Presented by Cary Stamp
You’ve worked hard and are nearing retirement age. Like many other baby boomers, with your kids out of the house and a surplus of empty space and time, you may be thinking about moving. To help you make up your mind—or make your transition go as smoothly as possible—we’ve compiled this list of tips.
Presented by Cary Stamp
The American Taxpayer Relief Act of 2012 was passed by Congress on January 1, 2013. The act provides a mixed bag for taxpayers, extending or modifying many of the tax provisions that were set to expire on December 31, 20121, while letting others terminate. Where do we stand now? Let’s take a closer look at some of the changes that have occurred and how you may take advantage of them.
For taxpayers with annual income less than $400,000 (individual) and $450,000 (married filing jointly), the act made permanent the current marginal income tax rates of 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, and 35 percent. For taxpayers with taxable income over these thresholds, the act restores the 39.6-percent tax bracket.
Planning tip: Business owners may wish to examine their current entity structure to determine whether or not it remains beneficial under this new legislation. S corporations and LLCs historically have been favored over C corporations due to the ability for the business owner to report business profits on his or her own personal return. Now, however, the C corporation’s highest tax bracket is lower than the highest personal tax bracket. The spread may provide opportunities to defer compensation.
Taxpayers with income above the $400,000 (individual) and $450,000 (married filing jointly) thresholds will see an increase in the long-term capital gain and qualified dividend tax rate from 15 percent to 20 percent. The 15-percent rate will remain in place for taxpayers below these income thresholds. (For taxpayers in the 15-percent or lower tax bracket, the 0-percent capital gain rate will remain in place.)
Important note: The new Medicare surtax resulting from the 2010 Patient Protection and Affordable Care Act will also play an important role for higher-income taxpayers in 2013. Starting January 1, certain taxpayers will be subject to a 3.8-percent surtax on the lesser of net investment income or the excess of modified adjusted gross income (MAGI) over $200,000 (individual) and $250,000 (married filing jointly). This is on top of regular capital gain taxes. The following types of investment income will be affected: taxable interest, capital gains, dividends, nonqualified annuity distributions, royalties, and rental income. Exceptions include distributions from retirement accounts, pensions, 401(k), IRAs, and municipal bonds, although these distributions will impact the MAGI calculation.
As a result, the effective top rate for net long-term capital gains for many higher-income taxpayers is now 23.8 percent.
The act retains the annual inflation-adjusted $5 million estate tax exclusion but increases the maximum estate tax rate to 40 percent. The lifetime gift tax exemption remains unified with the $5 million exemption. Portability between spouses also becomes permanent, and the act extends the GST tax-related provisions, including the inflation-adjusted $5 million exemption.
Portability allows the surviving spouse to apply any unused exclusion of the deceased spouse to his or her own transfers during life and at death (if the proper elections are made). Portability should bring with it flexible planning strategies for high-net-worth estates.
Planning tip: The $5 million exemption amounts offer greater flexibility for high-net-worth individuals to transfer assets during life or at death—potentially gift and estate tax-free. With the “permanency” of these provisions, taxpayers are encouraged to take time to execute well-thought-out estate plans, instead of trying to implement changes at the last minute, before legislation expires.
Congress restored the Qualified Charitable Distribution (QCD) provision for 2012 and 2013. The QCD allows taxpayers age 70½ and older to transfer up to $100,000 from an IRA directly to a qualified charity to avoid recognition of the income and to partially or fully satisfy the required minimum distribution (RMD) requirement. For 2013, the QCD must be made prior to December 31, 2013.
Planning tip: A QCD may still be made for the 2012 tax year under the following conditions:
The American Opportunity Tax Credit is extended through 2017. This provides for a 100-percent tax credit of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000, for a maximum credit of $2,500 per eligible student. The credit applies to the first four years of a student’s post-secondary education.
The Qualified Tuition and Related Expenses “above the line” deduction (meaning you don’t need to itemize to claim it) is extended until December 31, 2013, and was retroactively extended for 2012.
The Student Loan Interest Deduction is a $2,500 “above the line” deduction. The act makes permanent the suspension of the 60-month time limit.
Coverdell Education Savings Accounts received a permanent maximum contribution limit of $2,000. Distributions must be used for qualified higher education expenses while attending elementary, secondary, or post-secondary educational institutions.
Planning tip: A taxpayer cannot claim the Qualified Tuition deduction in the same year as he or she claims the American Opportunity Tax Credit or the Lifetime Learning Credit. Nor can the tuition deduction be claimed for a student in the same tax year if anyone else claims the American Opportunity Tax Credit or Lifetime Learning Credit for the same student in the same year.
The last AMT “patch” expired at the end of 2011. The 2012 act permanently extends AMT amounts to $50,600 for individuals and $78,750 for married filing jointly. These amounts are retroactive for the 2012 tax year. The exemption will be adjusted for inflation in 2013.
