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