Bishop the Cook CPA Curate

Hi, I’m BisBishophop the Cook CPA Curate.

Before I begin blogging about our activities, achievements and Cook CPA news, I thought I would introduce myself and why I curate the Cook CPA office.

I was born in September 2013, along with six other brothers and sisters.  We come from a very respectable line of performance and show shelties.firstbord

This was me at one month, back then I was known simply as “Firstborn.”

I am a Shetland Sheepdog, often referred to as a “Sheltie” which are known for being a herding dog breed.   Shelties are also known for being energetic, fiercely loyal, and hard-working.  Often I am shy and reserved with strangers, but once I get to know someone, I offer as much love and curating as I can!

 

This brings us to why I’m charged with curating at the Cook CPA office.  A Curator in biblical terms refers to someone (or some dog) who is vested with caring for the souls of a parish.  In broader terms, a curator oversees and manages collectibles, artwork or historic items. desking it So, in essence, my job is to watch over and guard the souls of those at Cook CPA, and anyone who is affiliated with our firm, clients, vendors, neighbors.

In my research of the curation of souls, I notice that souls require much nurturing.  I’m just the dog to do it!  Often, when my hard-working Cook CPA souls are in need of a break, I will let them take me for walks, or simply roll around on the floor to give them a well-deserved smile.  Nurturing can simply be a nudge with a sturdy nose or throwing myself in a deep Curate trance on the floor for hours at a time.  It is difficult work some days, but it’s manageable.

trancethrow rugDo not try these maneuvers at home! 

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Fiscal Cliff Looms: Take Action Now

small_5995105398Deal or no deal on the Fiscal Cliff, there is still a lot you can do to reduce taxes and fund your retirement dreams. Here are the best moves to reduce estate taxes, fund retirement and create a health savings account before the year ends.

Year-End Giving To Reduce Your Potential Estate Tax

It may be time to reevaluate your estate plan. Unless Congress takes action before the end of the year, the federal gift and estate tax exemption, which is currently set at $5.12 million, drops to its pre-2010 level of $1 million ($2 million per couple) in 2013. In addition, the maximum estate tax rate is set to increase in 2013 from 35 percent to 55 percent.

Gift Tax. For many, sound estate planning begins with lifetime gifts to family members. In other words, gifts that reduce the donor’s assets subject to future estate tax. Such gifts are often made at year-end, during the holiday season, in ways that qualify for exemption from federal gift tax.

Gifts to a donee are exempt from the gift tax for amounts up to $13,000 a year per donee.

Caution: An unused annual exemption doesn’t carry over to later years. To make use of the exemption for 2012, you must make your gift by December 31.

Husband-wife joint gifts to any third person are exempt from gift tax for amounts up to $26,000 ($13,000 each). Though what’s given may come from either you or your spouse or from both of you, both of you must consent to such “split gifts.”

Gifts of “future interests,” assets that can only enjoy at some future time such as certain gifts in trust, generally don’t qualify for exemption; however, gifts for the benefit of a minor child can be made to qualify.

Tip: If you’re considering adopting a plan of lifetime giving to reduce future estate tax, then don’t hesitate to call us. We can help you set it up.

Cash or publicly traded securities raise the fewest problems. You may choose to give property you expect to increase substantially in value later. Shifting future appreciation to your heirs keeps that value out of your estate. But this can trigger IRS questions about the gift’s true value when given.

You may choose to give property that has already appreciated. The idea here is that the donee, not you, will realize and pay income tax on future earnings.

Gift tax returns for 2012 are due the same date as your income tax return. Returns are required for gifts over $13,000 (including husband-wife split gifts totaling more than $13,000) and gifts of future interests. Though you are not required to file if your gifts do not exceed $13,000, you might consider filing anyway as a tactical move to block a future IRS challenge about gifts not “adequately disclosed.”

Tip: Call us if you’re considering making a gift of property whose value isn’t unquestionably less than $13,000.

Income earned on investments you give to children or other family members is generally taxed to them, not to you. In the case of dividends paid on stock given to your children, they may qualify for the reduced 5% dividend rate.

Caution: In 2012, investment income for a child (under age 18 at the end of the tax year or a full-time student under age 24) that is in excess of $1,900 is taxed at the parent’s tax rate.

Fund Your Retirement Account

Retirement Plan Contributions. Maximize your retirement plan contributions. If you own an incorporated or unincorporated business, consider setting up a retirement plan if you don’t already have one. (It doesn’t need to actually be funded until you pay your taxes, but allowable contributions will be deductible on this year’s return.)

