Review this presentation on individual tax planning including key considerations to make in the closing months of 2013 and into 2014 - O'Connor Davies CPA - NYC CPA Firm.

1. Individual Tax Planning
By Douglas S. Ruttenberg
Executive Tax Forum - November 7, 2013

2. DRAFT COPY OF 2013 FORM 1040 AS OF JULY 26, 2013
Executive Tax Forum - November 7, 2013

3. DRAFT COPY OF 2013 FORM 1040 AS OF JULY 26, 2013
Executive Tax Forum - November 7, 2013

4. High Earners –
Challenging Environment
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Higher top income tax rates – Up to 39.6%
- Income > $450,000 Married Filing Joint (MFJ)
•
Higher top rates for capital gains & dividends of 20%
- Income > $450,000 MFJ
•
All taxpayers : Return of the 6.2% Social Security Tax for
employees or self employed - 2% increase
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5. High Earners –
Challenging Environment
•
New .9% payroll tax on wages & self employment income (SEI)
- If combined wages or SEI > $250,000
- Employers required to withhold on wages > $200,000
•
New 3.8 % surtax on net investment income
- Income > $250,000 MFJ
•
Limits on personal exemptions (PEP)
- Income > $300,000 MFJ
•
Limits on itemized deductions (PEASE)
- Income > $300,000 MFJ
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6. Examples: 2013 vs. 2012 Taxes
• Social Security or S/E Tax – Up ~~ $2,300 per max
wage base
• Married Couple with $625,000 of Income and
$125,000 of Deductions
– Wages $600,000, Dividends 20,000, Interest $5,000
» $5,000 Increase
– Wages $480,000 Dividends 140,000 , Interest $5,000
» $10,000 Increase
– And what if wages were 1,000,000? $47,000 INCREASE
SOME GOOD NEWS - AMT exemption is permanent (?)
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7. What’s a Taxpayer To Do?
Defer income unless expected higher tax bracket in 2014:
• Avoid reaching AGI thresholds
– Triggers higher rates , phase-puts & limitations
- 39.6% rate, 20% cap. gain/dividend rate,
- PEP & PEASE phase-outs
• Delay bonuses
• Delay option recognition
• For business owners, delay billing – watch cash vs.
accrual method
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8. Accelerating Deductions (caution)
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Timing charitable contributions
Enhanced write-off’s for equipment purchases
– 2013 Section 179 Limits for purchase of tangible personal
property
• For taxpayers in states with No State Income Tax, accelerate
purchases of large ticket items to benefit from itemized
deductions of sales tax (Disappears in 2014 unless extended)
• Phase-out of itemized deductions for high-income taxpayers
can eliminate some of tax benefit of prepaying
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9. Obstacles with Deferring
Income/Accelerating Expenses
•
Alternative Minimum Tax might eliminate tax benefits for
regular tax purposes or mitigate effect of PEP & PEASE
•
Passive activity limits bar use of losses
•
At risk rules may limit deductions
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10. Who Should Accelerate Income/
Defer Expenses?
•
Will additional income put you in a higher bracket in 2014?
•
If your status as head of household or surviving spouse ends
in 2013
-
•
Planning to marry in 2013?
-
•
Loss of preferential brackets (unless extended)
What is the impact of the marriage penalty?
Expect to start drawing Social Security in 2014?
-
What is the tax impact of higher AGI
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11. Retirement Plan Distributions
•
If Aged 70 ½ & Over
–
Direct IRA Distributions ≤ 100,000 for Taxpayers to Charity
•
Then distribution does not factor into AGI computation
•
2013 is final year for this tax break unless extended
•
Qualifies as RMD
•
Limit annual payouts from retirement plans to the RMD; keep AGI
down (lower ordinary income/cap gains rates, mitigate Medicare
surtax, minimize itemized deduction phase-out, etc.); or
•
Accelerate if low tax bracket, losses, etc.
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12. Other Considerations
• Medical expenses threshold now 10% of AGI if < 65
• Over 70 ½
– RMD before December 31st
– Beneficiaries of inherited IRA’s
• Consider your options with respect to Social Security &
Medicare
• Review your estate plan – Not just a federal tax
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13. Other Considerations
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Gifting
Is now the time for a Roth Conversion?
Maximize 2013 retirement plan contributions?
- Consider plan options
Does D.O.M.A. change your tax situation?
- INCOME TAX, SOCIAL SECURITY, ESTATE TAX
Foreign filing requirements
- Bank accounts, investments, trusts & estates,
gifts, ownership
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