Opportunities to Take Advantage of Before Its Too Late

Tax laws are changing at the end of this year.  Take advantage of these opportunities before it’s too late.

Estate Tax Savings’ Techniques:

Gifting:  Use your $5,120,000 gift tax exemption.  Next year, the exemption is scheduled to be reduced to $1,000,000.  If you don’t use the exemption, you could lose it, and there is little downside as long as you don’t need the assets for future sustenance.

Spousal Access Trusts: Create spousal access trusts to use all or a portion of your gift tax exemption.  Your gift tax exemption can be used in a way that still allows you to provide for your spouse.

Valuation Discounts: Utilize valuation discounts for lack of marketability and lack of control. Gift hard to value or fractional interests in property.  By doing so, you can leverage your $5.12 million dollar exemption to remove even more property from your estate.  These valuation discounts for family owned assets and businesses are under scrutiny by the IRS and Congress.  If you wait too long, the law might change and you may lose the opportunity to leave more to your children and grandchildren.

Intra-Family Loans: Make intra-family loans. Interest rates are at all time lows.  By loaning money to trusts for the benefit of your children and grandchildren, you can remove virtually all of the appreciation on the loaned funds from your taxable estate, while knowing the principal is still there and can be paid back should you end up needing it.

Income Tax Savings’ Strategies:

Make Distributions: Make dividend payments from C corporations to take advantage of the current 15% tax rate. Next year, the rate is scheduled to go back up to ordinary income tax rates, and the new Healthcare Surtax could apply in certain circumstances making the highest effective tax rate on dividends 43.4%. That is almost a 200% increase in the tax rate on dividends.

Harvest Capital Gains: Sell appreciated assets now rather than next year.  The current capital gains rate of 15% is scheduled to rise to 20% next year and with the Healthcare Surtax, the highest effective tax rate on capital gains will be 23.8% in 2013.  That’s almost a 60% increase in the tax rate.

Charitable Deductions: Contribute to charities now, when the benefit is 35 cents on the dollar. Proposed legislation will reduce the deduction to 28 cents on the dollar next year.  Consider donor advised funds and private foundations that will allow you to have some control after the gift is made.

Fund 529 Plans: 529 plans are a great way to save for college.  Growth is tax free, and distributions are tax free if used to pay for qualified tuition and living expenses.  You can use up to 5 years worth of annual exclusion gifts in one year – that’s $65,000 per child in one year ($130,000 from a married couple), without using any of your lifetime gift exemption.  Act now because Congress may act to curb, reduce, or make the requirements more restrictive.


For more information regarding estate planning, business law or tax controversy and  compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.


In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.  The information contained herein is provided “as is” for general guidance on matters of interest only.  Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services.  Before making any decision or taking any action, you should consult a competent professional advisor.

Annual and Lifetime Gifts

Gifting can play an important role in reducing estate tax exposure.  A gift is the transfer of real and personal property such as real estate, stocks, bonds, mutual funds, certificates of deposit, equipment, livestock, or cash, to beneficiaries before your death.  Gifting  removes all future appreciation on the gifted property from the taxable estate.   It can also accomplish income tax savings during life by shifting income producing property from one family member to another who is in a lower tax bracket.

The lifetime gift exemption for 2012 is set at $5.12 million dollars. However, it is scheduled to be reduced to $1 million dollars in 2013 unless Congress acts.  If you don’t use the current gift tax exemption, you could lose it.

In addition to your lifetime exemption, each donor may give $13,000 this year ($14,000 beginning in 2013)  per person, without any gift tax consequences.   To qualify for the annual exclusion, the gift must be a present interest gift (rather than a future interest).   Annual exclusion gifts can be outright or in trust.

Assume that a husband and wife have two children, each of whom is married, and each of whom has two unmarried children. This couple could give away a total of $208,000 this year without using up any part of their lifetime exemption. (Each parent could give $13,000 to each child, each child-in-law, and each grandchild, for a total of eight individual recipients, or $104,000 of gifts for the husband and $104,000 of gifts for the wife.  In 2013, each parent may gift an additional $1,000 per recipient.)

