Tax Planning 2013


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Comprehensive tax reform guide for income tax and wealth transfer taxes. Income tax 2013 includes tax information for the self employed, affordable health care act, income tax rate changes, and the most recent tax law changes for 2013. The wealth transfer tax covers estate taxes, gift taxes, MAGI and tax planning tips for 2013.

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Tax Planning 2013

  1. 1. Tax Planning For 2013Presenter: Allan Peiser
  2. 2. The Current Environment•The tax reform debate•Lower rates, fewer tax expenditures,spending driven deficit reform•Tax reform accompanied by tax increasesthat help reduce deficits•A lingering standoff over the size ofgovernment and tax policy
  3. 3. • Income Tax•Wealth TransferTax
  4. 4. Income Tax• Medicare Tax •Self Employed Income - .9% •Net Investment Income – 3.8% •To the extent that MAGI exceeds $200,000 for an individual or $250,000 for a joint return
  5. 5. Tax on Self Employed Income• Medicare tax increase beginning in 2013• 0.9% Medicare Hospital Insurance (HI) tax• on self-employed individuals and employees• on earnings and wages received during the year above specified thresholds• individual wages of an employee in excess of $200,000• joint return in excess of $250,000
  6. 6. Net Investment IncomeFor purposes of the 3.8% tax Net Investment Income isdefine in Code Sec. 1411(c) as “investment income”reduced by the deductions properly allocable to suchincome plus the sum of: •Other gross income•Gross income from derived from any business •Interest to which the tax applies •Dividends •Annuities •Net gain attributable to the •Royalties disposition of property other than property held in •Rents a trade or business to •Passive income which the tax does not apply
  7. 7. Affordable Care Act Provisions• Premium-assistance credit• Small business tax credit• Reporting requirements• Medical care itemized deduction threshold• Adult Dependent insurance coverage
  8. 8. Affordable Care Act Provisions• Health Flexible spending arrangements• Expansion of adoption credit• Excise tax on high-cost employer plans• Tax on indoor tanning services• Information reporting• Excise tax on medical device manufacturers
  9. 9. Income Tax RatesTax rates remain unchanged for 2011, ranging from 10percent to 35 percent. These rates are set to expire atthe end of 2012 unless Congress takes action. IfCongress does not take action, tax rates will return tothose that were in effect in 2000. •Income tax withholdings are considered paid equally throughout the year, even if the withholdings are made near the end of the year. •If you anticipate being liable for underpayment penalties on estimated tax, you may consider taking an indirect rollover distribution from a traditional or Roth IRA account during the year of underpayment.
  10. 10. Other Changes Recently Enacted Tax Law Changes Affecting Individuals• Bonus depreciation. The 2010 Act extends for two years 50-percent bonus depreciation for qualified property. Bonus depreciation will be available for qualified property placed in service before January 1, 2013• Expensing. The 2010 Act provides that, for tax years beginning in 2012, the Section 179 small-business expensing limitation will be $125,000. The limitation will be reduced if the cost of the Section 179 property for that year exceeds $500,000. Those amounts will return to $25,000 and $200,000, respectively, after 2012.• Miscellaneous individual provisions. The 2010 Act includes a new temporary reduction of the Social Security payroll tax for wage earners and self-employed individuals. The 2010 Act also extends through 2011 the provision for tax-free distributions from individual retirement plans for charitable purposes by individuals who are age 70-1/2 and older (up to $100,000 per taxpayer per taxable year).
  11. 11. Wealth Transfer Tax•The Estate Tax - For 2011, the applicable credit amount is theestate tax on the $5 million base exclusion amount, computedusing the rate structure in effect on the date of death($1,730,800 in 2011 and slightly higher in 2012 because theexclusion amount is indexed for inflation).•Gift Tax - Transfers to a spouse who is a U.S. citizen arecovered by the unlimited marital deduction; therefore, suchtransfers may be made totally free from gift tax.
