2016 Post-Election Tax Update

mary g. daughteryAny change in Presidential Administration brings the possibility, indeed the likelihood, of tax law changes and the election of Donald Trump as the 45th President of the United States is no exception. During the campaign, President-elect Trump outlined a number of tax proposals for individuals and businesses. This article highlights some of the President-elect’s tax proposals.

Keep in mind that a candidate’s proposals can, and often do, change over the course of a campaign and also after taking office. This article is based on general tax proposals made by the President-elect during the campaign and is intended to give a broad-brush snapshot of those proposals.

At the same time, the end of the year may bring some tax law changes before President Obama leaves office. This letter also highlights some of those possible changes with an eye on how late tax legislation could impact your year-end tax planning.

Campaign proposals

During the campaign, President-elect Trump called for reducing the number of individual income tax rates, lowering the individual income tax rates for most taxpayers, lowering the corporate tax rate, creating new tax incentives, and repealing the Affordable Care Act (ACA) (including presumably the ACA’s tax-related provisions). The President-elect, in his campaign materials, highlighted several goals of tax reform:

  • Tax relief for middle class Americans
  • Simplify the Tax Code
  • Grow the American economy
  • Do not add to the debt or deficit

President-elect Trump also identified during the campaign a number of tax-related proposals that he intends to pursue during his first 100 days in office:

  • The Middle Class Tax Relief and Simplification Act: According to Trump, the legislation would provide middle class families with two children a 35 percent tax cut and lower the “business tax rate” from 35 percent to 15 percent.
  • Affordable Childcare and Eldercare Act:  A proposal described by Trump during the campaign that would allow individuals to deduct childcare and elder care from their taxes, incentivize employers to provide on-site childcare and create tax-free savings accounts for children and elderly dependents.
  • Repeal and Replace Obamacare Act: A proposal made by Trump during the campaign to fully repeal the ACA.
  • American Energy & Infrastructure Act: A proposal described by Trump during the campaign that “leverages public-private partnerships, and private investments through tax incentives, to spur $1 trillion in infrastructure investment over 10 years.”

Individual income taxes

The last change to the individual income tax rates was in the American Taxpayer Relief Act of 2012 (ATRA), which raised the top individual income tax rate. Under ATRA, the current individual income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. During the campaign, President-elect Trump proposed a new rate structure of 12, 25 and 33 percent:

  • Current rates of 10% and 15% = 12% under new rate structure.
  • Current rates of 25% and 28% = 25% under new rate structure.
  • Current rates of 33%, 35% and 39.6% = 33% under new rate structure.

This rate structure mirrors one proposed by House Republicans earlier this year. During the campaign, President-elect Trump did not detail the precise income levels within which each bracket percentage would fall, instead generally estimating for joint returns a 12% rate on income up to $75,000; a 25% rate for income between $75,000 and $225,000; and 33% on income more than $225,000 (brackets for single filers will be half those dollar amounts) and “low-income Americans” would have a 0% rate. As further details emerge, our office will keep you posted.

Closely-related to the individual income tax rates are the capital gains and dividend tax rates. The current capital gains rate structure, imposed based upon income tax brackets, would presumably be re-aligned to fit within President-elect Trump’s proposed percent income tax bracket levels.

AMT and more

President-elect Trump proposed during the campaign to repeal the alternative minimum tax (AMT). The last time that Congress visited the AMT lawmakers voted to retain the tax but to provide for inflation-adjusted exemption amounts.

During the campaign, Trump proposed to repeal the federal estate and gift tax. The unified federal estate and gift tax currently starts for estates valued at $5.49 million for 2017 (essentially double at $10.98 million for married individuals), Trump, however, also proposed a “carryover basis” rule for inherited stock and other assets from estates of more than $10 million. This additional proposal has already been criticized by some Republican members of Congress, while some Democrats have raised repeal of the federal estate tax as a non-starter.

Other proposals made by President-elect Trump during the campaign would limit itemized deductions, eliminate the head-of-household filing status and eliminate all personal exemptions. President-elect Trump also has called for increasing the standard deduction. Under Trump’s plan, the standard deduction would increase to $15,000 for single individuals and to $30,000 for married couples filing jointly. In contrast, the 2017 standard deduction amounts under current law are $6,350 and $12,700, respectively, as adjusted for inflation.

