Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

   
Resources - Tax Center - Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York
     
 

Year End Tax Planning for 2012

 
 

As the end of 2012 quickly approaches there are more questions than answers about what will happen with current tax provisions. Will Congress make a blanket extension, take no action, or implement a different plan with unexpected results? Unfortunately, knowing what will happen before the end of the year is just not possible. What we do know is that several generous tax benefits are set to expire at the end of this year. Boris Benic & Associates wants you to be aware of the existing opportunities in order to put yourself in the best position possible for 2012 and beyond.

 

Expiring Tax Provisions

There are a number of individual and business tax provisions (credit and deductions) that are set to expire at the end of 2012. The impact to taxpayers could be significant depending on your situation. Below is a list of the more prominent expiring tax provisions, which include:

  •  Medicare Tax on Wages - The Medicare tax rate for individuals with gross wages or earnings from self-employment in excess of $200,000 will increase by 0.9%.

·        Payroll & Self Employment Tax - Both the payroll withholding and self-employment tax rates have been reduced by 2% since 2010. However, at the end of the year the 2% reductions will be eliminated which means an increase in FICA withholding rates to 6.2% and a self-employment tax rate of 12.4% beginning on January 1, 2013.

·        Income Tax Brackets Increase - The current federal income tax brackets of 10%, 15%, 25%, 28%, 33%, and 35% are set to revert back to rates of 15%, 28%, 31%, 36%, and 39.6%. Those in the highest tax bracket will likely be impacted by the Medicare surtax of 3.8%.

·        Capital Gains and Qualified Dividend Rates – Currently the capital gains tax rate is 15% and the qualified dividends tax rate is also 15%. On January 1, 2013 the capital gains tax rate will increase to 20% and the qualified dividends tax rates will make a large increase to 39.6%. In certain cases, income from these transactions will also be subject to the new Medicare surtax.

·         Alternative Minimum Tax - The Alternative Minimum Tax (AMT) patch has expired. The patch has traditionally provided higher AMT exemption amounts and other relief. If the 2011 ‘patch’ is not extended, up to 60 million taxpayers may be subject to a tax they have not paid before.

·         Personal Exemptions Phase Out (PEP) and Itemized Deduction Reductions (PEASE) Gradual elimination of exemptions and itemized deductions will result in higher taxable income for taxpayers over the $200,000/$250,000 income ranges.

·       Section 179 and Bonus Depreciation - For small businesses and rental property owners, limits for Section 179 expensing of assets are currently set at $139,000. On January 1, 2013, the expensing limit will drop significantly to $25,000 and the bonus depreciation of 50% will be completely eliminated.

·         Estate and Gift Taxes - Currently, the estate and gift exemption amount is $5.12M. At the end of 2012, the exemption will revert to $1M. In addition, the estate tax rate will go from a maximum of 35% to a maximum of 55%.

·         Child Tax Credit – Currently, the child tax credit is $1,000 per each qualifying child of a taxpayer under 17 years old. On January 1, 2013 the credit will be reduced by 50% to $500 per qualifying child.

·        Dependent Care Credit – There is a $3,000 credit or income based maximum credit percentage of 35% for qualifying taxpayers providing dependent care.  On January 1, 2013 the credit will be reduce to $2,400 and the income based maximum credit percentage will be reduced to 30%.

·        Earned Income Tax Credit – Currently middle income taxpayers with three or more children are able to claim a refundable tax credit to help offset the costs of social security and other taxes. Beginning on January 1, 2013, the maximum amount of credits available will be reduced by $650.

2013 Medicare Surtax

The new 3.8% Medicare surtax goes into effect on January 1, 2013. Since this surtax is part of President Obama’s Affordable Care Act any extensions or deals reached by Congress on tax extenders will have no impact on this surtax. This means that any investment income received from dividends, interest (expect municipal bonds), net capital gains, rents, and royalties for joint filers with an adjusted gross income of $250,000 or more (for single filers the amount is $200,000) will be subject to this surtax. If you are considering the sale of some assets or are relying on investment income as part of your yearly income, there may be tax complications beginning next year. Be sure to consider the Medicare surtax as you develop your year-end tax strategy to avoid the 3.8% surtax.

Contact Us

Don’t miss out on taking advantage of these opportunities! If you would like to discuss which strategic tax moves you should make prior to the end of 2012, please contact Yasar Bokhari, CPA, at 516-248-7361, or click here to email Yasar. In a brief consultation he can assess your situation and determine the best way to proceed.

 
 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York

 

Boris Benic and Associates LLP - Certified Public Accountants and Consultants - Garden City, Long Island, New York