A gift will qualify for the $13,000 annual exclusion only if it is a gift of a “present interest.” Generally, this means that the (current year) gift must be made outright to the recipient, or (in the case of a person under age 21) to a Custodianship under the Uniform Transfers to Minors Act, or to certain kinds of trusts (typically, a “Crummey Trust”.)   The “present interest” limitation may require that the asset given away be income-producing or currently salable by the recipient.

For more information regarding estate planning, business law or tax controversy and  compliance, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com or call us at 404-255-7400.


In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose.  The information contained herein is provided “as is” for general guidance on matters of interest only.  Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services.  Before making any decision or taking any action, you should consult a competent professional advisor.

H&A Successful in Audit Challenge

In this case our client was faced with a proposed IRS audit adjustment of $412,000 of denied deductions, which would have resulted in over $126,000 of additional income tax owed and $38,000 of penalties and interest.  The primary issues related to hobby loss exposure and substantiation.  H&A advised client throughout the audit process.  The IRS eventually reduced the assessment to a mere $436.     This successful outcome was the result of a collaberative effort between the client, his accountant, and the H&A team.  We want to thank everyone involved for their efforts.

If you would like help dealing with the IRS, please contact us at (404) 255-7400.

3 Year Statute of Limitations Applies to IRS Assesments based on Mistatement of Basis

The statute of limitations on IRS assessment of taxpayers is normally 3 years, but the law provides a 6 years statute of limitations where the taxpayer has understated gross income by more than 25%.   In United States v. Home Concreate & Supply, LLC, the IRS argued that where property basis is overtated, it is tantamount to an understatement of income, and, therefore, the 6 year statute of limitations applied.  The Supreme Court found otherwise, holding the 3 year statute of limitations rather than the 6 year statute of limitations applied where the taxpayer overstated it’s original cost basis on the return.    Below is a link to the case.


If you need help dealing with the IRS, give us a call at (404) 255-7400.

Defined Value Gifting Validated in Wandry v. Commissioner!

Hoffman & Associates has used defined value gifting as a way to reduce valuation risk in gifting hard to value assets since the early 1990s.   The idea is that a taxpayer should be able to gift a defined value amount of an asset rather than a fixed percentage of an asset.  

The IRS has long contested the use of defined value clauses as against public policy because they reduce the IRS’ incentive to contest asset valuations.  In the case of Joanne M. Wandry, et al. v. Commissioner, T.C. Memo 2012-88 (March 26, 2012), the Tax Court took the defined value gift issue head on and found the IRS arguments unpersuasive.

Mr. and Mrs. Wandry owned LLC units of Norseman Capital, LLC.  An independent appraiser determined that the  value of a 1% interest in the LLC was worth $109,000.  Mr. and Mrs. Norseman desired to gift to their children and grandchildren defined value amounts of the LLC as follows:


Gift Amount

Kenneth D. Wandry


Cynthia A. Wandry


Jason K. Wandry


Jared S. Wandry


Grandchild A


Grandchild B


Grandchild C


Grandchild D


Grandchild E


Total Gifts


 The Wandrys executed assignments to their children and grandchildren with defined value amounts and containing the following adjustment clause in case the IRS later found that the LLC was improperly valued by the appraiser:  “the number of gifted [LLC] units shall be adjusted accordingly so that the value of the number of units gifted to each person equals the amount set forth above”.

In the years following the gifts, the Wandrys’ gift tax returns and the LLC income tax returns reported the children and grandchildren as an owner of a percentage of the LLC.  So each child reportedly owned a 2.39% ($261,000/$109,000) and each grandchild reportedly owned a .1% ($11,000/$109,000) interest.  

Years later, the IRS audited the gift tax return and found that a 1% LLC interest was, at the time of the gift, actually worth $150,000.   The IRS disregarded the defined value clause in the assignment, arguing that it is against public policy because it’s enforcement would virtually eliminate the incentive for the IRS to audit valuations of gifted property.  The IRS concluded that because the tax returns reported that the children owned a 2.39% interest, that must be the amount gifted to them.  And if a 2.39% LLC interest was gifted, then the value must be $385,500 (2.39% x $150,000) rather than $261,000.   The result of the audit was a taxable gift in excess of the Wandrys remaining lifetime gift tax exemption.

