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Year End Tax Planning. Do You Know the difference between Tax Avoidance and Tax Evasion? 30 Years (In Prison)

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Presentation on theme: "Year End Tax Planning. Do You Know the difference between Tax Avoidance and Tax Evasion? 30 Years (In Prison)"— Presentation transcript:

1 Year End Tax Planning

2 Do You Know the difference between Tax Avoidance and Tax Evasion? 30 Years (In Prison)

3 Whats New In 2012 What is an Accountant? Someone who solves a problem you didnt know you had in a way you dont understand at a price you cannot afford. Standard Deduction 2012 Single - $5950 (up $150) – Add $1150 if over age 65 MFJ - $11900 (up $300) – Add $1450 if over age 65 HOH - $8700 (up $200) – Add $1150 if over age 65 MFS - $5950 (up $150) – Add $1150 if over age 65

4 But Wait….Theres More Personal Exemption $3800 (up $100) Kiddie Tax Threshold $1900 < 24 years old is taxed at parents rates if full time student Changes in the tax brackets but not the tax rates FICA Portion of Social Security Earning Limit $110,100 up $3300 Mileage Rates 55.5 cents per business mile 14 cents per charitable mile 23.5 cents per medical and moving mile

5 Year End Tax Tips 3 Basic Techniques – Due to New Proposals Accelerate Income Into 2012 Defer Deductions Into 2013 Take Advantage of Expiring Tax Laws

6 Accelerate Income into 2012 The Goal is to Lock-in Known Tax Rates This can be achieved by…. – Asking employers to pay 2012 bonuses by 12/31/12 – Sell Stocks and Investments to lock in historically low 15% tax on gains or harvest losses – Take distributions from IRAs if over 59 ½. – Rollover Traditional IRA to Roth to lock in known rate. – Redeem U.S. Savings Bonds

7 Defer Deductions into 2013 Defer Certain Payments into 2013 – Medical Bills – Charity – Property Taxes

8 Take Advantage of Expiring Tax Laws 10% Tax Bracket ($7000 for singles, $14000 for MFJ) becomes 15% after No Limit on over all Itemized Deductions in 2012 – 2013 Phases out at 3% of total AGI when it exceeds $254,350 MFJ or $169,500 Single. Child Tax Credit – $1000 per eligible child lowers to $500 in 2013 Debt Forgiveness on a principle residence in foreclosure on a mortgage workout is not taxable. This expires after 2012

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10 Crazy Times For Planning Bush-era income tax rates & Capital Gains Rates One of Four Directions 1.Complete Sunset for all taxpayers 2.Complete extension for all taxpayer 3.Sunset for Higher Income Individuals only 4.Sunset for Millionaires only

11 2013 The Proposed rate for L/T Capital Gains is 20% up from 15%. New 3.8% contribution tax on net investment income (unearned income). Affects Taxpayers with AGI of $250,000 or more MFJ. ($200,000 single filers) Applies to the LESSER of Investment Income or AGI over $250,000. ($200,000 for single) AGI $140,000 + Capital Gain $120,000 = AGI $260,000 $260,000 - $250,000 = $10,000 x 3.8% = $380 (Lesser) This Levy applies to taxable interest, dividends, rents, some annuities, royalties, and capital gains. Includes sale of Home after $500,000 exclusion. ($250,000 for single)

12 2013 Continued New 0.9% Medicare Tax on earned income On self employment earnings or wages in excess of $250,000 MFJ or $200,000 single. (From 1.45% to 2.35%) Dividends will be taxed at ordinary income tax rate regardless of bracket (15%-39.6%) Medical Deduction Increase from 7.5% of AGI to 10% AGI Remains 7.5% for taxpayers 65 years or older until Payroll tax holiday is scheduled to expire 12/31/12 from 4.2% back to 6.2%

13 Tax Mess Deepens L/T Capital Gains Tax Rate 0% ($ ) 0% ($17,400-70,700) 15% ($ 70, ,700 ) 15% ($142, ,450) 15% ($217, ,350) 15% ($388,350-Above) (MFJ) 2013 Ordinary Income Tax Rate 10% ($ ) 15% ($17,400-70,700) 25% ($ 70, ,700 ) 28% ($142, ,450) 33% ($217, ,350) 35% ($388,350-Above) S/T Capital Gains Tax Rate 10% ($ ) 15% ($17,400-70,700) 25% ($ 70, ,700 ) 28% ($142, ,450) 33% ($217, ,350) 35% ($388,350-Above) Ordinary Income Tax Rate 15% 28% 31% 36% 39.6% S/T Capital Gains Tax Rate 15% 28% 31% 36% 39.6% L/T Capital Gains Tax Rate 10% 20% 5 Year Capital Gains Tax Rate 15% 28% 31% 36% 39.6%

14 Estate Taxes (The Death Tax) Million Per Person Exemption (indexed for inflation) 5.12 MM Taxpayer MM Spouse Could Avoid Estate Tax Maximum rate is 35% beginning at $500,000 Lifetime Gifting is Proposed 1.0 Million Per Person Exemption (Not indexed for inflation) Maximum rate is 55% beginning at 3 Million Lifetime gifting 1 Million. Regular Gifting Without Gift Tax $13,000 per person

15 Smiley CPAs Melody J. Smiley CPA 1650 Murfreesboro Rd Ste. 100 Franklin, TN Phone Fax Smileycpas.com


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