses (fuel, insurance,depreciation, etc.) or mileageo 55.5 cents per mile for 2012 Purchases of new or used vehicles may be eligible forSec. 179 expensing New vehicles may be eligible for bonus depreciation Depreciation limit is $3,160 for autos placedin service in 2012o Increased by $8,000 for autos eligiblefor bonus depreciation Additional rules and limits apply8
  • Business: Expiring as of 12/31/2012 The temporary payroll tax cut will no longer apply. The two percentagepoint cut in employee OASDI tax under FICA (from 6.2% to 4.2%)9
  • Individuals: Expired as of 12/31/2011 State and local sales tax deduction IRA charitable distribution AMT patch Personal credits allowed against regular tax & AMT tax $250 Educator expense Mortgage insurance premiums as interest $4000 Above the line deduction for qualified tuition and related expenses 100% Exclusion of gain from sale of certain small business stock10
  • Individuals: Expiring as of 12/31/2012 Temporary payroll tax cut Increase of 15% rate bracket for MFJ Reduced capital gains rate Reduced income tax rates Qualified dividend rate 10% Income tax rate11
  • Individuals: Expiring as of 12/31/2012 Liberalized child and dependent care credit rules American opportunity tax credit Refundable credit for prior year AMT Increased standard deduction for MFJ Repeal of limit on itemized deductions Repeal of personal exemption phase outs12
  • New Taxes 2013 and Beyond 3.8% Medicare tax on unearned income .9% Additional Medicare tax Higher threshold for itemized medical expense deductions13
  • AMT Triggers State and local income tax deductions Real estate and personal property tax deductions Miscellaneous itemized deductions subject to 2% of AGI floor Long-term capital gains and dividend income Accelerated depreciation adjustments and related gain or lossdifferences when assets are sold Tax-exempt interest on certain private-activity municipal bonds Incentive stock option exercises14
  • Avoiding AMT or reducing its impact Planning for AMT will be a challengeuntil Congress passes long-term relief AMT system isn’t regularly adjustedfor inflation Congress legislates adjustments,typically as a “patch”15
  • What to consider doing If subject to AMT this yearo Accelerate income and short-term capital gains into 2012o Defer expenses you can’t deduct for AMT purposes until 2013o Defer expenses you can deduct for AMT purposes to 2013 If subject to AMT next yearo Defer income until 2013o Prepay in 2012 expenses you can’t deduct for AMT purposeso Sell private activity municipal bonds whose interestcould be subject to the AMT before year end16
  • Timing of income and expenses is key Smart timing can reduce your tax liability Poor timing can unnecessarily increase it Tax rates are scheduled to rise in 201317
  • Estate/Gift Taxes: 2012 Estate and Generation Skipping Transfer TaxHighest Rate 35%Exemption $5,120,000 Gift TaxHighest Rate 35%Exemption $5,120,00018
  • Estate/Gift Taxes: 2013 Estate and Generation Skipping Transfer TaxHighest Rate 55%*Exemption $1,000,000 Gift TaxHighest Rate 55%*Exemption $1,000,000* A 5% surtax applies to estates of $10,000,000 until approximately$17,000,00019
  • 20Transfer tax exemptions and rates
  • 21Gift tax Gifts to spouse are tax-free under marital deduction Gift tax follows estate tax exemption andtop rate for 2012o Any gift tax exemption used during life reducesestate tax exemption available at death Exclude certain gifts of up to $13,000 per recipiento $26,000 per recipient if your spouse splits gift with youor you’re giving community propertyo Scheduled to increase to $14,000 in 2013
  • 22 2012 may be the year to make large giftso Potentially lock in the record-high $5.12 million gift tax exemptionwhile it’s availableo “Clawback” could reduce the tax advantages, but many expertsbelieve this is unlikelyo Remove future appreciation from your taxable estateTIP: Be sure to retain sufficient assetsto maintain your desired lifestyle.Tax-smart giving
  • Tax-smart giving Consider estate and income tax effects of giftso To minimize your estate tax, gift property withgreatest future appreciation potentialo To minimize your beneficiary’s income tax, gift propertythat hasn’t appreciated significantly since you’ve owned ito To minimize your own income tax, sell property that hasdeclined in value to take the tax loss and then gift the sale proceeds23
  • Tax-smart giving Plan gifts to grandchildren carefullyo Annual exclusion gifts are generally exemptfrom GST taxo For gifts that don’t qualify for the exclusionto be entirely tax-free, apply both yourGST tax exemption and gifttax exemption24
  •  Gift interests in your businesso Leverage gift tax exclusions and exemption bygifting ownership interests May be eligible for valuation discounts25TIP: The IRS may challenge the value, soa professional appraisal is strongly recommended.Tax-smart giving
  • Administration’s 2013 ProposalsIndividual Income Tax Possible limitations on itemized deductions Retain current rates for taxpayer with income below $250,000 (jointreturns) Allow rates to rise to pre-Bush era tax rates for those with income inexcess of $250,000.o 39.6% highest rate (including dividends)o 20% capital gain rate “Buffett rule” – taxpayers with over $1 million of income subject to 30%effective tax rate.26
  • Administration’s 2013 ProposalsEstate & Gift TaxESTATE TAX Exemption of $3,500,000 Top rate – 45%GIFT TAX Exemption of $1,000,000 Top rate – 45%27
  • Administration’s 2013 ProposalsBusiness Taxes Broaden base to cut corporation tax rate to 28% Simplify small business tax filings, allow up to $1 million expensing ofinvestments, and wider use of cash basis of accounting Provide manufacturing incentives, including R&D for domesticmanufacturers. Repeal the last-in, first-out (LIFO) accounting method for inventories Various changes to the international tax provisions Repeal of various oil and gas incentives Taxing carried interest as ordinary income28
  • 2012 Year End PlanningBusiness Taxes Consider acquiring automobiles, fixed assets, plant and equipment byyear end to take advantage of expiring accelerated deductions. Consider dividends from C corporations (or S corporations with earningsand profits) to take advantage of lower dividend rate. Consider taking money out of the business by way of a stockredemption. The buy-back may yield long-term capital gain or a dividend,depending on a variety of factors. Increase your basis in a partnership or S corporation if doing so willenable you to deduct a loss from it this year.29
  • 2012 Year End PlanningGift Taxes Consider gifts to maximize the current $5,120,000 exemption.30
  • 2012 Year End PlanningIndividual Taxes Consider “mining” capital gains to lock in tax at 15% bracket. Consider “electing out” of installment sales. Consider investment strategies to reduce impact of new 3.8% surtax in2013 (for example, use of tax free bonds). Consider IRA conversion to ROTH IRA to take advantage of lower taxrates. Consider timing of required minimum distribution from IRA/Pensionaccounts to reduce impact of new 3.8% surtax if turning 70 ½ in 2012. If possible, accelerate home sales that are taxable into 2012 to takeadvantage of lower capital gains rate and reduce impact of 3.8% surtax.31
  • Please contact us for assistance:610.668.4200www.isdanerllc.com[Insert your logo here]Thank You!