Transcript Document

FISCAL CLIFF REDUX
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© 2012 McDowall Cotter
FISCAL
CLIFF
REDUX
Robert D. Vale
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© 2012 McDowall Cotter
Brett S. Lytle
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© 2012 McDowall Cotter
FISCAL CLIFF?
In late February 2012, Ben Bernanke,
Chairman of the U.S. Federal Reserve, was
the first person to use the term "fiscal cliff"
for this crisis. Before the House Financial
Services Committee he described that "a
massive fiscal cliff of large spending cuts
and tax increases" would take place on
January 1, 2013.
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© 2012 McDowall Cotter
SEQUESTRATIONS
Remember Those?
Still possible?
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© 2012 McDowall Cotter
ESTATE & GIFT TAXES
The Estate and Gift tax remains essentially
unchanged from 2012. The estate tax rate
was increased from 35% to 40%, but the
Unified (Gift and Estate) Tax remains at the
2010 level and will increase annually
through an inflation factor.
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ESTATE & GIFT TAXES
The Estate Tax fix is one which will not need to
be re-determined in 2014.
The Unified Estate Tax Exemption for 2013 is
$5.25 million per person. Give it away now
or at death is what makes it “unified”.
The same exemption applies to the Generation
Skipping Tax which means large gifts can be
made to grandchildren without incurring a
penalty tax.
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ESTATE & GIFT TAXES
Portability of the Estate Tax Exemption is now in
place and will not be subject to phase out in
2014.
Portability = A surviving spouse can use his or her
spouse’s unused portion of the Estate Tax
Exemption.
In order to do so, the surviving spouse will have to
file an estate tax return within the time limits
prescribed by law.
No Generation Skipping Exemption available with
Portability.
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ANNUAL EXCLUSION
Inflation adjusted increase in the annual
exclusion amount. The amount an individual
can gift to another on an annual basis with
no reporting requirement was increased from
$13,000 to $14,000.
- Remember, payments of tuition and medical
expenses directly to the institution or the
health care provider are not counted as part
of the annual exclusion amount.
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INCOME TAX UPDATE
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FEDERAL INCOME TAX
RATES
Rate
SF
MJF
HoHF
10%
$0 to $8,925
$0 to $17,850
$0 to $12,750
15%
$8,925 to $36,250
$17,850 to $72,500
$12,750 to $48,600
25%
$36,250 to $87,850
$72,500 to $146,400
$48,600 to $125,450
28%
$87,850 to $183,250
$146,400 to $223,050
$125,450 to $203,150
33%
$183,250 to $398,350
$223,050 to $398,350
$203,150 to $398,350
35%
$398,350 to $400,000
$398,350 to $450,000
$398,350 to $425,000
39.6%
$400,000 and up
$450,000 and up
$425,000 and up
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© 2012 McDowall Cotter
PAYROLL TAX
Headline: The payroll tax holiday has taken a
holiday
The Story:
If you are a W-2 wage earner, go to the tax-man
and pay an extra 2%- the vacation is over:
Single taxpayer pays up to $2,202 more per year
Working couple pays up to $4,404 more per year
Good news*
*extra tax used to cover cost of social security
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TAX RELIEF FOR FAMILIES
WITH CHILDREN CONTINUES
Also permanently extended, an expanded adoption
credit and adoption assistance program
exclusion, an expanded dependent care credit,
the credit for employer expenses for child care
assistance and the 2001 modifications to the
child tax credit, which allowed taxpayers below a
certain income threshold to reduce their income
tax for each child under 17. The modification
increased the credit from $500 to $1,000.
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PHASE OUT OF PERSONAL &
DEPENDENT EXEMPTION DEDUCTIONS
Personal and Dependent Exemption write-offs can
be reduced or eliminated.
Phase out start at:
$250,000 AGI for Single Filers
$300,000 AGI for Married Joint Filers
$275,000 for Head of Households
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CAPITAL GAINS
Those below the thresholds will see a 15%
capital gains and dividends rate (and those
in the 10% and 15% brackets will see a
permanent 0% rate)
Singles with income of $400,000 or couples
with income of $450,000 will pay 20%
federal tax
* Don’t forget California Tax
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CAPITAL GAINS
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Tax Rate
Long Term Capital Gains Tax
Qualified Dividend Tax
10%
0%
0%
15%
0%
0%
25%
15%
15%
28%
15%
15%
33%
15%
15%
35%
15%
15%
39.6%
20%
20%
© 2012 McDowall Cotter
OBAMA HEALTHCARE TAX
3.8% Rate
On the lower of:
Net investment income for the year or
Modified adjusted gross income threshold:
$250,000.00 Couples
$200, 000.00 Individuals
When added to increased capital gains
rates, high earners will be paying at a
23.8% federal capital gains rate
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AMT
A permanent “patch” for the alternative minimum
tax, so no more annual (or biannual) end-of-year
waiting games to see if it will be indexed for
inflation.
