Tag Archives: Ramsay and Associates

Breaking News – Tax “Fiscal Cliff” Avoided

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In the early morning hours of New Year’s Day, the U.S. Senate passed a bill to deal with the tax increases associated with the “Fiscal Cliff”.  The House passed the same bill late last evening, and the President has said he will sign the bill into law.  The law contains changes for both the year just ended and the New Year just begun.  The following are the items that apply to most of our readers for the 2012 year. Our next post will detail those effective for 2013 and beyond.

Individual Changes Effective for 2012

  • The Alternative Minimum Tax (AMT) has been fixed permanently to prevent middle-class taxpayers from falling into its higher tax rates. The AMT kicks in on AMT taxable income of $50,600 for individuals and $78,750 for married couples filing jointly. These amounts will be increased to match inflation.
  • In addition, all personal tax credits can be used against both regular and AMT taxes going forward.
  • The American Opportunity Tax Credit, which allows for up to a $2,500 Federal tax credit for the first 4 years of college expenses has been extended through 2017.
  • Also, the above-the-line deduction for tuition and fees of up to $4,000 has been revived for 2012 and continues for 2013.
  • The above-the-line deduction of up to $250 for elementary and secondary school teachers has been revived for 2012 and continues for 2013.
  • The option to deduct state and local sales taxes in place of state and local income taxes is revived for 2012 and continues for 2013.
  • The treatment of mortgage insurance premiums as deductible home mortgage interest is revived for 2012 and in place for 2013.
  • Increased Earned Income Tax Credits and Child Tax Credits are extended through 2017.
  • The tax credit for certain energy efficient home improvements and for energy-efficient appliances is revived for 2012 and in place through 2013.

Business Changes Effective for 2012

  • The following depreciation items are made effective for equipment placed in service from January 1, 2012 through December 31, 2014
    • 15-year life on qualified leasehold improvements, qualified restaurant buildings and qualified retail improvements.
    • Increased Section 179 limitations and the treatment of certain real estate property as eligible for Section 179 treatment.
  • The Research and Development Tax Credit is revived for 2012 and extended through 2013.
  • 100% exclusion of gain from the sale of qualified small business stock is in place for shares acquired before January 1, 2014.

Now comes the scramble of the states to choose whether to go along with the changes made by the Federal government, and the IRS and tax preparation software providers to update their systems and get the changes rolled out.  We’ll keep you up to date on when we can start getting 2012 tax returns prepared.

Tax Planning – A Tricky Proposition

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This time of year we start talking to our clients about tax planning, but this year things are taking a somewhat different twist.  With the November elections still to be determined, and additional parts of the Affordable Care Act going into effect in 2013, below are a couple of new things we’re thinking about this planning season.

  • Are you considering selling stocks, bonds, or investment real estate at a considerable gain?  If so, you may want to consider doing it at the end of 2012, because in 2013, you may find yourself paying an additional 3.8% tax on those gains.
  • If you own a business, are you considering a bonus for yourself?  If so, doing that in 2012 may save you from paying an additional .09% in Medicare tax which goes into effect for certain taxpayers in 2013.
  • If you’re under age 65, it may pay to push as many deductible medical expenses into 2012 as possible, as less of them will be deductible in 2012.

These are just a few of the items in the wind for the end of this year.  If you’re a client of ours, expect to see a tax planning letter with even more ideas in the coming weeks.

The Deadline is Approaching!

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The post this week is a quick one.  If you extended your personal tax return, it’s due a week from today, with no more extensions available.  This deadline tends to sneak up on people.

After that deadline passes, we’ll be turning to year end planning for many of our clients.  Taking an hour or two to discuss taxes this fall will make next spring a far less surprising time, and allow us to help proactively plan for year end taxes.

As always, we’re here to help.

2013 Tax Planning Tips

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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.

Giving Thanks

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The holidays seem to blur together just a bit more each year.  Still, Thanksgiving is a wonderful opportunity to take time and be thankful for what we’ve been given throughout the past year, and for the gift of family and friends.

Here are a few inspirational quotes to help spur you in your pursuit of the attitude of gratitude.

“Reflect on your present blessings- of which every man has many- not on your past misfortunes, of which all men have some.” – Charles Dickens, Writer

“I cannot tell you how to be rich. But I can tell you how to feel rich, which is far better, let me tell you firsthand, than being rich. Be grateful. It is the only totally reliable get rich quick scheme.” – Ben Stein, Actor

“Gratitude is not only the greatest of virtues, but the parent of all others.” – Cicero, Roman philosopher