2013 Changes in Tax                         Law and Year End Tax                         Planning Opportunities           ...
INDIVIDUAL & BUSINESS                         TAX UPDATE2012 Year End Tax Update/ Page 2
APPLICABLE TAX PROVISIONS/RATES                                               2012                   2013Ordinary Income  ...
APPLICABLE TAX PROVISIONS/RATES                    (CONTINUED)                                                     2012   ...
0.9% ADDITIONAL MEDICARE TAX• Additional 0.9% HI tax to be imposed on   wages exceeding:     - $250,000, for a joint retur...
0.9% ADDITIONAL MEDICARE TAX                        (CONTINUED)• Withholding considerations for employers:     - Withholdi...
0.9% ADDITIONAL MEDICARE TAX                        (CONTINUED)  •    Must be taken into account for estimated       tax p...
3.8% MEDICARE TAX ON INVESTMENT INCOME               SECTION 1411 TAX – THE BASICS •A tax of 3.8% is imposed on individual...
3.8% MEDICARE TAX ON INVESTMENT INCOME              SECTION 1411 TAX – THE DETAILS•Applicable threshold amounts: - $250,00...
3.8% MEDICARE TAX ON INVESTMENT     INCOME – NET INVESTMENT INCOME•Gross income from interest, dividends, annuities, royal...
3.8% MEDICARE TAX ON INVESTMENT      INCOME – THE REALLY HARD STUFF•Gains and losses from dispositions of interests in par...
BONUS DEPRECIATION       100% BONUS DEPRECIATION ON QUALIFYING                     PROPERTY•Eligible property is placed in...
SEC. 179 EXPENSING                          2011         2012       2013  Allowance               $500,000     $125,000   ...
REGULATIONS ON REPAIRS & CAPITAL                   EXPENDITURES  •New Temporary “Repair” Regulations effective   January 1...
REGULATIONS ON REPAIRS & CAPITAL            EXPENDITURES (CONTINUED)   •Revenue Procedures issued in 2012 to provide rules...
INFORMATIONAL REPORT REQUIREMENTS  •Broker cost basis reporting    –Brokers required to file returns with the IRS must    ...
E-FILING THRESHOLDS FOR TAX                         PREPARERS •Tax return preparers who anticipate filing 11 or more  1040...
PLANNING FOR INDIVIDUALS AND        BUSINESSES PAYING TAX AT INDIVIDUAL                      RATES ACCELERATE INCOME? • Ac...
DIVIDEND AND CAPITAL GAIN                         ACCELERATION   TAXPAYERS OFTEN CONTROL THE TIMING OF DIVIDEND AND   CAPI...
OTHER CONSIDERATIONS      • Examine Conversion to C corporation?        –Federal tax savings on current income        –Lik...
ESTATE TAX UPDATES2012 Year End Tax Update/ Page 24
KEY FIGURES FOR ESTATE AND GIFT TAX                                                2012         2013       Estate Tax Exem...
OTHER ESTATE TAX CONSIDERATIONS- GIFTING STRATEGIES     -Family partnerships     -Trusts     -Defective trusts     -Sales ...
QUESTIONS AND DISCUSSIONPresentation Title / Page 24
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2012-11-27 Tax Planning

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2013 Changes in Tax Law and Year End Tax Planning Opportunities

Individuals
o 2013 tax rates
o Tax on investment income
o Other changes in tax law affecting individuals
o Year end planning opportunities

Businesses
o Employment tax
o Depreciation
o Pass-through entities

Estate and Gift Tax
o Exemption amounts
o Tax rates
o Gifting strategies
o Valuation discounts
o Grantor trusts

Published in: Economy & Finance
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2012-11-27 Tax Planning