  12. 12. Wealth Transfer Tax Basic Blocking and Tackling•You may want to shift wealth down generational lines throughan annual gifting program.•If a child or grandchild has earned income, consider making acash gift. The child or grandchild may use that gift to contribute$5,000 or the amount of the donee’s earned income, whicheveris less, to a traditional IRA or Roth IRA.•Remember to make any payments on behalf of others directlyto providers of medical and educational services.•Consider funding future educational expenses through giftsinto a § 529 educational plan for children and grandchildren.
  13. 13. Wealth Transfer TaxPotential Gift Tax Changes – the President’s BudgetProposals •Grantor retained annuity trust limitations •Discount valuation limitationsGST tax
  14. 14. MAGIIn computing MAGI for purposes of the 3.8% threshold, grossincome does not include items such as interest on tax-exemptbonds, veterans’ benefits, and excluded gain from the sale ofa principal residence that are otherwise excluded fromincome.Watch out for theses situations:• Gain over and above the $250,000 amount protected by the principal residence exclusion does increase MAGI as well as net investment income• Lump-sum distributions from retirement plans, while excluded from net investment income, are included in MAGI• Converting traditional IRAs to Roth IRAs after 2012 will increase MAGI by the amount of the converted amount
  15. 15. Planning for 2013 Planning in Uncertain Times•Adopt a multiyear perspective in reviewing your tax situation,evaluating the tax implications of shifting income or deductions.•Consider the effect of the AMT. The expected outcome ofdeferring or accelerating income and deductions may bedifferent after determining the AMT consequences. The resultmay not necessarily be intuitive.•View transactions with regard to both their economic and taximplications.•Stay engaged with understanding the tax changes debated oradopted by Washington. Be prepared to act quickly onceCongress agrees on tax rates or reform.
  16. 16. Planning for 2013 Ordinary Income•If you believe ordinary tax rates will increase, you may want toconsider accelerating receipt of commissions, bonuses,nonqualified stock option exercises, or billings prior to 2013.•If you are generating a net operating loss (NOL) and believethat ordinary rates will rise, you should consider having yourNOL carried forward to offset future ordinary income taxed athigher rates, rather than carried back to offset income taxed atlower rates. Careful modeling of this decision is critical and mustfocus on cash flow as well as tax considerations.
  17. 17. Planning for 2013 Medicare Tax•Consider realizing capital gains prior to 2013 when cap gainsand unearned income tax rates increase•For 2011 and 2012 sales, consider electing out of installmentsale treatment (where available) and recognizing the entireamount of gain in the year of sale (instead of deferring it overthe payment period).•Consider rebalancing your investment portfolio by increasinginvestments in growth assets and decreasing emphasis ondividend-paying assets prior to 2013.
  18. 18. Planning for 2013 Medicare Tax•If you have an investment interest expense carryover into2012, consider electing not to tax qualified dividends and long-term capital gains at ordinary tax rates on your 2012 tax returnin anticipation of qualified dividends reverting to ordinary incomein 2013.•Passive income is subject to the 3.8-percent unearned incometax; therefore, if you have multiple passive activities, considerreviewing current grouping elections in light of any new factualpatterns for each activity that may reclass such activity frompassive to active or vice versa.
  19. 19. Planning for 2013 Investment Income•If you anticipate an increasing capital gains rate environmentbeginning in 2013, you may want to consider acceleratingcapital gains prior to 2013 to capture the lower tax rate.•Conversely, if you believe capital gains rates will decline orremain constant, you would want to explore accelerating lossesprior to 2013 and deferring gains into future years.•Determine whether it is better to invest funds in a taxableaccount or a tax-deferred account, and consider asset allocationand investment strategies in light of the impact of tax rates onportfolio income.
  20. 20. For Additional Information ContactAllan Peiser, Managing Partner Goldin Peiser & Peiser, LLP 214-635-2503