Possible new family-oriented tax breaks were discussed by President-elect Trump during the campaign. These include the creation of dependent care savings accounts, changes to earned income tax credit and enhanced deductions for child care and eldercare.

Health care

The Affordable care Act (ACA) created a number of new taxes that impact individuals and businesses. These taxes range from an excise tax on medical devices to taxes on high-dollar health insurance plans. The ACA also created the net investment income (NII) tax and the Additional Medicare Tax, both of which generally impact higher income taxpayers. The ACA also made significant changes to the medical expense deduction and other rules that affect individuals. For individuals and employers, the ACA created new mandates to carry or offer insurance, or otherwise pay a penalty.

President-elect Trump made repeal of the ACA one of the centerpieces of his campaign. During the campaign, the President-elect said he would call a special session of Congress to repeal the ACA. At this time, how repeal may move through Congress remains to be seen. Lawmakers could vote to repeal the entire ACA or just parts. Our office will keep you posted of developments as they unfold.

Business tax proposals

On the business front, President-elect Trump highlighted small businesses, the corporate tax rate, and some international proposals during his campaign. Along with simplification, and the reduction, of taxes for small business.

Particularly for small businesses, Trump has proposed a doubling of the Code Sec. 179 small business expensing election to $1 million.  Trump has also proposed the immediate deduction of all new investments in a business, which has also been endorsed by Congressional tax reform/simplification advocates.

The current corporate tax rate is 35 percent. President-elect Trump called during the campaign for a reduction in the corporate tax rate to 15 percent. He also proposed sharing that rate with owners of “pass through” entities (sole proprietorships, partnerships and S corporations), but only for profits that are put back into the business.

Based on campaign materials, a one-time reduced rate would also be available to encourage companies to repatriate earnings of foreign subsidiaries that are held offshore. Many more details about these corporate and international tax proposals are expected.

Year-end 2016

More immediately, the calendar is quickly turning to 2017. Congress will meet for a “lame duck” session and is expected to take up tax legislation. Exactly what tax legislation Congress will consider before year-end remains to be seen. Every lawmaker has his or her “key” legislation to advance before the year-end. They include:

  • Legislation to renew some expiring tax extenders, especially energy extenders.
  • Legislation to fund the federal government, including the IRS, through the end of the 2017 fiscal year.
  • Legislation to enhance retirement savings for individuals.
  • Legislation to help citrus farmers, small businesses and more.

Some of these bills, if passed and signed into law, could impact year-end tax planning. The expiring extenders include the popular higher tuition and fees deduction along with some targeted business incentives.  If these extenders are renewed, or made permanent, our office can assist you in maximizing their potential value in year-end tax planning.

Another facet of year-end tax planning is looking ahead. President-elect Trump has proposed some significant changes to the Tax Code for individuals and businesses. If these proposals become law, especially any reduction in income tax rates, and are made retroactive to January 1, 2017, your tax planning definitely needs to be reviewed. Our office will work with you to maximize any potential tax savings.

Working with Congress

When the 115th Congress convenes in January 2017, it will find the GOP in control of both the House and Senate, therefore allowing Trump to move forward on his proposals more easily. It remains to be seen, however, what compromises will be necessary between Congress and the Trump Administration to find common ground. In particular, compromise will likely be needed to bring onboard both GOP fiscal conservatives who will want revenue offsets to pay for tax reduction, and Senate Democrats who have the filibuster rule to prevent passage of tax bills with fewer than 60 votes. Beyond considering tax proposals one tax bill at a time, it remains to be seen whether proposals can be packaged within a broader mandate for “tax reform” and “tax simplification.”

The information generally available now about President-elect Trump’s tax proposals is based largely on statements by him during the campaign and campaign materials. President-elect Trump will take office January 20, 2017. Between now and then, more details about his tax proposals may be available. Please contact our office if you have any questions.

For more information regarding this or any other tax related concern, please contact us at 404-255-7400 or at info@hoffmanestatelaw.com.

2013 Year-End Tax Planning: Personal Tax Considerations

As January 1, 2014 gets closer, year-end tax planning considerations should be starting to take shape. New tax legislation has brought greater certainty to year-end planning, but has also created new challenges. The number of changes made to the Tax Code and the opportunities these changes bring may seem overwhelming. However, early planning will help you to maximize your potential tax savings and minimize your tax liability. This letter is intended to be a mile-high view of some key year-end tax planning strategies.

