Tax Consequences of the 2012 Election

Delivering on the Promise.

The Election Is Over – Now What?


• 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

AGENDA


What is the big deal? • Tax Rates

• Dividend and Capital Gain Rates

2013 LAW: NO CHANGES

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%

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%


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)




• 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



• 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




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




Example:

• Ron

• Single taxpayer

• Self-employed

• $500,000 Earnings

• $500,000

-200,000

$300,000 Subject to .9% surtax




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




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




Net Investment Income


Includes Does Not Include

Interest Salary, Wages, Bonuses

Dividends Distributions from IRAs or Qualified Plans

Annuity Distributions Any income taken into account for self-

employment

Net Rental Income Gain on the sale of an active business

Royalties Tax-exempt interest

Income from Passive Activities Veterans benefits

Net Capital Gain from Sale of

Property

Passive Sale of Business


• Adoption Credit - $12,650

• Child and Dependent Care Credit

• Disabled Access Credit

• Education Credits

• Pension and Start-Up Plan Credit

• Retirement Savings Credit

Individual Tax Credits Available in 2012

YEAR-END TAX PLANNING:

INDIVIDUALS


• 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

Individual Tax - Moves to Make Now


INDIVIDUALS


• 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)

Individual Tax - Moves to Make Now


INDIVIDUALS


• Small Employer Heath Insurance Credit

• Fuel Tax Credit

• Disabled Access Credit

• Retirement plan startup costs

• Work Opportunity Credit

Business Tax Credits Available in 2012


BUSINESSES


• Have a closely-held business pay dividend

• Buy depreciable equipment for closely-held business

• Accelerate year-end bonuses into 2012

Businesses – Moves To Make Now


BUSINESSES


• 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

Estate and Gift


2012 ESTATE & GIFT TAX LAW


• 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?

Look Into My Crystal Ball

WHAT THE FUTURE HOLDS, BASED ON

POST-ELECTION CONGRESS


• Estate and gift tax

– Likely a $3.5 million exemption for estates

– Likely a $1 million exemption for lifetime gifts

• What about portability??





• 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





• 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

Still To Be Voted On For 2012 Taxes!




Questions?

Tax Consequences of the 2012 Election

Economy & Finance

Transcript of Tax Consequences of the 2012 Election