Featured Article from Jeff Singer CPA
It would be an understatement to say that planning in today’s environment is challenging. We hear about the ominous fiscal cliff and the unwanted effects of sequestration. Our leaders believe they can reach a common ground to get an effective plan in place in time to avoid free fall into a fiscal abyss.
President Obama has indicated that he favors expiration of the “Bush tax cuts” for taxpayers making more than $250,000 per year. This would revert the tax rates to pre-2001 levels that could reach 39.6 % in the highest marginal bracket, coupled with the resulting phase-out of Itemized Deductions and Personal Exemptions. Long Term Capital gains would revert to 20 percent tax rate. Qualified Dividends would again be taxed at ordinary income rates. Add in the effects of the Affordable Care Act requiring an additional 3.8 % Healthcare Tax on Net Investment Income above certain levels and the 0.9% Medicare Tax imposed on wages and self employment income over $250,000($200,000 for single filers) and you can understand the need to pack your parachute.
Oh, and we haven’t even touched on the effect that AMT increases may have on many more taxpayers in 2012 and beyond.
So let’s see what we can pack into this year. If we accept that tax rates will rise then strategies to accelerate income should be considered. It may be prudent to move bonuses into 2012 if you can. This may help avoid the additional Medicare Tax as well as any increase in rates that would go into effect in 2013. Consider harvesting Long Term Capital gains in 2012. This will lock in the 15 % rate and may avoid the Healthcare Tax of 3.8%. Conversely consider deferring capital losses into 2013 and beyond in order to offset later potentially higher taxed gains. This may be a good year to take additional IRA distributions or do a Roth conversion if you believe your marginal tax rates will increase in 2013. Be sure to consider the effect of these and other strategies moving you into a higher tax bracket in 2012.
Another critical component to address before you get to closer to the cliff concerns your estate and gift planning. Make sure you give adequate consideration to utilizing the increased lifetime gift tax exemptions available in 2012. The combined gift and estate tax exemption is $5.12 million. The pre-2001 amount was 1 million dollars. President Obama has proposed a $3.5 million exemption along with limitations on certain currently available estate planning techniques.
These issues are complicated and require the assistance of your financial, tax, and legal team. You can find more specific information on these issues at Health Care Act Tax Implications For 2013.
With the cliff looming in the horizon, this is not the time to try to fly solo.
Jeff Singer is a Shareholder at Frost, Ruttenberg & Rothblatt, P.C.
Jeff Singer has been a practicing Certified Public Accountant since 1980. Although Jeff works with a broad base of clients and industries, he possesses an expertise in healthcare accounting and consulting with a specific emphasis on long-term care. His clients include skilled and intermediate nursing facilities, supportive living facilities, home health agencies, therapy providers and physician practices. Jeff gets involved in all aspects of his clients’ business and financial matters including accounting, auditing, strategic planning, development of business plans, and succession planning.
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Pursuant to requirements related to practice before the Internal Revenue Service, any tax advice contained in this communication (including attachments) is not intended to be used, and cannot be used, for purposes of (i) avoiding penalties imposed under the United States Internal Revenue Code or (ii) promoting, marketing or recommending to another person any tax-related matter.