Changes for 2013 and beyond

In 2012, year-end planning was complicated by the great uncertainty over the fate of the Bush-era tax cuts. For more than 10 years, individuals had enjoyed lower income tax rates, but these rates were scheduled to expire after 2012. Moreover, many tax credits and deductions that had been made more generous were also set to expire after 2012. In January 2013, Congress passed the American Taxpayer Relief Act of 2012, which made permanent many, but not all, of the Bush-era tax cuts and also some tax benefits enacted during the Obama administration. Congress also permanently “patched” the alternative minimum tax (AMT) to prevent its encroachment on middle income taxpayers. The result is much greater certainty in year-end tax planning for 2013 because we know what the individual tax rates are in 2014, how many tax credits and deductions are structured, and much more.

Of course, there are always complexities in the Tax Code. In 2013, two new Medicare taxes kicked-in (3.8-percent net investment income (NII) surtax and a 0.9-percent Additional Medicare Tax). In addition, the U.S. Supreme Court ruled that the federal government’s denial of recognition of same-sex marriage was unconstitutional, opening the door to allowing married same-sex couples to file joint federal tax returns and take advantage of other tax benefits available to married couples. Beginning in 2014, some of the most far reaching provisions of the Affordable Care Act will become effective: the individual mandate, the start of Marketplaces to obtain insurance and a special tax credit to help offset the cost of insurance.

Planning for expiring tax incentives

First, do not lose the benefit of some generous, but temporary tax incentives that are available in 2013 but may not be in 2014. Are you planning to purchase a big-ticket item such as a new car or boat? The state and local sales tax deduction (available in lieu of the deduction for state and local income taxes) is scheduled to expire after 2013, and you may want to accelerate that purchase to take advantage of the tax break. A valuable tax credit for making certain energy efficient home improvements, including windows and heating and cooling systems, and a deduction for teachers’ classroom expenses are also scheduled to expire after 2013. These are just some of many incentives that will sunset after 2013 unless extended by Congress. The window for maximizing your tax savings for 2013 is closing. Please contact our office for more details.

Planning for new taxes and rates

Some individuals may be surprised that they owe additional taxes in 2013, even with the extension of the Bush-era tax cuts. Three new taxes are in effect for 2013: the NII surtax, the Additional Medicare Tax and a revived 39.6 percent tax bracket for higher income individuals. The 3.8-percent NII surtax very broadly applies to individuals, estates and trusts that have certain investment income above set threshold amounts. These amounts include a $250,000 threshold for married couples filing jointly; $200,000 for single filers. It should also be noted that trusts will hit the highest tax rate with only $11,950 of retained taxable income.  One strategy to consider is to keep, if possible, income below the threshold levels for the NII surtax by spreading income out over a number of years or finding offsetting above-the-line deductions. If you are considering the sale of your home, and the gain will exceed the home sale exclusion, please contact our office so we can discuss any possible NII surtax.

The Additional Medicare Tax applies to wages and self-employment income above threshold amounts including $250,000 for married couples filing joint returns and $200,000 for single individuals. If you have not already reviewed your income tax withholding for 2013, now is the time to do it. One way to reduce the sting of any Additional Medicare Tax liability is to withhold an additional amount of income tax.

As discussed, ATRA extended the Bush-era tax rates for middle and lower income individuals. ATRA also revived the 39.6 percent top tax rate. For 2013, the starting points for the 39.6 percent bracket are 450,000 for married couples filing jointly and surviving spouses, $425,000 for heads of households, $400,000 for single filers, and $225,000 for married couples filing separately. ATRA also revived the personal exemption phaseout and the limitation on itemized deductions for higher income individuals.

Starting in 2013, ATRA also sets the top rate for capital gains and dividends to 20 percent. This top rate aligns itself with the levels at with the new 39.6 percent income tax rate bracket starts: capital gains and dividends to the extent they would be otherwise taxed at the 39.6 percent rate as marginal ordinary income will be taxed at the 20 percent rate. ATRA did not change the application of ordinary income rates to short-term capital gains. However, individuals should plan for the possibility of being subject to a higher top rate (39.6 percent).