AMT exemption:
- $51,900 for Single filers
- $80,800 for married joint filers
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SOME DEDUCTIONS TO
CONSIDER
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EDUCATOR EXPENSE
DEDUCTIONS
The bill extends for two years the $250
deduction for teachers who spend money on
classroom supplies, materials, books and
software.
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DEDUCTION FOR QUALIFIED
TUITITION-RELATED EXPENSES
Extended through 2013, college students may
deduct a maximum of $4,000 (for taxpayers
with an adjusted gross income of $65,000 or
less, $130,000 for joint returns) or $2,000
(for taxpayers with an adjusted gross income
of $80,000 or less, $160,000 for joint
returns).
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MORTGAGE DEBT RELIEF
Also extended through 2013, taxpayers whose
mortgage debt is cancelled or forgiven may
exclude from income up to $2 million in
forgiven debt ($1 million if filing separately).
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MORTGAGE INSURANCE
PREMIUM DEDUCTIBILITY
Again, extended through 2013, taxpayers who
meet income requirements may deduct the
cost of mortgage insurance on a qualified
personal residence.
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MARRIAGE PENALTY
RELIEF
Permanently extended are both the increased
standard deduction for married joint filing
taxpayers and the increase of income
allowable in the 15% tax bracket.
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BUSINESS PROVISIONS
A two-year extension (through 2013) on the
Research and Experimentation tax credit, the
Work Opportunity Tax Credit, the 15-year
straight-line recovery for qualified leasehold
improvements, qualified restaurant buildings
and improvements, and qualified retail
improvements.
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Emergency Unemployment
Insurance Benefits
Unemployment Insurance Benefits extended an
additional year
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AND THEN THERE’S
CALIFORNIA…….
Good News: No Capital Gains Tax
Bad News Capital Gains taxed at ordinary income
tax rates
and, there’s more…………..bad news
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INCREASE IN STATEWIDE
BASE SALES & USE TAX
Sales and Use tax increase of .25% from
January 1, 2013 through December 16, 2016
7.25% to 7.5%
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HIGH INCOME EARNERS TO
PAY MORE CALIFORNIA TAX
Single Filers
Old Rates
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New Rates
1.0%
>
$0
1.0%
>
$0
2.0%
>
$7,318
2.0%
>
$7,318
4.0%
>
$17,348
4.0%
>
$17,348
6.0%
>
$27,377
6.0%
>
$27,377
8.0%
>
$38,004
8.0%
>
$38,004
9.3%
>
$48,029
9.3%
>
$48,029
10.3%
>
$1,000,000
10.3%
>
$250,000
11.3%
>
$300,000
12.3%
>
$500,000
13.3%
>
$1,000,000
© 2012 McDowall Cotter
HIGH INCOME EARNERS TO
PAY MORE CALIFORNIA TAX
Married Filers
Old Rates
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New Rates
1.0%
>
$0
1.0%
>
$34,692
2.0%
>
$14,632
2.0%
>
$14,632
4.0%
>
$34,692
4.0%
>
$34,692
6.0%
>
$54,754
6.0%
>
$54,754
8.0%
>
$76,008
8.0%
>
$76,008
9.3%
>
$96,058
9.3%
>
$96,058
10.3%
>
$1,000,000
10.3%
>
$500,000
11.3%
>
$600,000
13.3%
>
$1,000,000
© 2012 McDowall Cotter
WHAT TO DO IN 2013
Tax tips to consider as suggested by some of our
friends
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NANCY PYZEL
Nancy Pyzel
A Life Well Spent
920 Saratoga Ave., #100
San Jose, CA 95129
Tel: 408-244-2448
Fax:408-244-1239
[email protected]
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© 2012 McDowall Cotter
TRADITIONAL v ROTH IRA
Consider converting from a traditional IRA to a
Roth IRA
- Higher tax rates into the foreseeable future
mean you may pay more in taxes when you
take your IRA funds at retirement.
If tax rates significantly lower during retirment
than theyt are now, the strategy is not effective.
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Review with your advisor; if you do not have an
advisor, Nancy Pyzel will be happy to provide an
analysis.