  1. 1. 2013 Changes in Tax Law and Year End Tax Planning Opportunities Presented by Raffa Tax Partners Mitra Mamdouhi, Jane Horn and Susan Hepner November 27, 2012Thrive. Grow. Achieve.
  2. 2. INDIVIDUAL & BUSINESS TAX UPDATE2012 Year End Tax Update/ Page 2
  3. 3. APPLICABLE TAX PROVISIONS/RATES 2012 2013Ordinary Income Brackets: 10%, 15%, Brackets: 15%, 28%, 25%, 28%, 33%, 31%, 36%, 39.6% 35%Long-Term Capital Gains 15% 20%Qualified Dividends 15% Ordinary income rates (up to 39.6%)Personal Exemption Phase Out Suspended Phase out above $261,650 for joint and $174,450 for single tax payersItemized Deductions No limit 3% reduction for income above $174,450Standard Deduction for Married 200% of the standard 167% of the standardTaxpayers (“Marriage penalty relief)” deduction for deduction for individuals individualsSocial Security Wage Base $110,100 $113,7002012 Year End Tax Update/ Page 3
  4. 4. APPLICABLE TAX PROVISIONS/RATES (CONTINUED) 2012 2013 Exclusion for employer provided $5,250 None educational assistance under Code Sec. 127 Credit for household and dependent Creditable Expenses Creditable Expenses care expenses (Code Sec. 21) = $3,000 and $6,000 = $2,400 and $4,800 or 35%, reduction respectively or 30%, begins at $10,000 reduction begins at $15,000 Child Tax Credit $1,000 $500 Medical Expense Deduction 7.5% 10% Threshold (exception until 2017 if 65 or older) Backup withholding rate on reportable 28% 31% payments FSA Contribution Limit $5,000 $2,5002012 Year End Tax Update/ Page 4
  5. 5. 0.9% ADDITIONAL MEDICARE TAX• Additional 0.9% HI tax to be imposed on wages exceeding: - $250,000, for a joint return - $125,000, for married filing separately - $200,000, in all other cases• Effective for wages paid after 2012• Does not apply to employer’s share 2012 Year End Tax Update/ Page 5
  6. 6. 0.9% ADDITIONAL MEDICARE TAX (CONTINUED)• Withholding considerations for employers: - Withholding threshold is $200,000 regardless of marital or filing status - Employer not required to consider wages paid to spouse of employee• Employee reconciles liability with withholding on tax return - Refund could result if only one earner MFJ - Additional tax due if two or more employers or spouse has significant wages 2012 Year End Tax Update/ Page 6
  7. 7. 0.9% ADDITIONAL MEDICARE TAX (CONTINUED) • Must be taken into account for estimated tax purposes • Self-employment tax considerations - Applies only to equivalent of “employee” share - Additional tax not deductible by individual - Additional tax begins at lower threshold if individual (or spouse) also has wages during year2012 Year End Tax Update/ Page 7
  8. 8. 3.8% MEDICARE TAX ON INVESTMENT INCOME SECTION 1411 TAX – THE BASICS •A tax of 3.8% is imposed on individuals on the lesser of: - Net investment income for the taxable year, over - The excess (if any) of modified adjusted gross income over the threshold amount •First applies to taxable years beginning after December 31, 2012 •Does not apply to nonresident aliens •Must be covered by estimated tax payments2012 Year End Tax Update/ Page 8
  9. 9. 3.8% MEDICARE TAX ON INVESTMENT INCOME SECTION 1411 TAX – THE DETAILS•Applicable threshold amounts: - $250,000 for married filing jointly - $125,000 for married filing separately - $200,000 in all other cases•Modified adjusted gross income: - Adjusted gross income, increased by - Any section 911 exclusions (foreign earned income), net of related above-the-line deduction2012 Year End Tax Update/ Page 9
  10. 10. 3.8% MEDICARE TAX ON INVESTMENT INCOME – NET INVESTMENT INCOME•Gross income from interest, dividends, annuities, royalties, and rents, unless derived from trade or business, plus•Gross income from passive activities (using section 469 definition), plus•Net gains from disposition of property, other than from non-passive trades or businesses, minus•Deductions properly attributable to such items2012 Year End Tax Update/ Page 10
  11. 11. 3.8% MEDICARE TAX ON INVESTMENT INCOME – THE REALLY HARD STUFF•Gains and losses from dispositions of interests in partnerships and S corporations effectively subject to “look-through” or “aggregate” approach•Specific exclusion for any item subject to self- employment tax•Modified form of tax applies to estates and trusts2012 Year End Tax Update/ Page 11
  12. 12. BONUS DEPRECIATION 100% BONUS DEPRECIATION ON QUALIFYING PROPERTY•Eligible property is placed in service after September 8, 2010 through December 31, 2011 50% BONUS DEPRECIATION•Eligible property is placed in service after December 31, 2011 through December 31, 2012•Qualifying Property•Original use must commence with the taxpayer2012 Year End Tax Update/ Page 12
