year end tax planning. do you know the difference between tax avoidance and tax evasion? 30 years...
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Year End Tax Planning
Do You Know the difference between Tax Avoidance and Tax Evasion?
30 Years (In Prison)
What’s New In 2012
What is an Accountant?Someone who solves a problem you didn’t know you had in a way you don’t 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
But Wait….There’s 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
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
Accelerate Income into 2012The 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 IRA’s if over 59 ½.– Rollover Traditional IRA to Roth to lock in known
rate.– Redeem U.S. Savings Bonds
Defer Deductions into 2013
• Defer Certain Payments into 2013–Medical Bills–Charity–Property Taxes
Take Advantage of Expiring Tax Laws
• 10% Tax Bracket ($7000 for singles, $14000 for MFJ) becomes 15% after 2012.
• 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
Crazy Times For PlanningBush-era income tax rates & Capital Gains Rates
• One of Four Directions1. Complete Sunset for
all taxpayers2. Complete extension
for all taxpayer3. Sunset for Higher
Income Individuals only
4. Sunset for Millionaires only
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)
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 2016• 2012 Payroll tax holiday is scheduled to
expire 12/31/12 • from 4.2% back to 6.2%
Tax Mess Deepens
L/T Capital Gains Tax Rate
0%($0-17400)
0%($17,400-70,700)
15%($70,700-142,700)
15%($142,700-217,450)
15%($217,450-388,350)
15%($388,350-Above)
2008-2012 (MFJ) 2013Ordinary Income Tax Rate
10%($0-17400)
15%($17,400-70,700)
25%($70,700-142,700)
28%($142,700-217,450)
33%($217,450-388,350)
35%($388,350-Above)
S/T Capital Gains Tax Rate
10%($0-17400)
15%($17,400-70,700)
25%($70,700-142,700)
28%($142,700-217,450)
33%($217,450-388,350)
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%
20%
20%
20%
5 Year Capital Gains Tax Rate
15%
28%
31%
36%
39.6%
Estate Taxes (The Death Tax)
2012• 5.12 Million Per Person Exemption (indexed for inflation)
5.12 MM Taxpayer + 5.12 MM Spouse 10.24 Could Avoid Estate Tax• Maximum rate is 35% beginning at $500,000• Lifetime Gifting is 5.12
2013• 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 Remains @ $13,000 per person
Smiley CPAs• Melody J. Smiley CPA• 1650 Murfreesboro Rd
Ste. 100 • Franklin, TN 37067• Phone 615-794-8881• Fax 615-791-5532• Smileycpas.com• melody@smileycpas.com
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