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 change. Long-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.).