  13. 13. SEC. 179 EXPENSING 2011 2012 2013 Allowance $500,000 $125,000 $25,000 Limitation $2,000,000 $500,000 $200,0002012 Year End Tax Update/ Page 13
  14. 14. REGULATIONS ON REPAIRS & CAPITAL EXPENDITURES •New Temporary “Repair” Regulations effective January 1, 2012: • Clarify and expand when costs are deductible as repairs and maintenance vs. capital expenditures subject to depreciation • Provide certain bright-line tests, e.g. de minimis rules for expensing materials and supplies • Expire December 20142012 Year End Tax Update/ Page 14
  15. 15. REGULATIONS ON REPAIRS & CAPITAL EXPENDITURES (CONTINUED) •Revenue Procedures issued in 2012 to provide rules for filing for accounting method changes under the new temporary regulations •To implement a change to comply with new Regs, file Form 3115, Application for Change in Accounting Method - Automatic change; no advance consent required - A section 481(a) “catch-up” deduction will capture the missed deductions in the year of the method change2012 Year End Tax Update/ Page 15
  16. 16. INFORMATIONAL REPORT REQUIREMENTS •Broker cost basis reporting –Brokers required to file returns with the IRS must begin including cost basis information for stock sales –Required for stock purchased after January 1, 2011 unless stock is in a mutual fund –If in mutual fund, must be reported if purchased after January 1, 20122012 Year End Tax Update/ Page 16
  17. 17. E-FILING THRESHOLDS FOR TAX PREPARERS •Tax return preparers who anticipate filing 11 or more 1040 and 1041 forms during the year must use IRS e-file during 2012 (Preparers who filed 100 or more were required to e-file in 2011) •Partnerships with 100 or more partners must file electronically •Corporations must file electronically if they have $10 million or more in total assets and file 250 or more returns (e.g. W-2s, 1099s) a year2012 Year End Tax Update/ Page 17
  18. 18. PLANNING FOR INDIVIDUALS AND BUSINESSES PAYING TAX AT INDIVIDUAL RATES ACCELERATE INCOME? • Accelerate sale of business assets/stock • Accelerate receipt of rents, royalties, insurance premiums, etc. • Dividend/Capital gain acceleration • Harvest investment gains before year end (avoids 3.8% tax) • Exercise stock options • Convert to Roth IRAs DEFER DEDUCTIONS? • Elect out of bonus depreciation • Elect to capitalize research expenses • “Fix” executive compensation after 12/31, or defer bonuses > 75 days after year end • Capital loss deferral (worth more post-2012) • Charitable contribution planning – consider deferral Balance between deduction against lower tax rate income and time value2012 Year End Tax Update/ Page 18
  19. 19. DIVIDEND AND CAPITAL GAIN ACCELERATION TAXPAYERS OFTEN CONTROL THE TIMING OF DIVIDEND AND CAPITAL GAIN INCOME TAX RATES ON DIVIDENDS COULD INCREASE FROM 15% IN 2012 TO 43.4% IN 2013 CONSIDER ACCELERATING C CORPORATION DIVIDENDS TO 2012 • Timing of DISC (domestic international sales corporation) dividends should be evaluated • Need to determine “earnings and profits” in foreign subsidiaries • Consider elections to distribute C corporation earnings and profits trapped in S corporations that were previously C corporations • Consider repurchasing shares of minority owners or employees near retirement before the end of 20122012 Year End Tax Update/ Page 19
  20. 20. OTHER CONSIDERATIONS • Examine Conversion to C corporation? –Federal tax savings on current income –Likely still not the best answer long-term –Double taxation concerns with C corporation still exist • Deferred Compensation –Much focus from IRS -“Fixed” at year-end? –Sec 409A issues –Value of related deduction impacted by changing rates • Maximize Research and Development Credit and Section 199 Deduction –Section 199 deductions worth more post 2012 –R&D credits worth same2012 Year End Tax Update/ Page 20
  21. 21. ESTATE TAX UPDATES2012 Year End Tax Update/ Page 24
  22. 22. KEY FIGURES FOR ESTATE AND GIFT TAX 2012 2013 Estate Tax Exemption (per individual) $5,120,000 $1,000,000 Gift Tax Exemption (per Individual) $5,120,000 $1,000,000 Generation Skipping Exemption $5,000,000 $1,000,000 Applicable Estate Tax Rate 35% 55% Applicable Gift Tax Rate 35% 55% Applicable GST Tax Rate 35% 55% Annual Exclusion for Gift Tax $13,000 $14,0002012 Year End Tax Update/ Page 22
  23. 23. OTHER ESTATE TAX CONSIDERATIONS- GIFTING STRATEGIES -Family partnerships -Trusts -Defective trusts -Sales to defective trusts -Qualified Personal Residence Trust (QPRT)- VALUATION DISCOUNTS -Minority interest discount -Lack of marketability discount-GRATS (GRANTOR RETAINED ANNUITY TRUST) - Rolling GRATS2012 Year End Tax Update/ Page 23
  24. 24. QUESTIONS AND DISCUSSIONPresentation Title / Page 24

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