Planning for health care changes

Before year-end, individuals need to review how the Affordable Care Act will impact them. The Affordable Care Act brings a sea-change to our traditional image of health insurance. The law requires individuals, unless exempt, to either carry minimum essential health care coverage or make a shared responsibility payment (also known as a penalty). Most employer-sponsored health insurance is deemed to be minimum essential coverage, as is coverage provided by Medicare, Medicaid, and other government programs. Self-employed individuals and small business owners should revisit their health insurance coverage, if they have coverage, before year-end and weigh the benefits and costs of obtaining coverage in a public Marketplace (or a private insurance exchange) for themselves and their employees. Small businesses may be eligible for a tax credit to help pay for health insurance. Individuals may qualify for a premium assistance tax credit, which is refundable and payable in advance, to offset the cost of coverage. Please contact our office for more details about the Marketplaces, and health insurance coverage for small businesses and individuals.

Individuals with health flexible spending accounts (FSAs) and similar arrangements should take a look at their spending habits for 2013 and predict how they will use these tax-favored funds in the future. In 2013, the maximum salary-reduction contribution to a health FSA is $2,500. Remember that health FSAs have strict “use it or lose it” rules, and the cost of over-the-counter drugs cannot be reimbursed with health FSA dollars unless you obtain a prescription (there are some exceptions).

Individuals who itemize their deductions also need to keep in mind the 10 percent floor for qualified medical expenses. This change took effect at the beginning of 2013. It means that you can only claim deductions for medical expenses when they reach 10 percent of adjusted gross income (for regular tax purposes and for alternative minimum tax purposes). There is a temporary exception for individuals over age 65 for regular tax purposes.

Planning for gifts

Gift-giving is often overlooked as a year-end planning strategy. For 2013, individuals can make tax-free gifts (no tax consequences for the giver or the recipient) of up to $14,000 to any individual. Married couples may “split” their gifts to each recipient, which effectively raises the tax-free gift to $28,000. Gifts between spouses are always tax-free unless one spouse is not a U.S. citizen. In that case, the first $143,000 in gifts made in 2013 is tax-free.

There are special rules for gifts made for medical care and education that can be a valuable component of a year-end tax strategy, especially for individuals who want to help a family member or friend. Monetary gifts given directly to a college to pay tuition or to a medical service provider are tax-free to the person making the gift and the person benefitting from education or medical care.

Gifts to charity also are frequently made at year-end. Through the end of 2013, taxpayers age 70 ½ and older can make a tax-free distribution from individual retirement accounts directly to a charity. The maximum distribution is $100,000. Individuals taking this option cannot claim a deduction for the charitable gift.

Planning for retirement savings

Year-end is a good time to review if your retirement savings plans and tax strategies complement each other. For 2013, the maximum amount of contributions that can be made to an IRA is $5,500, with a $1,000 catch-up amount allowed for individuals over age 50. Keep in mind that the maximum amount that can be contributed to a Roth IRA begins to decrease once a taxpayer’s adjusted gross income crosses a certain threshold. For example, married couples filing jointly will begin to see their contributions begin to phase out when their AGI is $178,000. Once their AGI reaches $188,000 or more, they can no longer contribute to a Roth IRA. For single filers the corresponding income thresholds for 2013 are $112,000 and $127,000. Please note that 2013 contributions, for tax purposes, may be made until April 15, 2014.

Traditional IRAs and Roth IRAs are very different savings vehicles. A traditional IRA or Roth IRA set up years ago may not be the best savings vehicle today or for the immediate future if employment and other personal circumstances have changed. Some individuals may be contemplating rolling over a workplace retirement plan into an IRA. Very complex rules apply in these situations and rollovers should be carefully planned. The same is true in converting a traditional IRA to a Roth IRA and vice-versa. Every individual has unique goals for retirement savings and no one size fits all. Please contact our office for a more detailed discussion of your retirement plans.

Planning for Small Businesses

There are also strategies available for small businesses seeking to maximize tax benefits in 2013.  Two of the business incentives scheduled to end or significantly change after 2013 are the bonus depreciation allowance and the enhanced section 179 expensing provisions.

Bonus depreciation is scheduled to end after 2013 if not renewed by Congress. Additional 50-percent bonus depreciation was extended by the American Taxpayer Relief Act of 2012 (ATRA, signed into law on January 2, 2013) for one-year only and applies to qualifying property placed in service before January 1, 2014. In the case of property with a longer production period and certain non-commercial aircraft, the extension also applies to property acquired before January 1, 2014 and placed in service before January 1, 2015.