If you are an employee and your employer has a 401(k), contribute the maximum amount ($17,000 for 2012), plus an additional catch up contribution of $5,500 if age 50 or over, assuming the plan allows this much and income restrictions don’t apply).

If you are employed or self-employed with no retirement plan, you can make a deductible contribution of up to $5,000 a year to a traditional IRA (deduction is sometimes allowed even if you have a plan). Further, there is also an additional catch up contribution of $1,000 if age 50 or over.

Create a Health Savings Account

Health Savings Accounts. Consider setting up a health savings account (HSA). You can deduct contributions to the account, investment earnings are tax-deferred until withdrawn, and amounts you withdraw are tax-free when used to pay medical bills.

In effect, medical expenses paid from the account are deductible from the first dollar (unlike the usual rule limiting such deductions to the excess over 7.5% of AGI). For amounts withdrawn at age 65 or later, and not used for medical bills, the HSA functions much like an IRA.

To be eligible, you must have a high-deductible health plan (HDHP), and only such insurance, subject to numerous exceptions, and must not be enrolled in Medicare. For 2012, to qualify for the HSA, your minimum deductible in your HDHP must be at least $1,200 ($1,250 in 2013) for single coverage or $2,400 ($2,500 in 2013) for a family.

 

photo credit: Rob Lantz via photopin cc

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TAX CHANGES (SO FAR) FOR 2013

  Fiscal cliff?  What does that mean to you?  No matter what happens taxes will be going up.  So more of your net income will go to taxes.  What can you do? 

  • Analyze your expenses.  I suspect there is not much left there to cut but can’t hurt to make sure.  One client is considering buy some land to grow their own hay.
  • Increase rates.  A consistent 3% – 5% increase each year is preferable to suddenly having to increase rates significantly one year.  Your clients will not remember that you kept rates the same for the past three years.  It is a much more difficult conversation to have while a 3% increase is smaller enough that people can understand why.  A nice letter explaining increasing costs is also a good way to ease the change to your customers.  If you increase rates 3% for three years, that would be over a 10% increase! 
  • Market!  Bring more money in is still the greatest challenge.  Review what has worked and not worked this past year.  Develop a written plan for 2013.  How much more $$ a month would make you life easier?  We would be happy to work with you to identify cost-effective marketing strageties for your facility. 

One of our clients reduced to her expenses by putting her broodmares in leases, sold some babies and started marketing her stallion to generate income.  All worked so well that she is turning a profit now! 

Want to make 2013 your most successful year yet!!  Give us a call to see how our team can help you.

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Disability insurance: When are benefits taxable?

Have you wondered what would happen if you were unable to work for an extended period of time?  Could disability insurance as part of your financial plan? If so, the next decision is how to pay the premiums. Here’s why: The choice you make now can affect the taxability of the benefits received later.

For example, say your employer offers disability insurance as part of a cafeteria plan. When you sign up, the premiums are deducted from your paycheck before taxes. You’re getting a current break in the form of excluding the premiums from income, and later payouts of policy benefits are generally taxable to you.

What if you pay part of the premium with after-tax income and your employer pays the rest? In that case, policy benefits are split into taxable and nontaxable portions.

Illustration:

You pay 40% of the premium and your employer pays 60%. Benefits are 60% taxable.

If you opt to buy a policy yourself, premiums are not deductible on your personal tax return, and benefits you collect are not taxable.

Like other aspects of financial planning, choosing insurance involves weighing your alternatives and selecting what’s most suitable for achieving your goal of protecting and growing assets. Give us a call. We’ll help ensure that your financial plan remains on track.

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Rethink Your Capital Gains Strategy for 2012

The typical investment advice at year-end is to sell losing stocks to offset gains you have taken for the year. This year that strategy may just be the wrong way to go. Here’s why.

The maximum rate on long-term capital gains is scheduled to rise from the current 15% to 20% next year. Also scheduled for 2013 is an increase in the top rate on dividend income from the current 15% to 39.6%.

If you expect these scheduled rates to occur in 2013, it may make sense to harvest gains before year-end. Remember, wash sale rules do not apply to gains, so you can repurchase a similar investment immediately. This tactic may allow you to “reset” your basis for a future sale while benefiting from current low rates.

What about investment losses? Despite the uncertainty over a possible increase in tax rates, it’s a good bet that some rules — such as those covering capital losses — will not change. When pruning stocks from your portfolio, keep in mind that capital losses are more valuable when tax rates are higher. You may want to postpone taking losses until 2013 if you think rates will be higher next year.