Mr. and Mrs. Wandry and the IRS eventually stipulated that a 1% interest in Norseman was worth $132,000, but the issues of whether the defined value formula clause and the adjustment clause were enforceable went before the Tax Court.  The IRS argued that the gift tax returns and the income tax returns were admissions of the transfer of fixed percentages.  It also argued the adjustment clause was void for federal tax purposes as against public policy on the grounds that it was a condition subsequent to completed gifts.  The taxpayers argued that the assignments only transferred defined value amounts (not percentages) and that public policy concerns regarding the adjustment clause did not apply because the value was set on the date of the gift.  

The Court found that the taxpayers’ intent and actions proved that only the dollar amounts of gifts were intended and that the public policy arguments regarding the adjustment clause were without merit.   As such, the Tax Court validated use of defined value formula gifts as an estate planning technique for reducing exposure to later valuation adjustments by the IRS.  This case was a big win for the Wandrys and for taxpayers and estate planners around the country.

If you need help with your estate plan or would like to learn more, please do not hesitate to contact us at (404) 255-7400.

The SCIN: An Attractive Estate Planning Opportunity In 2012

2012 presents unique opportunities to do estate planning.  The reasons may be familiar to you by now:   lifetime gift and estate tax exemptions are $5 million (without Congressional action, it will go to $1 million in 2013), valuation discounts for family owned entities remain viable, and property values and interest rates at all time lows.  The catch:   There’s a limited time to capitalize on these opportunities.

This article will focus on one estate planning tool, the Self Canceling Installment Note (“SCIN”) whose benefit is magnified under 2012’s low interest rate environment. 

What is a SCIN?

SCINs are a planning technique used in a sale of an asset to either a trust or directly from an older family member to members of a younger generation.  Basically, the older generation sells the asset in exchange for an installment note with a term shorter than the seller’s life expectancy.  Life expectancies are found in IRS tables.   The installment note contains a provision by which the remaining balance is completely canceled upon the seller’s death.

What is the benefit of the SCIN?

What makes a SCIN a valuable tool is the fact that if the seller dies before the term of the note, the remaining balance is completely canceled and this canceled amount is not included in the seller’s taxable estate.   

The SCIN is especially beneficial if only annual interest payments are made until the end of the term, when a balloon principal payment is due.  By deferring the principal payment until the end of the term, the amount cancelled upon death can include the entire principal amount of the promissory note.

To illustrate, assume a client sells a small business worth $10 million to a trust for her children in return for a promissory note with annual interest payments and a balloon payment at the end of the term.  This simple sale would itself be beneficial for estate tax purposes.  If the business  appreciated to $20 million before client’s death, all $10 million of appreciation would be outside the client’s taxable estate, perhaps saving $3.5 million in estate taxes.    However, $10 million remaining principal balance on the note would remain in the taxpayer’s taxable estate, subject to a 35% tax rate.  If the client had used a SCIN rather than a simple promissory note,   the $10 million principal payment would cancel, leaving the trust with a windfall.  For estate tax purposes, this means that the entire $20 million asset escapes estate tax.

Is there any downside to a SCIN?

The IRS would not allow this transaction unless it is equivalent to an arms-length transaction between unrelated parties.   So in return for the self cancelling feature of the note,  a “mortality risk premium” is charged to the payor – typically an increased interest rate.  The older the seller is, the greater the mortality risk premium will be.    

This mortality risk premium is the downside of the SCIN transaction.  If the seller outlives the term of the SCIN, the trust will have paid the mortality risk premium interest rate to the seller for absolutely no benefit.[1] 

What makes 2012 an unusually good time to use a SCIN?

What makes the SCIN extremely attractive now is the historically low interest rate environment.  The SCIN interest rate is the base AFR rate which the IRS requires for all promissory notes, plus the mortality risk premium.  

Today, both the AFR rates and mortality risk premiums are very low.   Long term AFR rates for 2012 have hovered around 2.75%.  The largest the mortality rate premium has been for a 55-year-old male since January 2010 was only .58 percent.  The SCIN rate for a 70 year old in March 2012 was only 3.07 percent.    Thus, a 55 year old can do a SCIN at an interest rate of around 3.47%.  A 70 year old can do a SCIN for a rate of around 5.96%.  In both cases, the SCIN interest rates are below historical average prime rate of interest for third party loans.    Under these circumstances the downside risk of a SCIN is very small when compared to the huge estate tax benefit that could result. 