Unlike regular depreciation, under which half- or quarter-year conventions may be required, a taxpayer is entitled to the full, 50-percent bonus depreciation irrespective of when during the year the asset is purchased. Therefore, year-end placed-in-service strategies can provide an almost immediate “cash discount” from qualifying purchases, even when factoring in the cost of business loans to finance a portion of those purchases.

An enhanced section 179 expense deduction is available until 2014 for taxpayers (other than estates, trusts or certain non-corporate lessors) that elect to treat the cost of qualifying property (so called section 179 property) as an expense rather than a capital expenditure. The current section 179 dollar cap for 2013 is $500,000. For tax years beginning after 2013, that dollar limit is officially scheduled to plunge to $25,000 unless otherwise extended by Congress. For tax years beginning in 2013, the overall investment limitation is $2 million. That level is also scheduled to fall to $200,000 in 2014. Please contact our office regarding how to best benefit from these provisions in 2013.

Georgia Tax Credits

The State of Georgia has several state specific credits against Georgia income taxes.  Many of you may be aware of or have utilized the Georgia Private School Credit.  Each year Georgia sets aside an amount of money which is available to taxpayers who qualify in advance for the benefit.  Married taxpayers can claim up to $2500 and single taxpayers up to $1000.  Since there is a finite amount available, the fund will be fully utilized well before the end of 2014.  If you wish to claim this credit, you should make it a New Year’s resolution and apply for qualification at the beginning of 2014.  You can get more specific information at http://www.gadoe.org/External-Affairs-and-Policy/Policy/Pages/Tax-Credit-Program.aspx or talk directly with your private school.  This credit is a win/win since you get every dollar up to the limit back on your tax return and you also get a federal income tax deduction on Schedule A if you itemize. 

The film industry in Georgia is entitled to tax credits.  The law allows these credits to be transferred to other taxpayers.  As a result, unused credits are being sold at a discount and you can purchase them to satisfy your Georgia tax liability.  Additionally, you get a full itemized deduction for the amount of the credit but you must report the discount as a short-term capital gain on Schedule D.  An additional benefit is that the credit is treated like withholding and can minimize or eliminate the need for estimated payments and possibly withholding.

A small but frequently overlooked credit is the $150 Driver Education Credit.  If you pay for your child to take a driver’s education course and get a certificate of completion, you are entitled to a credit of the amount spent up to $150.

It should also be noted that the income tax exclusion on retirement income, for taxpayers who are 65 and older, will increase from $100,000 in 2013 to $150,000 in 2014, $200,000 in 2015, and to an unlimited retirement income exclusion effective in 2016.

We have reviewed only some of the many year-end tax planning strategies that could help you minimize your 2013 tax bill and maximize savings.  Please contact our office to schedule an appointment to personalize your 2013 year-end tax planning.

For more information regarding this or any other tax 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.

The 2013 Medicare Surtax: What You Need to Know

The American Taxpayer Relief Act of 2012 and the Patient Protection and Affordable Care Act of 2010 have ushered in new income tax provisions which become effective in 2013.  One of the new provisions is the 3.8% Medicare surtax on an individual’s Net Investment Income.  This tax is one of the funding provisions for the new health care legislation, known as Obamacare.  The surtax will impact high income taxpayers who have a modified adjusted gross income in excess of specific thresholds.

FIRST OF ALL, WHO IS A “HIGH INCOME” INDIVIDUAL?  WILL I BE SUBJECT TO THIS TAX?

Individuals will be subject to the tax if they have any amount of net investment income and their modified adjusted gross income (“MAGI”) for the year is greater than the following threshold amounts:

  •   Married filing jointly                                              $250,000
  •   Married filing separately                                        $125,000
  •   Single or head of household                                   $200,000

HOW IS THE TAX CALCULATED?

The 3.8% tax is calculated on the lesser of (1) your net investment income or (2) your MAGI in excess of the threshold amount.  Some common types of investment income are: interest (excluding tax exempt interest), dividends, capital gains, rental income (if you are not a real estate professional) and passive income from partnership activities.

DOES THE TAX APPLY TO THE GAIN ON THE SALE OF MY PERSONAL RESIDENCE?  WHAT ABOUT A VACATION HOME OR INVESTMENT REAL ESTATE?

