year end tax planning

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year end tax planning

  1. 1. Year End Tax Planning December 8, 2011 Presented By: Jeffrey G. Cohen, CPA, MST _______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  2. 2. Expiring Federal Tax Provisions <ul><ul><li>AMT </li></ul></ul><ul><ul><li>$250 Educator expenses </li></ul></ul><ul><ul><li>Deduction for qualified higher education </li></ul></ul><ul><ul><li>Research and development </li></ul></ul><ul><ul><li>Payroll tax break </li></ul></ul><ul><ul><li>Depreciation </li></ul></ul><ul><ul><li>Sales tax deduction </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  3. 3. Uncertainty <ul><li>Traditional Strategy of Deferring Income Is Dicey This Year </li></ul><ul><ul><li>This strategy makes sense if you are confident you will be in the same or lower tax bracket next year. </li></ul></ul><ul><ul><li>The top two tax rates have widely been expected to increase. </li></ul></ul><ul><ul><li>The elections could cause legislators to delay any tax increase. </li></ul></ul><ul><ul><li>Congress must take action for existing laws to be left in place for next year. </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  4. 4. What Entity is Appropriate? <ul><li>Limited Liability Company (LLC) </li></ul><ul><li>S-Corporation </li></ul><ul><li>C-Corporation </li></ul><ul><li>Individual </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  5. 5. Limited Liability Company <ul><li>Liability protection </li></ul><ul><li>Losses flow to partners </li></ul><ul><li>Flexible </li></ul><ul><li>Single member – disregarded entity </li></ul><ul><li>Appreciation not trapped </li></ul><ul><li>Basis in debt </li></ul><ul><li>Step-up basis </li></ul><ul><li>Social Security Issues </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  6. 6. S-Corporation <ul><li>Liability protection/exposure </li></ul><ul><li>Losses flow to shareholders </li></ul><ul><li>Basis in debt from shareholders </li></ul><ul><li>Wages and social security issues </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  7. 7. C-Corporation <ul><li>Liability protection/exposure </li></ul><ul><li>Appreciation and losses trapped </li></ul><ul><li>Double taxation </li></ul><ul><li>Potential lower tax rate </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  8. 8. Individual <ul><li>Tort liability </li></ul><ul><li>Debt liability </li></ul><ul><li>Types of ownership </li></ul><ul><ul><li>Tenants by Entirety </li></ul></ul><ul><ul><li>Tenants in Common </li></ul></ul><ul><ul><li>Joint Tenants </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  9. 9. Setting Up The Entity <ul><li>Entity choice </li></ul><ul><li>Articles of incorporation/bylaws </li></ul><ul><li>Federal identification number </li></ul><ul><li>Potential S election </li></ul><ul><li>Setting up bank account </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  10. 10. Setting Up The Entity (Cont.) <ul><li>Operating agreement </li></ul><ul><li>Partnership agreement </li></ul><ul><li>Cash vs. Accrual </li></ul><ul><li>Insurance </li></ul><ul><ul><li>Fire, theft, flood, credit, public/employer liability, employee medical, use and occupancy, business interruption, workers compensation </li></ul></ul><ul><li>Accounting Software </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  11. 11. Important Issues _______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  12. 12. What Strategy is Right for You? <ul><li>Does your business operate on a cash or accrual basis? </li></ul><ul><li>Do you expect a profit or a loss for 2011? </li></ul><ul><li>Do you anticipate that 2012 will bring significantly higher revenue, expenses, or a tax bracket change? </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  13. 13. Depreciation Issues <ul><li>Section 179: Buying New Equipment </li></ul><ul><ul><li>In 2010 and 2011, the maximum Section 179 has doubled. </li></ul></ul><ul><ul><ul><li>Maxing out at $500,000 </li></ul></ul></ul><ul><ul><ul><li>Phase-out at $800,000 to $2 million </li></ul></ul></ul><ul><ul><li>In 2012, phase-out becomes $125,000 and $500,000. </li></ul></ul><ul><ul><ul><li>Then becomes $25,000 in 2013 </li></ul></ul></ul><ul><ul><li>No more 100% bonus. </li></ul></ul><ul><ul><ul><li>50% for 2012 only </li></ul></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  14. 