The time is now to plan for 2012 and 2013

With the Supreme Court recently upholding the health care act and with Bush-era tax cuts set to expire at the end of 2012, planning for this year and next is very important.  Here are a few things to keep in mind and some strategies to consider: 

 

  • There is a chance that 2012 may not turn out to be a repeat of 2010, when the Bush-era tax breaks were extended for all Americans.  The story and the players are different this year, so the ending may be different as well.  President Obama has proposed extending the Bush tax cuts for singles making less than $200,000 and married couples making less than $250,000 while the Republicans in Congress have proposed extending the Bush tax cuts for everyone.

 

  • Consider accelerating income and/or deferring expenses based on what transpires at year end.  You may be able save a significant amount of tax if rates jump in 2013, coupled with the new 3.8% Medicare surtax on investment income. This surtax is equal to 3.8% of the lesser of net investment income or the amount by which a taxpayer’s adjusted gross income exceeds $200,000 for single taxpayers and $250,000 for married taxpayers.  The types of income that comprise “net investment income” include: taxable interest, dividends, annuity income, passive royalties, and rents.  Consider shifting this income into 2012 and/or implement strategies to reduce net investment income and modified adjusted gross income in 2013 and forward.  You may also want consider harvesting some capital gains if it makes investment sense, or possibly converting IRA funds to a Roth IRA.

 

  • Another tax provision created by the health care act which takes effect in 2013 is the additional 0.9% tax on wages that exceed $200,000.  Employers will be responsible to collect and remit this tax on wages exceeding $200,000 without regard to the wages of a married employee’s spouse.  It also applies to self-employment income above $200,000.

 

  • Consider accelerating itemized deductions into 2012. Itemized deductions may once again be limited in 2013, so accelerating these deductions into 2012 may be prudent.  Please keep in mind that AMT may limit this strategy if it applies to your particular situation.

 

  • Assess whether investment portfolios should be reallocated. It may make sense to shift assets between qualified and nonqualified accounts and rethink asset allocation (i.e., growth vs. income stocks, muni bonds, etc.).

 

  • Determine whether you should make gifts now to use the $5 million gift exemption that may revert to $1 million in 2013. This may be the last opportunity for some time to save a significant amount in federal and state estate and gift tax.

 

  • Plan to implement grantor retained annuity trusts (GRATs), if they make sense for your situation, since their benefits could be curtailed. President Barack Obama has proposed limiting the minimum GRAT term to 10 years and eliminating the zeroed-out GRAT option.

 

  • Don’t overlook possible changes for generation-skipping transfers. Another proposal would limit the duration of the GST tax exemption to 90 years, thereby reducing the value of dynasty trusts.

 

As mentioned above, proper planning is the key to benefiting from these strategies. Our team of professionals is happy to discuss this information and run projections to demonstrate how much you could save with proper planning. Please contact us at (239) 433-5554 to discuss your specific situation further.