On of the more interesting things that happens during a national campaign, at least for CPA’s, is the release of the candidate’s tax returns.
The 2011 tax return of the President lists his wages as President, some fairly modest interest income, and income from the sale of his books. The President socked away the maximum of $49,000 into a retirement plan, and the First Couple lists mortgage interest of $47,564. They paid their taxes of $162,074 on time.
The 2011 tax return of Mitt and Ann Romney lists no wages, but substantial interest and dividend income, which along with capital gains makes up the majority of his income. He also earned money from speaking tours and from his seat on various boards of directors. They list no mortgage interest, but do list $214,728 in real estate taxes. The Romneys paid their taxes of $3,434,448 on time, and had a substantial overpayment applied to next year’s balance.
It’s always interesting to step back from the politics and take a look at the facts.
If current law is allowed to continue into 2013 unchanged, most taxpayers will face higher tax rates on investment income like interest and dividends, and if the Bush-Era tax cuts are allowed to expire, many will pay higher taxes on ordinary income like salaries and business profits as well. The question for many is how to avoid paying these higher rates to the extent possible. Below are a few tips.
If you are considering selling a capital asset next year, like a rental property or appreciated stock, consider selling it at the end of 2011 instead to lock in the lower tax rates.
If you are considering converting a traditional IRA to a Roth, do it this year to take advantage of the lower rates. Also, when you take money out of the Roth account, it won’t reflect in your income when determining if you are subject to the 3.8% Medicare surtax on investment income, so you might avoid paying it altogether. Distributions from traditional IRA’s will be.
To the extent you can, accelerate income into 2012 to avoid the possibility of paying a higher rate on it come 2013.
The picture is clear: either rates will stay the same or go up; there aren’t many that believe taxes will decrease next year. As always, we’re here to help navigate the process.
Keeping your beneficiary information complete and up to date is an important planning step to be sure your money goes where you want it to upon your death.
Not a light topic, but still one to discuss. There are a number of events that should cause you to review the beneficiaries of your retirement plans and insurance policies. Each of these accounts has its own order determined by the plan administrator or policy language, but these are some general rules to follow.
A change in marital status. There have been many cases of a former spouse getting money instead of the current one. You should also update it if you are recently married to avoid inadvertently skipping your spouse.
The birth or adoption of a new child. Check to be sure you know how “step” children are treated by the plans an policies; some don’t consider them “children”.
The death of anyone who was named a beneficiary or contingent beneficiary.
Also, if you want to be sure that all assets are distributed exactly to your wishes, be sure you have a will in place, and consider a revocable living trust, which allows for simple transfer of your assets at your death according to your wishes.
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