Planning tip: In previous years, the AMT patch was not released until the year after the previous tax year, making it difficult to plan without knowing the exemption amounts. Now that the AMT has been given a more permanent fix, planning should be easier.
Itemized deductions and personal exemptions
For tax years 2010–2012, itemized deductions and personal exemptions were not subject to phase-out. The new legislation revives phase-out rules for 2013 at these applicable thresholds:
The itemized deduction rules reduce the allowable itemized deductions by 3 percent of the amount by which the taxpayer’s adjusted gross income exceeds the applicable threshold. The itemized deduction cannot be reduced by more than 80 percent. Certain items, such as medical expenses, investment interest, casualty, wagering, and theft losses, are excluded.
The total amount of personal exemptions that may be claimed by a taxpayer is reduced by 2 percent for each $2,500 or portion thereof (2 percent for each $1,250 for married filing separately) by which the taxpayer’s adjusted gross income exceeds the applicable thresholds listed above.
Planning tip: For taxpayers with a higher income and larger deductions, the itemized deduction and personal exemption limitations may create a “stealth” tax on tax liability, effectively increasing the marginal rate. Taxpayers may wish to recognize income or deductions in certain tax years to help minimize the impact.
Presented by Cary Stamp
As a New Year begins, many people make resolutions to better themselves and their lives—lose weight, volunteer, spend more time with the kids or grandkids . . . nearly everyone has something they hope to change. Why not add one more important item to your list this year?
Throughout the last few months, the media has focused on the fiscal cliff—those sweeping tax increases and spending cuts that are due to go into effect on January 1, 2013, unless Congress acts to change them. But that discussion shouldn’t overshadow positive developments in the U.S., nor should it stop you from making improvements to your financial health in 2013.
As you may know, late Tuesday night, our government leaders approved a bill to avert the dreaded fiscal cliff, avoiding widespread tax increases and deep spending cuts.
Here are some of the specifics of the plan:
We have just wrapped up what was a very good year in the investment markets despite some considerable stopping and starting. There was plenty of short term volatility driven by political events, elections, international incidents and electronic trading. At the end of the year, we seem to be on fairly solid footing, with the exception of the issue that is on everybody’s lips…….
Although many Americans, especially those still looking for work, are not experiencing a feeling of prosperity, most of our business owner clients are telling me that things are getting better. In fact, a number of them have told me that they have just finished their most profitable year ever. It seems that we may have a “stealth recovery” going on and we face the risk that the twin threats of the world ending on December 21 and the country going over the fiscal cliff on December 31 might derail our recovery.
Presented by Cary Stamp
The Holiday season is a time for reflection. The experiences of our past teach us to create a better future. Life’s uncertainties can present us with personal hardships that affect us not only emotionally, but financially as well.
The death of a spouse or life partner is one of the toughest events you can go through. Along with the emotional adjustment of continuing on without your best friend, there is additional stress involved in facing the relevant financial issues while you are still grieving. Even if you are the primary person who handles the family finances, this loss can leave you overwhelmed with financial affairs; it’s not unusual for the surviving partner to experience depression as well. Because of this, it is easy to forget the details you need to attend to for your financial security.
Presented by Cary Stamp
These days, pretty much everyone has a cell phone—some people even have two! As cell phones get faster and smarter, new product launches can rival the fan frenzy of Beatlemania, and it’s easy to get caught up in the excitement.
Because the initial cost and ongoing monthly expenses can be substantial, make sure you don’t get so carried away that you overpay for your phone. Whether you’re looking for the hottest new toy or just want to cut back on your monthly costs, there are plenty of ways to trim the overall cost of your cell phone.
Follow these simple tips to save money and stay connected:
Is the political uncertainty getting in the way of your financial plan? There is a glut of data available about what the markets will do after an election year. Depending on the way the data is manipulated, one may come to the conclusion that the market itself predicts the presidential election or that the party in office dictates the ensuing returns. If you’re paying attention to pundits, you may well want to sit on the sidelines while things shake out.
Ultimately, that decision lies with you. But consider the following propositions before you vote on a specific action—or inaction.
Presented by Cary Stamp
As we look at the trajectory of the U.S. economic recovery, once again this year we see a light at the end of the tunnel and wonder if it is an oncoming train. Although improvements in 2010 and 2011 did indeed end up derailing, it looks, at this point, as if 2012 may bring the start of sustainable growth. The end result remains vulnerable to outside influences, though, so the real question is, How will we know.
Presented by Cary Stamp
If we had to give 2012 a name, we could probably call it the Year of Uncertainty. The upcoming U.S. presidential elections, the pending fiscal cliff, and the ongoing economic issues in the eurozone have combined to make investors more concerned about their future financial plans than perhaps ever before. And one of their biggest worries is taxes.
