Tax Planning Letter (A Letter from our CPA’s)
Dear Clients and Friends,
Taxes are going to be a major issue for the rest of 2012 and for much of 2013. On January 1, 2013, the country faces what Federal Reserve Chairman Ben Bernanke has called a “fiscal cliff,” resulting from the expiration of the Bush-era tax cuts and the automatic across-the-board cuts in government spending. Added to these events is the uncertainty over the alternative minimum tax and the tax breaks known collectively as the “tax extenders.”
There is no way to predict what Congress will do about these issues or when they will act. That uncertainty makes doing effective tax planning for yourself and your business very challenging. Yet doing nothing could leave you paying significantly more in taxes.
This year, the wise taxpayer may have to consider more than one tax strategy, running the numbers under two or more scenarios. By staying informed and being prepared to act as events unfold, you can minimize your 2012 and 2013 tax liability. This Letter is intended to encourage you to make 2012 year-end planning a priority. We are committed to helping you analyze the tax-cutting options best suited to your particular circumstances. If you have any questions or would like to arrange a year-end tax review, please contact our office.
Harvey & Caldwell, PA
Some of you may have already seen this letter & accompanying newsletter, which you can also find in the resources section of our website. We have already done a whole series on last minute tax planning tips focusing on small business owners and thought it would be a good idea to breakdown this Year-End 2012 newsletter into more easily digestible excerpts. This newsletter focuses on everyone, not just the small business owner, and several things we should think about while there is still time to have an impact on our 2012 return. Since the newsletter is a bit lengthy (which is where this current blog is now heading) we are going to break it up into sections.
Newsletter Part I: Tax-cutting time is ticking away
Tax planning is difficult in any situation; especially with the current political and economic environment. Some rules that applied on your 2011 federal income tax return have expired and others are going to at the end of this year. New provisions are slated to begin
in 2013 so reviewing your tax situation before the end of 2012 will position you to act quickly when the timing is right. Here are a few tax strategies to consider as the year-end 2012 approaches.
Review options for accelerating income:
The idea of paying federal and state income tax early may make you cringe, but having a plan in place just in case paying now results in saving later is a good idea. One reason: Some methods of pulling income from 2013 into 2012 require time, time you may not have if you wait until the last minute. Here are a few examples:
-Taking payroll bonus from your business at year-end. You might choose to do this to take advantage of the current reduced rate of 4.2% for the employee portion of social security tax, which expires on December 31, 2012.
-Perhaps your goal is to lower the amount of your 2013 income tax that will be subject to either the 3.8% or o.9% Medicare surtaxes taking effect next year.
-Or maybe you want additional earned income so you can increase your retirement plan contribution.
-Distributing a dividend from your corporation this year while the maximum tax rate for qualified dividends is 15%.
-Retirement accounts also offer opportunities for accelerating income into 2012. If you turned 70.5 this year and you expect to be subject to higher taxes in 2013 it may make sense to take your initial required minimum distribution by December 31 instead of waiting until next April. You also can withdraw funds without penalty from traditional IRA’s beginning at age 59.5. In some cases penalty exceptions apply when you are under 59.5.
-Converting your traditional IRA to a Roth also increases income in 2012. The good thing about that is you can change your mind later, even after the beginning of the year. Roth conversions provide future-year tax breaks. Unlike traditional IRA’s withdrawals from Roth accounts are not mandatory. When you do take them they are not subject to the new 3.8% Medicare surtax, they are not included in figuring the taxable amount of your social security benefits either.
-Regular income tax planning is only one factor in the decision to increase your current-year income. The alternative minimum tax (AMT) is another. The last annual AMT patch expired in 2011 so you will want to understand your exposure based on current rules.
Next week we will continue to breakdown the newsletter for more tips regarding your Year-End 2012 taxes, and don’t worry, it will be much shorter!
Please feel free to contact Harvey and Caldwell, PA at 913-451-4400 or visit our website https://www.harveyandcaldwell.com/ as a resource for your tax needs.
To read this letter/newsletter in its entirety: http://www.planningtips.com/4422/default.asp?tip_id=4422&co_id=18386&pg=1