14. Depreciation Issues (Cont.) <ul><li>Fix the Business Premises </li></ul><ul><ul><li>Deduct the cost of minor repairs to your business building. </li></ul></ul><ul><ul><li>Cost of most major improvements must be capitalized. </li></ul></ul><ul><ul><li>Handle repairs before January 1 st to maximize your deduction fro the previous year. </li></ul></ul><ul><ul><li>If repairs and improvements are lumped together, the entire cost may have to be capitalized. </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  15. 15. Investments <ul><li>Confirm investment goals and strategy </li></ul><ul><li>Review asset allocation </li></ul><ul><li>Review fundamentals of portfolio positions </li></ul><ul><li>Revisit income and savings needs </li></ul><ul><li>Zero percent capital gain rate </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  16. 16. Retirement <ul><li>Consider converting Traditional IRA into Roth IRA </li></ul><ul><ul><li>Will trigger a current tax hit on the amount you convert. </li></ul></ul><ul><ul><ul><li>But, with your Traditional IRA balance at a depressed level, the tax hit will be less. </li></ul></ul></ul><ul><ul><li>All the income and gains that accumulate in your Roth IRA, and all withdrawals after you reach age 59 ½, will be totally free of Federal taxes. </li></ul></ul><ul><ul><ul><li>Future withdrawals from a Traditional IRA could be hit with tax rates that are higher than today’s rates. </li></ul></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  17. 17. Retirement (Cont.) <ul><li>Maximize Contributions to 401(k) Plans </li></ul><ul><ul><li>Contribute as much as you can stand, especially if your employer make matching contributions. </li></ul></ul><ul><ul><ul><li>You give up “free money” when you fail to participate to the max. </li></ul></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  18. 18. Retirement (Cont.) <ul><li>Take Advantage of Flexible Spending Accounts (FSAs) </li></ul><ul><ul><li>Before year-end, you must specify how much of your 2011 salary to convert into tax-free contributions. </li></ul></ul><ul><ul><li>You can then take tax free withdrawals next year to reimburse yourself. </li></ul></ul><ul><ul><ul><li>Out-of-pocket medical/dental expenses and child care costs. </li></ul></ul></ul><ul><ul><li>“ Use it or lose it” </li></ul></ul><ul><ul><ul><li>Don’t set aside more than you what you will likely have in qualifying expenses for the year. </li></ul></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  19. 19. Retirement (Cont.) <ul><li>Open a retirement plan if newly self-employed. </li></ul><ul><li>Take required minimum distribution from IRA. </li></ul><ul><li>Review overall retirement strategy. </li></ul><ul><li>Review Long-Term Care and Disability Coverage. </li></ul><ul><li>If you are age 70 ½ or older, you generally must take your required distribution before the end of the year to avoid penalty. </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  20. 20. Tax Credits <ul><li>Hiring Incentives to Restore Employment </li></ul><ul><ul><li>6.2% payroll tax exemption for qualified workers hired between 2/3/10 and 1/1/11. </li></ul></ul><ul><ul><li>Tax credit of up to $1,000 if workers are retained for 52 consecutive weeks. </li></ul></ul><ul><ul><li>Workers cannot have been employed for more than 40 hours during the previous 60 days. </li></ul></ul><ul><ul><li>Maryland Credit </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  21. 