Independent Registered Investment Advisor
Raymond James Financial Services, Inc.
2012 Tax Update &
Year End Planning
Material prepared by Raymond James for use by its advisors.
2012 TAX UPDATE
Health Care Reform…
Health Care Reform
(ruled constitutional by the Supreme Court)
In effect now:
• Children can’t be denied coverage because of pre-existing conditions
• Coverage required under parent’s plan for dependent children under age 26
• Insurers can’t impose lifetime caps on coverage and can’t cancel or deny coverage if you are sick
Key provisions effective January 1, 2013:
• Medical expense deduction threshold increases to 10% of adjusted gross income for those under age 65 (from 7.5%)
• Increasing the self-employment tax rate by 0.9% on higher-income individuals (MAGI of $200K single, $250K married)
• New 3.8% tax on some or all of the net investment income of these higher-income individuals
•
Interest, dividends, capital gains, royalties, rents, annuities, passive income from partnership/S corporation
•
Distributions from qualified retirement plans and IRAs would NOT count
Key provisions effective January 1, 2014:
• All Americans must carry health insurance or face a penalty of up to 2.5% of household income
• Employers with more than 50 employees must offer health insurance or be fined per employee
• States must establish an exchange that facilitates the purchase of qualified health plans
• Adults with pre-existing conditions can’t be denied coverage or have their insurance cancelled
• Tax credits will be available to qualifying families
• Doctors and hospitals will receive less compensation from government sources
• Taxes or fees imposed on health insurance providers and drug companies
Note: The above list of items is not intended to be all inclusive.
2012 TAX UPDATE
Expiring Tax Provisions…
• Federal income, dividend, & capital gains tax rates
• Itemized deductions & personal exemption phase-outs
• AMT exemption amounts
• Social Security payroll tax reduction for employees
• Qualified charitable IRA distribution exclusion
• State and local sales tax deduction
• Education credits & deductions eliminated or reduced
• Earned income and child tax credits reduced
• Estate & gift tax exemption amounts
• Portability of estate tax exemption for surviving spousal
Note: The above list of items is not intended to be all inclusive.
2012 TAX UPDATE
Scheduled Changes for 2013…
The following are changes set to occur without further congressional action…
•
Tax Bracket Changes set to sunset January 1, 2013
• 10% and 15% set to adjust to 15%
• 25% set to go back up to 28%
• 28% set to go back up to 31%
• 33% set to go back up to 36%
• 35% set to go back up to 39.6%
•
Long term capital gain rate set to go back to 20% (or 10% depending on income) on
January 1, 2013
•
“Qualified” dividend rate will rise to match standard income tax rates on
January 1, 2013
•
Estate & Gift tax exemption amounts sunset on January 1, 2013
• Top rate scheduled to increase to 60%
• Exemption amount scheduled to shrink to $1 million
Note: The above list of items is not intended to be all inclusive.
2012 TAX UPDATE
TAX PLANNING
Income Tax Brackets…
2012 Individual Tax Brackets
Tax Bracket
Single
Married Filing
Jointly
Married Filing
Separately
Head of Household
10%
$0 - $8,700
$0 - $17,400
$0 - $8,700
$0 - $12,400
15%
$8,700 - $35,350
$17,400 - $70,700
$8,700 - $35,350
$12,400 - $47,350
25%
$35,350 - $85,650
$70,700 - $142,700
$35,350 - $71,350
$47,350 - $122,300
28%
$85,650 - $178,650
$142,700 - $217,450
$71,350 - $108,725
$122,300 - $198,050
33%
$178,650 - $388,350
$217,450 - $388,350
$108,725 - $194,175
$198,050 - $388,350
35%
$388,350 +
$388,350 +
$194,175 +
$388,350 +
2012 TAX UPDATE
Michigan Tax Changes…
Governor Rick Snyder signed legislation on May 25, 2011
Changes for 2012 and thereafter include:
• Repealed the annual 0.1% rate reduction scheduled
• 2012 tax rate is 4.33% annualized (reduction from 4.35% to 4.25% on 10/1/12)
• 2013 and thereafter tax rate is 4.25%
• Phases out personal exemption for higher income taxpayers
• Phases out certain pension and retirement income subtractions based on birthdate
• Repeals various tax credits previous available:
• Donations to homeless/food bank, community foundations, and public charities
• City income taxes paid
• College tuition and fees
• Changes the homestead property tax credit
• Available only for homes with taxable value less than $135,000
• Phase-out based on “total household resources” from $41,000 - $50,000
• Repeals certain deductions (including political contribution & the $600 child 18 and under)
• Repeals certain special exemptions (including for seniors)
Note: The above list of items is not intended to be all inclusive.
2012 TAX UPDATE
2013 and beyond…
2012 TAX UPDATE
Tax Changes Discussed…
The following are changes that have been discussed…
Obama/Boehner Items Likely to be Discussed Further
•
Tax Rate Hike? (Those with MAGI > $250,000, $500,000, $1,000,000?)
