Tax Consequences of the 2012 Election

Tax Consequences of the 2012 Election

• 1.
  Delivering on thePromise. The Election Is Over – Now What?
• 2.
  Delivering on thePromise. AGENDA • 2013 Tax Law If No Changes Are Made • Year-End Tax Planning for Individuals and Businesses • Year-End Tax Planning Using The Estate and Gift Tax Laws for 2012 • What The Future Holds Based On Post- Election Congress • Q&A
• 3.
  Delivering on thePromise. 2013 LAW: NO CHANGES What is the big deal? • Tax Rates 2012 Tax Rate 2013 Tax Rate 2013 Tax Rate w/ Surtax 10% 15% 15% 15% 15% 15% 25% 28% 28% 28% 31% 34.8% 33% 36% 39.8% 35% 39.6% 43.4% • Dividend and Capital Gain Rates 2012 Tax Rate 2013 Tax Rate Qualified Dividend 15% Ordinary Ordinary Dividend Ordinary Ordinary Short-Term Capital Gain Ordinary Ordinary Long-Term Capital Gain 15% 20%
• 4.
  Delivering on thePromise. 2013 LAW: NO CHANGES Other Expiring Provisions • 2% temporary Social Security payroll tax cut on wages • Dollar limit maximum return to $2,400 for one child and $4,800 for two or more qualifying individuals for dependent care expenses • Child Tax Credit drops from $1,000 to $500 • American Opportunity Credit reverts to Hope Credit (non- refundable and only allowed for first two years of college)
• 5.
  Delivering on thePromise. 2013 LAW: NO CHANGES Other Expiring Provisions • Maximum income and credit reduced for Earned Income Credit • Work Opportunity Credit expires • 3% reduction in itemized deductions for Married Filing Joint (MFJ) Adjusted Gross Income over $175,000 • Debt & Mortgage Forgiveness Tax Relief expires 12/31/12 • Personal exemption phase-outs come back
• 6.
  Delivering on thePromise. 2013 LAW: NO CHANGES Other Expiring Provisions • Student Loan Interest Deduction will now only be eligible if within the first 60 months of repayment • 7.5% medical deduction limit increases to 10% • Bonus depreciation expires – currently at 50% • Section 179 expensing becomes limited to $25,000 – currently $139,000 • Exemption for estate tax and gifts reverts back to $1,000,000 and estate tax rates revert to 55% • Flexible Medical Spending Accounts are reduced to $2,500
• 7.
  Delivering on thePromise. 2013 LAW: NO CHANGES Patient Protection And Affordable Care Act • Two Parts ̶ .9% Increased Medicare Tax due on wages earned over $200,000 Single and $250,000 MFJ ̶ 3.8% surtax on at least a portion of investment income, such as capital gains, dividends, and net rental income
• 8.
  Delivering on thePromise. 2013 LAW: NO CHANGES Patient Protection And Affordable Care Act Example: • Ron • Single taxpayer • Self-employed • $500,000 Earnings • $500,000 -200,000 $300,000 Subject to .9% surtax
• 9.
  Delivering on thePromise. 2013 LAW: NO CHANGES Patient Protection And Affordable Care Act Example 2: • Marion • Single taxpayer • $0 wages • $225,000 Net Investment Income • $225,000 MAGI -200,000 Threshold $25,000 Subject to 3.8% surtax
• 10.
  Delivering on thePromise. 2013 LAW: NO CHANGES Patient Protection And Affordable Care Act Example 3: • Steve and Debbie • Married, filing jointly • $200,000 Combined salary • $150,000 Net Investment Income • $350,000 MAGI -250,000 Threshold $100,000 Subject to 3.8% surtax • Lesser of Net Investment Income or Excess of MAGI over Threshold
• 11.
  Delivering on thePromise. 2013 LAW: NO CHANGES Patient Protection And Affordable Care Act Net Investment Income Includes Does Not Include Interest Salary, Wages, Bonuses Dividends Distributions from IRAs or Qualified Plans Any income taken into account for self- Annuity Distributions employment Net Rental Income Gain on the sale of an active business Royalties Tax-exempt interest Veterans benefits Income from Passive Activities Net Capital Gain from Sale of Property Passive Sale of Business
• 12.