In your investment review, don’t overlook the new 3.8% Medicare surtax that will apply to certain unearned income, including interest, dividends, capital gains, and passive rental income. If this surtax goes into effect as scheduled, an individual with adjusted gross income of $200,000 or more ($250,000 for couples filing jointly) could pay an effective federal income tax rate of 43.4% on some income.

Individual situations will vary, so consider all the relevant factors in making your year-end decisions. For assistance in your analysis, contact our office.

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2013 tax limits from the IRS

The IRS has released tax thresholds for 2013 for social security limits, IRA contributions and the amount your family can give you tax free!  Feel free to contact us for feedback as your review these and how to adjust your tax plan for 2013.

* SOCIAL SECURITY taxable wage limit increases from 2012 limit of $110,100 to $113,700 for 2013. Retirees under
full retirement age can earn up to $15,120 without
losing benefits.

* 401(k) MAXIMUM salary deferral increases from 2012
limit of $17,000 to $17,500. The catch-up limit for
50 and older remains unchanged at $5,500.

* SIMPLE maximum deferral increases from 2012 limit of
$11,500 to $12,000. The catch-up limit for 50 and
older remains unchanged at $2,500.

* IRA CONTRIBUTION limit increases from 2012 limit of
$5,000 to $5,500 ($6,500 for 50 and older).

* HSA CONTRIBUTION limit increases to $3,250 for
individuals and to $6,450 for families.

* KIDDIE TAX threshold increases from 2012 level of
$1,900 to $2,000.

* ANNUAL GIFT TAX EXCLUSION increases from 2012 limit
of $13,000 to $14,000.

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Big Tax Changes Coming. Plan now.

October is the perfect month for tax planning. Enough of the year has passed for you have a good handle on sales, revenue and profits and there is still time to make adjustments to your business to protect your assets and reduce your tax liability.

This year is different!

Don’t have an unexpected tax impact!

The end of 2012 marks the end of some very important Bush-era tax breaks and we can’t assume that all these tax breaks will be extended in 2013.

Here are some of the big changes coming:

1. Federal and state gift tax exemptions

2. The tax brackets will change so more income will be taxed as a higher rate.

3. The accumulated earnings tax increases from 15% to 39.6%.

4. Increase taxes on taxable interest, dividends, annuity income, passive royalties, and rents.

5. Changes to the rate and nature of itemized deductions.

Planning now will allow you to make taxing saving decisions on income and expenses that will be impacted in 2013, including:

1. Accelerating income and deferring expenses

2. Accelerating itemized deductions

3. Reallocating investment portfolios

Every tax situation is unique. At Cook CPA Group we make it a priority to enhance our mastery of the current tax law, complex tax code, and new tax regulations by attending frequent tax seminars.

Businesses and individuals pay the lowest amount of taxes allowable by law because we continually look for ways to minimize your taxes throughout the year, not just at the end of the year.

We recommend Tax Saving Strategies that help you preserve, protect and grow your income. CALL US TODAY (916) 724-1665 for an assessment of your tax situation.

Wondering what will change?  This are some of the changes to look out for:

The tax brackets are set to change.

  • The 10% bracket disappears (the lowest bracket is 15%).
  • The size of the 15% tax bracket for joint filers is smaller (167% rather than 200%) of the 15% tax bracket for individual filers.
  • The top four brackets rise from 25%, 28%, 33% and 35% to 28%, 31%, 36% and 39.6%.

Taxation of capital gains and qualified dividends changeLong-term capital gain is taxed at a maximum rate of 20% (18% for assets held more than five years). For lower-income taxpayers, the maximum rate will be 10% (8% for assets held for more than five years).  Dividends paid to individuals are taxed at the same rates that apply to ordinary income.

Child credit decreases.  The maximum credit drops from $1,000 to $500 and the credit is not allowed against AMT. Also, more restrictive rules apply to the refundable child credit.

Be ready to accelerate income and defer expenses based on what transpires at year end. Significant savings may be possible if tax rates jump in 2013, coupled with the new 3.8% Medicare surtax on investment income. Types of income that will be subject to the surtax include taxable interest, dividends, annuity income, passive royalties, and rents. Consider shifting this income into 2012 and/or implement strategies to reduce net investment income and modified adjusted gross income in 2013 and forward. Look at income acceleration strategies such as gain harvesting, Roth conversions, and retirement distributions.

Consider accelerating itemized deductions into 2012. Itemized deductions may once again be limited in 2013, so accelerating these deductions into 2012 may be prudent.

Assess whether investment portfolios should be reallocated. It may make sense to shift assets between qualified and nonqualified accounts and rethink asset allocation (i.e., growth vs. income stocks, muni bonds, etc.).

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