•
Limitations for those above 28% Tax Bracket? (ie., up to 11.6% decrease in benefit)
•
Limitation on itemized deductions
•
Tax exemption on municipal bond interest
•
Tax exemption on employer provided health insurance
•
Limitation on deductibility of retirement account contributions
Joint Committee on Taxation Study Items
•
Taxation of state and local bonds
•
Elimination of certain itemized deductions
•
Mortgage Interest Expense
•
Charitable Contributions
•
Medical Expense
•
State and local income and property taxes
•
Cutback in personal exemptions
•
Repeal of alternative minimum tax (AMT)
•
Elimination of exclusion for retirement plan contributions
•
Elimination of exclusion of employer provided health insurance
Note: The above list of items is not intended to be all inclusive.
YEAR END PLANNING
Retirement & Gifting Limits…
Don’t miss the opportunity to invest for retirement while minimizing taxes.
IRA & Roth IRA Contribution Limits and Deadlines
Year
Maximum Contribution (if under age 50)
Maximum Contribution (if over age 50)
Contribution Deadline
2012
$5,000
$6,000
4/15/2013
2013
$5,500
$6,500
4/15/2014
401(k) & Qualified Plan Contribution Limits and Deadlines
Year
Maximum Salary Deferral (if under age 50)
Maximum Salary Deferral (if over age 50)
Contribution Deadline
2012
$17,000
$22,500
12/31/2012
2013
Year
$17,500
Maximum Contribution (if under age 50)
$23,000
Maximum Contribution (if over age 50)
12/31/2013
Contribution Deadline
2012
$50,000
$55,500
4/15/2013 (plus extensions)
2013
$51,000
$56,000
4/15/2014 (plus extensions)
SEP IRA/Profit Sharing/Money Purchase Contribution Limits and Deadlines
Year
Maximum Contribution (if under age 50)
Contribution Deadline
2012
$50,000
4/15/2013 (plus extensions)
2013
$51,000
4/15/2014 (plus extensions)
Simple IRA Contribution Limits and Deadlines
Year
Maximum Contribution (if under age 50)
Maximum Contribution (if over age 50)
Contribution Deadline
2012
$11,500
$14,000
4/15/2013 (plus extensions)
2013
$12,000
$14,500
4/15/2014 (plus extensions)
Annual
Year
2012
2013
Gifting Amounts
Annual Gift Tax Exlusion
$13,000
$14,000
YEAR END PLANNING
Other Considerations…
Required Minimum Distributions (RMD’s)
• Federal government requires minimum distribution for IRA participant upon age 70½
Capital Gains (or losses)
• Sales of stock or mutual funds
• Capital loss carryovers; allowable net loss of $3,000 per year
• Capital gain distributions
• Internal fund carryovers
Cost Basis Reporting to IRS
• Stocks transactions posted on or after January 1, 2011
• Mutual Funds and dividend reinvestment plans on or after January 1, 2012
• Debt securities, options on or after January 1, 2013 (now postponed until January 1, 2014)
Cost Basis Reporting Alternatives
• Raymond James default will be FIFO (First-in, First-out)
• Other Options – Average Cost, Specific Identification, High-Cost First-out (HIFO)
YEAR END PLANNING
Final Thoughts…
TOP TEN LIST
10) Make any last minute itemized deductions or other deductible payments.
9) Contribute to 529 plans or other education accounts ($10,000 MI tax deduction).
8) Consider donation of appreciated securities for charitable desires.
7) Consider Roth IRA conversions in effort of maximizing tax exemption on earnings.
6) Estate planning considerations including annual gifting ($13,000 annual exclusion).
5) Consider municipal bonds for tax exempt income.
4) Explore tax-loss AND/OR tax-gain harvesting.
3) Max out retirement plan contributions and contribute early for 2013.
2) Review, rebalance, and reallocate portfolio holdings.
1) Work with your financial advisor and tax professional.
Disclosure
The information contained in this presentation has been obtained from sources considered reliable, but we do not
guarantee that the material is accurate or complete. This material is for discussion purposes only and does not
constitute tax or investment advice. Investors should consult a tax professional before making any tax planning
decisions
Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years
before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own fiveyear holding period. Converting a traditional IRA into a Roth IRA has tax implications.
Municipal bond interest is not subject to federal income tax but may be subject to AMT, state or local taxes.
Income from taxable municipal bonds is subject to federal income taxation; and it may be subject to state and
local taxes. Investments in municipal securities may not be appropriate for all investors, particularly those who
do not stand to benefit from the tax status of the
investment.
Independent Registered Investment Advisor
Raymond James Financial Services, Inc.
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McFawn Financial Services Group, LLC
340 E. Big Beaver, Ste. 140
Troy, MI 48083
248-619-0090
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.