Tax issues power point

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Tax issues power point

  1. 1. 2012 Tax Planning Strategies for Business Owners Scott Blakesley Pete Hartweger Peter Hartweger Jeff Crooks Bill High Jeff Crooks Doug Hubler Bill High Doug Hubler David Seitterwww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  2. 2. Program Description The team will cover important tax considerations impacting your business, including: • Income Tax • Medicare Surtax • Estate and Gift Tax • Charitable giving • Maximizing your overall business valuewww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  3. 3. Potential Tax Rate Increases Effective January 1, 2013  New Medicare Surtax of 3.8% on investment income of individuals with adjusted gross income over $200,000 and married taxpayers with adjusted gross income over $250,000.  Expiration of the Bush Tax Cuts.  Reduction in Transfer Tax Exemptions.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  4. 4. Income Taxwww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  5. 5. Expiration of the Bush Tax Cuts  Currently includes a 15% maximum tax rate on long-term capital gains for individuals and qualified dividends.  Unless extended, the rate on long-term capital gains will return to 20%.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  6. 6. Tax Rates on Ordinary Income Expiring Rate New Rate 10% 15% 25% 28% 28% 31% 33% 36% 35% 39.6%www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  7. 7. Marriage Penalty  Currently, the bottom two tax brackets for married filing joint couples are exactly twice as wide for singles.  In 2013, the joint-filer brackets will contract, affecting most taxpayers.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  8. 8. Return of the Phase-out of Itemized Deductions  Eliminated in full in 2010.  In 2013, phase-out of itemized deductions (mortgage interest, state and local taxes, charitable contribution) increases to 80%.  Phase-out begins for AGI above $179,000 for joint-filers.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  9. 9. Return of the Phase-out of Personal Exemptions  Eliminated in full in 2010.  Personal exemption amount in 2012 is $3,800.  In 2013, phase-out of personal exemptions begins for Adjusted Gross Income (AGI) above $269,000 for joint filers.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  10. 10. Dividends  The distinction between ordinary and qualified dividends will expire on December 31, 2012.  The highest federal rate on dividends will return to 39.6%.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  11. 11. Medicare Surtaxwww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  12. 12. How will the Affordable Care Act (ACA) Impact Tax Payers?  The ACA’s revenue provisions impose a 3.8% tax on investment income for individuals with gross income of $200,000 or more and married tax payers with gross income of $250,000 or more per year.  The ACA revenue provisions will also impose a 0.9% Medicare health insurance tax.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  13. 13. New Tax on Investment Income  While certain exclusions apply, the 3.8% potential tax increase applies to: • Capital gains (Long and Short term) • Dividends • Interest • Annuities • Royalties • Rentswww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  14. 14. Combined Impact of Income Tax Changes Maximum Applicable Tax Rates Investment Income Current Tax Rate 2013 Tax Rate Long-Term Capital 15% 23.8% Gains Short-Term Capital 35% 43.4% Gains Dividends 15% 43.4% Interest, rents, 35% 43.4% royalties, annuitieswww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  15. 15. What can you do to protect your business? If the tax increases apply to you, consider the following solutions:  If you are considering selling your business in the near future, make the sale before 2013.  If you are selling your business and want to start a tax- free transaction (1031 exchange, merger, reorganization), elect now to recognize all gain.  If you are considering a sale with a deferred payment plan, require full payment in 2012 (future installment payments will be taxed at the new capital gain rate).www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  16. 16. What can you do to protect your business?  If you want to purchase a business that will be impacted by the rate increase, consider whether completing that transaction in 2012 would motivate sellers to negotiate a more favorable purchase price since sellers are currently paying lower taxes.  Since tax on dividends may exceed tax applicable to compensation, consider whether the compensation paid to shareholders is reasonable.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  17. 17. Estate Planning and Transfer Taxwww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  18. 18. Potential Issues with Estate Tax Beginning January 1, 2013, without any Congressional Action…  Reduction in Estate Tax Exemption from $5,120,000 to $1,400,000.  Reduction in Generation Skipping Tax Exemption from $5,120,000 to $1,400,000.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  19. 19. Other Economic Changes Expected  Possible future loss of valuation discounts for family business interests.  Market conditions provide for reduced business values.  Possible increase of low interest rates currently allowed for any loans used in family transactions.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  20. 20. 2012 is…. The best time to transfer business interests to the next generation.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  21. 21. Available Planning Options  Transfers to family members can be accomplished by gift or sale, depending on what benefits the transferring family member wants/needs to retain.  Transferring family member can retain significant control after the transfer.  Transferring family member may be able to retain (through a spouse) economic benefit in the transferred interests.  Use of trusts can provide asset protection benefits for transferees as well as future tax benefits.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  22. 22. Charitable Givingwww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  23. 23. Give more, pay less tax Grow giving Taxes by converting tax dollars to giving dollars. Giving Lifestyle/ Savingswww.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  24. 24. How it works Full or partial More ways to interests Charitable assist in the Income Shareholder name of Christ Tax deduction Buyer (if business is sold, now or in the future)www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  25. 25. Results: Asset-based giving This table shows the impact of giving a 3% non-voting interest in a $10M family business (S-corp), with a $1 million of K-1 income. Before After* Giving $30,000 $330,000 Lifestyle $200,000 $200,000 Taxes $388,000 $268,000 Net cash flow for giving, saving, or investing *The “After” column sums $1.3M because the $300,000 charitable gift came from the company value, not out of the earnings. It represents just the first year, but the gift could be repeated annually for more giving.www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City
  26. 26. Calculate the Gift Part I 1. Your anticipated income:________________ 2. Your income X 30% =_________________ Part II 3. The value of your business/other assets =_______________ 4. _____% of your business to give Part III 5. What assets?www.spencerfane.com Kansas City  Omaha  Overland Park  St. Louis  Jefferson City

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