If you need help with your estate plan or want additional information, please contact us at (404) 255-7400.

[1] This downside risk can be mitigated by combining the SCIN strategy with a GRAT strategy.  The SCIN strategy only works if the seller passes away during the term of the SCIN. The GRAT strategy only works if the seller survives the term of the GRAT.  By combining the two, mortality risk can be greatly reduced if not eliminated.

Georgia Education Expense Tax Credits: Do Not Wait!

June is the new November The Georgia Dept. of Revenue is approving education expense tax credits at 3½ times the rate for 2011. As of Mar. 16, the DOR had approved $8.6 million in tax credits. In 2011, the tax credit cap was met in November. This year, the cap is likely to be met in June—if not sooner. In 2011, 2,700 Georgia taxpayers were denied participation in the education expense tax credit program. Don’t let this happen to you in 2012! Apply today for your tax credit approval.


Joe Nagel Website PictureFor most clients, planning to obtain Medicaid is a last resort; however, with the catastrophic cost of long-term care exceeding $200,000 in many metropolitan areas, they are left with no choice.  A careful review of a client’s assets, as well as their short-term goals and long-term objections, will determine whether transferring property to an Irrevocable Income Only Trust (“IIOT”) would be an appropriate part of an estate plan.  Such planning, when used properly, can avoid the difficult decision to sell family legacy assets to pay for nursing care coverage.  

Government rules and regulations attempt to ensure that Medicaid is in fact the payer of last resort.  There are strict income and asset eligibility requirements, combined with a look-back penalty period, with rules and enforcement varying by state. The Deficient Reduction Act of 2005 extended the look-back period to five years on all transfers, including transfers to IIOTs. That means that clients must wait 5 years after transfer before applying for Medicaid.   Since the IIOT must be in existence for five years, a critical question when funding the trust must be what assets the elder client can live without for a period of five years.

Moreover, since the Omnibus Reconciliation Act of 1993, unless certain exceptions apply (such as Special Needs Trusts), assets of a self-settled trust are considered available to the Settlor for Medicaid eligibility purposes regardless of whether trustee discretion is exercised or whether the trust was established for purposes of qualifying for Medicaid.  Any trust principal which could be distributed under any circumstances, is considered an available resource for Medicaid purposes.  Trust restrictions on when or whether a distribution may be made are disregarded.  The intent of the 1993 Act was to minimize “Medicaid Planning”. 

An IIOT is a trust set up to allow clients to meet the stringent Medicaid rules and requirements while preserving family legacy assets for future generations.  The terms of the IIOT must be carefully drafted.  Trust principal may not be distributed, under any circumstances, to the Settlor or the Settlor’s spouse.  A “rainy day provision” can be added to allow the Trustee to distribute principal to family members, so long as the trustee does not have discretion to distribute to Settlor or Settlor’s spouse. 

All income can be distributed to the Settlor. Trust assets are often invested in income producing securities while the Settlor is living autonomously. Once the Settlor goes into a nursing home, the Trustee may want to invest the trust assets in non-income producing securities. Note, the fact that the Settlor retains the right to IIOT in

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

H&A Successful in another Estate Tax Audit

H&A has again successfully settled an estate tax audit.   In this case, the IRS confronted the Estate with an additional assessment of nearly $2.4 million dollars in estate taxes.  The IRS assessment was based largely on three issues.  First, the IRS argued that an LLC created prior to death should be included in the estate under IRC Section 2036.  Second, the IRS argued that a vacation home  previously owned by a QPRT and rented back to the decedent should be included in the decedent’s taxable estate under IRC Section 2036.  Finally, the IRS disallowed an estate tax deduction for interest on a Graegin loan taken from the recently created LLC to pay estate taxes.

H&A was able to successfully defend the Estate on each and every issue on which the IRS based its assessment. Through proper planning, creative thinking, and hard work by H&A, the Estate recently received from the IRS a no-change closing letter.  This was a collaborative effort across all firm departments, and is a testament to the wide ranging skills and knowledge offered to our clients.   I’d like to thank everyone involved for their efforts in bringing this matter to a successful conclusion.