Net investment income only includes the net taxable gain from the sale of a personal residence, which is the gain in excess of $500,000 for married individuals and $250,000 for single individuals.    The entire net capital gain from the sale of a vacation home, investment property or rental real estate is included in investment income.

DOES THIS TAX APPLY TO TRUSTS?

The tax will apply to estates and trusts with undistributed net investment income and an adjusted gross income in the amount of $11,650 for 2013.

WHAT CAN I DO TO MINIMIZE THE IMPACT OF THE SURTAX?

The timing of transactions becomes a very important tax planning tool in avoiding or minimizing the impact of the 3.8% surtax.  This is especially true for sales transactions of stock, real estate and other investments.  The current year tax impact of net investment income and other gains and losses should be reviewed in order to minimize the tax.

Other potential opportunities to minimize the surtax impact are:

  • Consider converting traditional IRAs to Roth IRAs.  This would reduce the MAGI in future years when distributions are taken from the accounts.
  • Investing in tax exempt bonds instead of taxable bonds.  The interest from the tax exempt bonds is excludable.
  • Harvesting capital losses to offset capital losses to reduce net investment income and MAGI.
  • Managing retirement plan distribution to maintain MAGI under the threshold amounts.

IS THE 3.8% SURTAX ON NET INVESTMENT INCOME THE ONLY MEDICARE SURTAX?  WHAT ABOUT EARNED INCOME?

No, there is also a .9% Medicare surtax on the wages and self-employment income of high income taxpayers.  This tax applies to earned income in excess of $200,000 for single filers, $250,000 for married taxpayers filing joint returns and $125,000 for married taxpayers filing separately.

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

Musings From The CEO (Summer 2013)

Late last year many of our clients were scurrying around to do some last minute gifting.  The fear was that the $5,000,000 gift and estate tax exemption would fall back to $1,000,000; therefore, the opportunity to remove a significant amount of wealth from their taxable estates (and the future appreciation on such property) would be lost forever.  Ironically, or typically, after the 12th hour (at approximately 2 a.m. on the morning of January 1, 2013), Congress passed a new tax law making the $5,000,000 exemption permanent and increasing the tax rate from 35% to “only” 40% (as opposed to the anticipated 55%).  Congratulations to those who completed these estate planning maneuvers, as their families will benefit for generations to come from their, albeit maybe last minute, action.

Under the heading “here we go again”, on April 10th, the Obama Administration published their annual wish list of 2014 revenue proposals.  Several of the provisions related to estate planning, including, are you ready for this, changing the estate and generation skipping transfer tax exemptions back down to $3,500,000, and the gift tax exemption to $1,000,000!  The proposal includes another increase in the tax rate to 45%.  Additionally, the Obama Administration proposes to limit and curtail the use of GRATs (Grantor Retained Annuity Trusts), the technique of gifting or selling assets to a grantor trust, limiting the duration of exemption from generation skipping transfer tax to 90 years (as opposed to unlimited dynasty trusts in some parts of the country), and requiring the reporting to the IRS of purchases of life insurance in excess of $500,000.  As President Reagan said so succinctly, “There you go again!”.

One message is clear.  For those of you that embarked on significant estate planning back in 2012 and prior, congratulations.  For those of you who did not, and who need it, giddy-up!

Enough about estate planning.  The American Taxpayer Relief Act of 2012 (which became law on January 2, 2013), and the Patient Protection and Affordable Care Act of 2010 (“Obamacare”) both become effective in 2013. Therefore, we will be spending a lot more time doing income tax planning.  The classic strategies of maximizing your deductions, reducing ordinary income, trying to achieve long term capital gains versus ordinary income, accumulating tax exempt income, deferring taxes and offsetting income with losses all need to be reviewed and expanded.

For high income taxpayers, up to 80% of itemized deductions can be lost.  For high income taxpayers, tax rates will exceed 39.6%, and combined with state income taxes could easily exceed 50%.  For high income taxpayers, dividend and capital gains rates increased 1/3 from 15% to 20%.  For high income taxpayers, the personal exemptions will be phased out and there will be a Medicare surtax on investment income of 3.8% and on earned income of .9%.

Income taxes have taken a sharp increase, deductions are being reduced, and the level of your adjusted gross income is critical to proper planning.  Be prepared to immerse yourself into these new income tax matters between now and the end of the year. For a lot of us, the tax savings or costs will be very significant.

 

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.