21. Tax Credits (Cont.) <ul><li>Heath Insurance Tax Credit </li></ul><ul><ul><li>Qualifying small employers can claim. </li></ul></ul><ul><ul><ul><li>No more than 25 Full-Time Equivalent workers. </li></ul></ul></ul><ul><ul><ul><li>Pays an average FTE wage of less than $50,000. </li></ul></ul></ul><ul><ul><ul><li>Has a qualifying healthcare arrangement in place. </li></ul></ul></ul><ul><ul><ul><ul><li>Pay at least 50% of each enrolled employee’s coverage. </li></ul></ul></ul></ul><ul><ul><ul><ul><li>Pay the same percentage for all employees. </li></ul></ul></ul></ul><ul><ul><li>Can cover up to 35% of the cost of providing health insurance coverage to employees. </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  22. 22. Tax Credits (Cont.) <ul><li>Payroll Tax Credit </li></ul><ul><ul><li>2% raise for 2011 only at this point </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  23. 23. Tax Credits (Cont.) <ul><ul><li>Research and Development </li></ul></ul><ul><ul><ul><li>An incentive to encourage employers to develop products and processes in the U.S. </li></ul></ul></ul><ul><ul><ul><li>Applies to most industries. </li></ul></ul></ul><ul><ul><ul><li>Based on expenses not revenue. </li></ul></ul></ul><ul><ul><ul><li>Can amend back three years for refunds. </li></ul></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  24. 24. Tax Credits (Cont.) <ul><ul><li>Miscellaneous MD Credits </li></ul></ul><ul><ul><ul><li>Empowerment Zone </li></ul></ul></ul><ul><ul><ul><li>Employment Opportunity </li></ul></ul></ul><ul><ul><ul><li>Research and Development </li></ul></ul></ul><ul><ul><ul><li>Job Creation and Recovery </li></ul></ul></ul><ul><ul><ul><li>Heritage Structure Rehabilitation </li></ul></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  25. 25. Planning Tips <ul><li>Defer Income, Prepay Expenses </li></ul><ul><li>Have a year end tax projection prepared </li></ul><ul><ul><li>State Taxes, AMT Issues, Cash Flow vs. Taxable Income </li></ul></ul><ul><li>Review potential deductions/credits by year end </li></ul><ul><li>Shifting income using trusts (e.g. – defective trust, family partnership) </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  26. 26. Planning Tips (Cont.) <ul><li>“ Bunching” Strategy to Itemize Deductions </li></ul><ul><ul><li>Interest/Taxes, Misc. </li></ul></ul><ul><li>Repairs vs. Depreciation </li></ul><ul><li>Manage Adjusted Growth Income </li></ul><ul><ul><li>Phase-outs </li></ul></ul><ul><li>Self Employed Retirement Plan </li></ul><ul><ul><li>IRA, ROTH, Self Directed ROTH, Solo 401K </li></ul></ul><ul><ul><li>Evaluate conversions </li></ul></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  27. 27. Planning Tips (Cont.) <ul><li>If it looks like you are going to owe income taxes, consider increasing Federal income taxes withheld from your paychecks. </li></ul><ul><li>Take advantage of tax breaks for purchasing equipment, software, and certain real property. </li></ul><ul><li>Collect cost-basis information on securities sold </li></ul><ul><li>Review realized and unrealized gains and losses </li></ul><ul><li>Basis in S-Corporation and Partnership </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  28. 28. Planning Tips (Cont.) <ul><li>Review your estimated tax requirements and payments that have been made </li></ul><ul><li>Character of income (e.g. – sell raw land) </li></ul><ul><li>Regulate Level of Participation </li></ul><ul><li>Stock Sales / Dispose Passive Activity </li></ul><ul><li>Contribute to education accounts </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  29. 29. Planning Tips (Cont.) <ul><li>Prepay rent or mortgage </li></ul><ul><li>Donating property to charity </li></ul><ul><li>New contractor deduction </li></ul><ul><li>Employees vs. Independent contractor </li></ul><ul><li>1099’s </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  30. 30. Planning Tips (Cont.) <ul><li>Pay children </li></ul><ul><li>Compensation issues </li></ul><ul><li>Selling real estate contracts </li></ul><ul><li>Cost Segregation </li></ul><ul><li>1031 Exchange </li></ul><ul><li>Accounting / Quickbooks </li></ul>_______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
  31. 31. Questions? _______________________ www.glassjacobson.com _______________________ 10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060

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