© 2012 McDowall Cotter
STEVEN STEINER
Stephen Steiner
Director, Gift Planning
San Francisco Symphony
201 Van Ness Ave.
San Francisco, CA 94102
Tel: 415-503-5445
[email protected]
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© 2012 McDowall Cotter
CHARITABLE GIVING IN
GENERAL
Charitable gifting lowers AGI which reduces
taxable income
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© 2012 McDowall Cotter
THE IRA CHARITABLE
ROLLOVER
For a Limited Time can be Used for Tax
Savings in 2012
The American Taxpayer Relief Act of 2012, allows
individuals who are 70½ or older can again transfer up
to $100,000 from their IRAs directly to qualified
charities.
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THE IRA CHARITABLE
ROLLOVER
For a Limited Time can be Used for Tax
Savings in 2012
Qualified distributions made before February 1, 2013 may
be counted retroactively for the 2012 tax year. In
addition, a taxpayer who took an IRA distribution in
December 2012 may make a contribution to a qualified
charity before February 1, 2013 and treat it as a direct
transfer.
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THE IRA CHARITABLE
ROLLOVER
The American Taxpayer Relief Act of 2012 also
allows your clients who want to make an IRA
charitable rollover in 2013 to do so through
December 2013.
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© 2012 McDowall Cotter
WHY CHARITABLE
ROLLOVER?
Reduction of income for AMT avoidance.
Lower AGI lowers the 2% threshold for itemized
deductions and the 10% threshold for health
cost deductions.
If taxpayer already exceeds 50% of AGI for
charitable contributions.
Taxpayer looking for lower AGI to avoid increased
dividend income for high wage earners.
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CHARITABLE REMAINDER
TRUSTS
Fund Charitable Remainder Trust with low cost basis
appreciated property.
1) The charitable deduction will result in greater tax
savings due to higher tax rates
2) Any capital gain from the sale of the property is
realized inside the tax-free trust. The trust can
reinvest all of the proceeds with no taxes being
paid, and pay the donor/beneficiary a percentage
of the value of the trust assets every year.
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MIKE HOWARD
Mike Howard
Emery & Howard
400 S. El Camino Real, #700
San Mateo, CA 94402
Tel: 650-579-7100
Fax:1-650-579-7313
[email protected]
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© 2012 McDowall Cotter
TAX FREE INVESTMENT
PLANNING
Consider investments in tax free vehicles.
Remember AMT issues
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NORMAN GOLDEN, E. A.
Norman Golden, E.A.
1900 South Norfolk St., #265
San Mateo, CA 94403
Tel: 650-212-1040
Fax:650-661-1041
[email protected]
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NONEMPLOYEE’S
COMPENSATION FOR SERVICES
The rules about Forms 1099 have changed, and
the penalties for failing to follow them have
increased dramatically.
Form 1099-MISC is an income-reporting
document required by the IRS. Form 1099MISC (“Form 1099”) is issued to report
payments made for rent, royalties, nonemployee
compensation, and other income.
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NON-EMPLOYEE’S
COMPENSATION FOR SERVICES
There are now two penalties for failing to issue
Forms 1099.
One, the IRS is accessing a $30 to $100 per
recipient penalty for failing to timely file the form.
The second and more severe penalty is the
disallowance of the deduction for the payments
not reported on the Form 1099.
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NON-EMPLOYEE’S
COMPENSATION FOR SERVICES
Who must file –
Among those required to file Forms 1099s are:
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Individuals
Partnerships
LLCs
C-Corporations
S Corporations
Estates
Trusts
Non-Profit Organizations
© 2012 McDowall Cotter
NON-EMPLOYEE’S
COMPENSATION FOR SERVICES
What is nonemployee compensation and who
must be issued a Form 1099?
If the following four conditions are met, you must
report a payment as nonemployee
compensation:
1) You paid someone who is not your employee;
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© 2012 McDowall Cotter
NON-EMPLOYEE’S
COMPENSATION FOR SERVICES
2) You made the payments for services in the
course of your trade or business (including
non-profit organizations);
3) You made the payment to an individual,
partnership, estate, trust or, in some cases, a
corporation; and,
4) Your payments to the payee totaled at least
$600 during the year.
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NON-EMPLOYEE’S
COMPENSATION FOR SERVICES
Please note – Over the years, Norm has seen
nonemployees refuse to provide all the
information necessary to prepare the Forms
1099, mistakenly thinking that they can avoid
reporting the income if they don’t get one. Their
refusal puts the payer (you!) in jeopardy, since
the penalties are assessed against you for not
properly completing the Form. Get a completed
and signed Form W-9 before you pay any
amount to a nonemployee.
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THANKS FOR ATTENDING
2070 Pioneer Ct.
San Mateo, CA
94403
Tel: 650-572-7933
Fax: 650-572-0834
www.mcdlawyers.net
(650) 572-7933
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© 2012 McDowall Cotter