We cannot guaranty similar results, as success or failure of any audit defense depends on the facts and circumstances of the individual case.  If you need help dealing with the IRS, please do not hesitate to contact us at (404) 255-7400.

2011 Year End Tax Letter

December 7, 2011 

Dear Tax Clients:

 As the 2011 tax year comes to a close, now is the time to review your financial situation and determine what tax planning opportunities exist to decrease your 2011 taxes.  We are ready to help you plan efficiently and effectively for 2011 and future years.  

Individual Income Tax 

While the lower Bush era tax cuts are currently not scheduled to expire until the end of 2012, there are still year-end tax savings opportunities available.  The additional twist for year-end 2011 tax planning is the uncertain future for tax rates after 2012.  Many political observers forecast that higher income taxpayers will only be asked to pay more. 

Year End 2011 Action Items: 

Make your 2011 State Income Tax payments in December 2011, instead of waiting until January 2012, unless you are in an AMT situation. 

Sell any stock “losers” this month to offset your 2011 capital gains, plus $3,000.  Avoid “wash sale” rules by not buying the same stock within 30 days before or after the sale of the stock.  Otherwise, the losses will not count. 

Has your 2011 Federal Income Tax been under-withheld?  Or have you had other income and not made estimated tax payments?  Have more tax withheld from your December paychecks.  This will avoid underpayment penalties. 

If you are 70 ½ and older, you can make charitable contributions directly from your IRA to a bona fide charity. No charitable deduction is available for the donation, but income tax will not be due on what would otherwise be a taxable distribution form the IRA.  This tax break is especially advantageous for retired taxpayers who are no longer able to itemize their deductions.  The limit is $100,000 and it is scheduled to expire at the end of this year. 

Consider converting your traditional IRA to a Roth IRA.  You would owe tax on the IRA amount currently, to the extent it exceeds basis, but retirement distributions from the Roth IRA would potentially be tax free – especially advantageous since it is expected that tax rates will increase after 2012. 

Provisions currently scheduled to expire 12/31/2011:  

Payroll Tax – For the 2011 tax year, the employee share of Social Security Tax withholding was reduced from 6.2% to 4.2% of the taxable wage base of $106,800.  This reduction is scheduled to expire at the end of the year.  President Obama has proposed a measure that would continue the payroll tax deduction for 2012 at an even lower rate of 3.1% of the scheduled 2012 taxable wage base of $110,100.  This new measure has not yet become law and is currently under debate in Congress. 

Alternative Minimum Tax Exemption – In order to prevent many moderate income tax payers from being subject to the AMT, the exemption amounts for 2011 were increased to $48,450 for single taxpayers and $74,450 for married taxpayers filing jointly and surviving spouses.  Unless Congress acts to extend the higher exemption amounts, the exemption for 2012 and beyond will decrease to $33,750 for single taxpayers and $45,000 for jointly filing married taxpayers and surviving spouses. 

Provisions currently scheduled to expire 12/31/2012: 

Federal Income Tax Rate Brackets – The current tax rates of 10, 15, 25, 28, 33 and 35% are scheduled to expire 12/31/2012.  If they were allowed to expire, the rates for 2013 and future years would revert to the “pre- Bush tax cut” rates of 15, 28, 31, 36 and 39.6%.  

All indications at this time are that President Obama supports extending the tax rate cuts, except to the highest tax brackets starting at $250,000 for married filling jointly taxpayers and $200,000 for all other taxpayers. The Republicans continue to only support an extension of the lower Bush-era rates across-the-board to all taxpayers.  This will continue to be a hotly debated issue in Washington.  We will keep you informed as new developments continue to unfold. 

Capital Gains/Dividends – In 2011 and 2012, qualified capital gains and dividends are taxed at a maximum rate of 15%.  Unless this provision is extended, the maximum rate on net capital gains would increase to 20% in 2013.  All dividends would be taxed as regular income, and therefore, could be subject to the maximum rate of 39.6%. 

Limit on Itemized Deductions – Unless the Bush tax cuts are extended, higher-income taxpayers will revert to a limitation on itemized deductions in excess of a statutory threshold of adjusted gross income.  There would also be a similar limitation on personal exemptions for high-income taxpayers. 

