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 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 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 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
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
2008-2012 (MFJ)
Ordinary
Income Tax
Rate
S/T Capital
Gains Tax
Rate
L/T Capital
Gains Tax
Rate
10%
10%
0%
($0-17400)
($0-17400)
($0-17400)
15%
15%
0%
($17,400-70,700)
($17,400-70,700)
($17,400-70,700)
25%
25%
15%
($70,700-142,700)
($70,700-142,700)
($70,700-142,700)
28%
28%
15%
($142,700-217,450)
($142,700-217,450)
($142,700-217,450)
33%
33%
15%
($217,450-388,350)
($217,450-388,350)
($217,450-388,350)
35%
35%
15%
($388,350-Above)
($388,350-Above)
($388,350-Above)
2013
Ordinary
Income Tax
Rate
S/T Capital
Gains Tax
Rate
L/T Capital
Gains Tax
Rate
5 Year
Capital
Gains Tax
Rate
15%
15%
10%
15%
28%
28%
20%
28%
31%
31%
20%
31%
36%
36%
20%
36%
39.6%
39.6%
20%
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