  YEAR-END TAX PLANNING: Delivering on the Promise. INDIVIDUALS Individual Tax Credits Available in 2012 • Adoption Credit - $12,650 • Child and Dependent Care Credit • Disabled Access Credit • Education Credits • Pension and Start-Up Plan Credit • Retirement Savings Credit
• 13.
  YEAR-END TAX PLANNING: Delivering on the Promise. INDIVIDUALS Individual Tax - Moves to Make Now • Make charitable gifts • Make an extra mortgage payment • Maximize contributions to employer-sponsored plans • Evaluate stock options • Evaluate stock portfolios before harvesting gains and losses • Convert IRA to Roth IRA
• 14.
  YEAR-END TAX PLANNING: Delivering on the Promise. INDIVIDUALS Individual Tax - Moves to Make Now • Use up funds in medical and dependent care Flexible Spending Accounts • Accelerate medical expenses • Set up Health Savings Account for 2012 • Accelerate next semester’s college tuition payment • Prepay state and local taxes (if not subject to AMT)
• 15.
  YEAR-END TAX PLANNING: Delivering on the Promise. BUSINESSES Business Tax Credits Available in 2012 • Small Employer Heath Insurance Credit • Fuel Tax Credit • Disabled Access Credit • Retirement plan startup costs • Work Opportunity Credit
• 16.
  YEAR-END TAX PLANNING: Delivering on the Promise. BUSINESSES Businesses – Moves To Make Now • Have a closely-held business pay dividend • Buy depreciable equipment for closely-held business • Accelerate year-end bonuses into 2012
• 17.
  YEAR-END TAX PLANNING: Delivering on the Promise. 2012 ESTATE & GIFT TAX LAW Estate and Gift • Contribute to 529 Education Savings accounts • Make gifts of cash to family and friends or forgive loans of up to $13,000 • Make lifetime gift of up to $5,120,000 per person
• 18.
  WHAT THE FUTUREHOLDS, BASED ON Delivering on the Promise. POST-ELECTION CONGRESS Look Into My Crystal Ball • Likely to be renewed - Expired 12/31/11 – Higher Education Tuition Deduction – State and Local Sales Tax Deduction – Teachers’ Classroom Deduction – Qualified Charitable Distributions from IRA’s – Research Tax Credit – Section 179 Expensing – Work Opportunity Credit – 15-Year Recovery for Qualified Leasehold Improvements • What about the Medicare surtax?
• 19.
  WHAT THE FUTUREHOLDS, BASED ON Delivering on the Promise. POST-ELECTION CONGRESS Look Into My Crystal Ball • Estate and gift tax – Likely a $3.5 million exemption for estates – Likely a $1 million exemption for lifetime gifts • What about portability??
• 20.
  WHAT THE FUTUREHOLDS, BASED ON Delivering on the Promise. POST-ELECTION CONGRESS Look Into My Crystal Ball • Democrats: – Raise tax rates on ‘high income’ taxpayers, those making over $250,000/year – Limit itemized deductions – Extend Bush tax cuts for those making under $250,000 • Republicans: – Do not raise taxes, but close tax loopholes – Limit itemized deductions – Entitlement reform
• 21.
  WHAT THE FUTUREHOLDS, BASED ON Delivering on the Promise. POST-ELECTION CONGRESS Still To Be Voted On For 2012 Taxes! • AMT Patch ̶ Mechanism used by Congress to offset the failure of the tax law to automatically require an adjustment of the Alternative Minimum Tax brackets for inflation ̶ Actual ‘patch’ is an exemption  2011 = $74,450 (MFJ) ̶ What if Congress doesn’t act?  25 Million more Americans will pay the Alternative Minimum Tax  IRS stated there would be a delay in processing tax returns and refunds
• 22.
  Delivering on thePromise. Questions?