Marriage Penalty Relief – The provisions currently in place to mitigate the “marriage penalty” for two income couples will expire at the end of 2012. 

Small Business Tax 

Bonus Depreciation  – The bonus depreciation percentage for the cost of new equipment, including computers and software, purchased and placed in service in 2011 will be 100%.  The bonus depreciation rate is scheduled to drop to 50% in 2012. 

Action Item: Accelerate planned equipment purchases to December and you will be able to deduct the entire cost of the equipment on your 2011 tax return. 

Hiring Incentives for Veterans – The Returning Heroes Tax Credit and the Wounded Warriors Tax Credit were recently enacted on November 21, 2011.  Under this new law, employers are eligible for a tax credit when hiring certain qualified military veterans.  This provision is currently scheduled to expire on 12/31/2012.

Action Item: A certification form must be filed with the state workforce agency within 28 days of the employment date to certify that the individual is eligible for the Work Opportunity Tax Credit. 

From 1099 Reporting – There are new questions on this year’s Schedule C (Profit or Loss from Business) and Schedule E (Supplemental Income and Loss) regarding the 1099 reporting of certain payments made to individuals in the course of your trade or business.  IRS is asking taxpayers if they had any payments that would require 1099 reporting and if yes, were all required forms filed.

Action Item:  Confirm that you are in compliance – Penalties can add up quickly. 

Federal Estate and Gift Tax 

The current estate tax for 2011 is set at a maximum 35% rate and a $5 million exclusion.  For 2012, the maximum rate remains the same at 35% and the inflation-adjusted exclusion is $5.120 million.  Absent future legislation, after 2012, the exclusion amount will be $1 million with a maximum 55% rate. However, many experts are predicting that Congress will lower the exclusion to $3.5 million and raise the maximum rate to 45% after 2012. 

Action Item:  Lifetime gift giving should continue to be part of your master estate plan.  Individuals can currently gift up to $13,000 per year and married couples can gift up to $26,000 per year, to each individual gift recipient free of any gift tax. 

Other Items 

IRS “Phishing” Scams – The IRS continues to be diligent in their efforts to protect taxpayer information and “shut down” scams as quickly as possible.  They stress that the IRS does not solicit taxpayer information via e-mail.  Any emails received from the “IRS” requesting personal information should be deleted. 

Audits of Tax Returns – There has been an increase in audit and notice activity related to clients’ Individual Income Tax Returns (Form 1040) over the past couple of years.  As the federal government continues to struggle financially, the audit/notice activity for Estate and Trust Tax Returns (Form 1041) is also starting to increase.  This includes the assessment of severe non-filing penalties in cases where tax returns have not been properly filed.  It should be noted that tax returns are required to be filed even if no tax is due.  We are ready to help if you have any issues in this area. 

Health Care Directives – Once a child turns 18, a parent/guardian’s access to medical records is terminated.  Therefore, if you have young adult children, it is advisable for them to execute and Advanced Health Care Directive naming you (or someone they trust) as their personal representative so that these records do not become blocked from access. 

Health Care Act

 Small Business Tax Credit – Currently a tax credit is available to qualified small employers to help offset the cost of employer provided health insurance coverage. 

Medicare Payroll Surtax – Effective 2013 the law currently contains provisions for imposing an additional Hospital Insurance tax of .9% on earned income in excess of $200,000 for individuals and $250,000 for married couples filing jointly.  An additional 3.8% Medicare contribution tax is imposed on unearned income for higher-income taxpayers. 

Estates and Trusts – The 3.8% tax is also imposed on certain estates and trusts. 

Medical Expense Deduction – The threshold for the itemized medical deduction will increase after 12/31/2012.  However, individuals who are 65 and older will be exempt from this increase through 2016. 

State of Georgia Changes

 Individual Income Tax Retirement Exclusion – The income tax exclusion on retirement income, for taxpayers who are 65 or older, increases from the current $35,000 of retirement income to the following:

 2012        $ 65,000

2013        $100,000

2014        $150,000

2015        $200,000

2016        Unlimited

No need to move to Florida – Georgia is increasingly becoming a retiree friendly State.

Individuals who are ages 62 through 64 are still entitled to the $35,000 individual tax exclusion on retirement income.

Happy Holidays!

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