In this year of change, why is tax planning so important? Some tax provisions expired in 2011 and many tax changes are coming in 2013. Both could change your taxes dramatically.
In 2011, the Alternative Minimum Tax (a separate tax calculation) exemption amounts were greatly reduced and the Research & Development Credit expired. This impacts 2012 taxes. Even though Congress could extend these tax provisions (hopefully by Dec. 21), careful consideration should be made to determine if you should pay your real estate taxes before the end of 2012. There may be no tax savings if you pay them before year end.
In 2013, the tax rates and brackets are going up for everyone 3 percent to 5 percent.
Tax cuts expiring in 2012
- 2% Payroll cut
- 50% Bonus depreciation for businesses
New taxes for 2013
- Dividend rates go from 15% to regular tax rate
- Capital gains tax increase from 15% to 20%
- 3.8% Medicare Surtax* (if income is over $200,000 or over $250,000 if married)
- 0.95 on Wages (for wages over $200,000 or over $250,000 if married)
*The new Medicare Surtax is an additional tax of 3.8% on dividends, capital gains, rentals and passive income.
What does this all mean? Unless Congress acts, everyone’s taxes are going up for 2012 and even more in 2013. How can we plan for these increases? For 2012, it may make sense to accelerate income and hold off on deductions if possible. It could save 3 to 5 percent in regular tax and even more for dividend and capital gain income. This is the opposite of regular tax planning – to defer income and take deductions today.
We are all in a position to save taxes with careful planning. Make sure you call your tax advisor before the end of the year. The tax savings could be significant.
— Rene Schaefer is a principal at SVA Certified Public Accountants S.C.
