American Taxpayer Relief Act of 2012 Workshop€¦ · Estate, Gift and GST provisions ... Gotcha...
Transcript of American Taxpayer Relief Act of 2012 Workshop€¦ · Estate, Gift and GST provisions ... Gotcha...
American Taxpayer
Relief Act of 2012
Workshop
John Kilroy, CPA, CFP®
May 14, 2013
Estate, Gift and GST provisions
Individual Income Tax provisions
Trust and Estate Income Tax provisions
Business Income Tax provisions
Other Tax Law Changes Taking Effect in 2013
Are We Done With the Cliff?
Agenda
Estate, Gift and GST provisions
Sunset repeal
“Permanent” extension of exemption at $5 million (adjusted for inflation) – Estate and Gift; GST
2012 $5.12 million ($10.24 million per married couple)
2013 $5.25 million ($10.5 million per married couple)
“Clawback” moot – yea!!!
Tax rate above the exemption
2012 35%
2013 “permanent” change to 40% (this may be the only “change” in the law)
Portability between spouses extended (Estate and Gift)
Deceased Spousal Unused Exclusion Amount (DSUEA) clarified
Election on timely filed return required
DSUEA used “first”
Only from last deceased spouse
State Death Tax deduction continues
Estate, Gift and GST provisions
Heads Up
GST exemption not portable
Planning Opportunity
$130,000 increase in Gift and GST exemption in 2013
Inflation adjustment after 2013
Tax exclusive vs. tax inclusive
Income Tax vs. Estate Tax
Lifetime use of DSUEA
Gotcha
Federal and State Estate Tax could be close to 50%
2012 Gifts
Regret?
Gift Tax returns
Individual Income Tax provisions
Sunset Repeal
“Permanent” Rate Changes (Taxable Income)
Rate 2012 (MFJ) 2013 (MFJ)
10% $0 - $17,400 $0 - $17,850
15% $17,401 - $70,700 $17,851 - $72,500
25% $70,701 - $142,700 $72,501 - $146,400
28% $142,701 – 217,450 $146,401 - $223,050
33% $217,451 - $388,350 $223,051 - $398,350
35% $388,350 + $398,351 - $450,000
39.6% N/A $450,001 +
Marriage
Penalty
Relief
Inflation
Adjustment
After 2013
Individual Income Tax provisions
Qualified Dividend Income (QDI)
Long Term Capital Gain (Investment Assets)
Marginal Tax
Bracket
2012 2013
10% 0% 0%
15% 0% 0%
25% 15% 15%
28% 15% 15%
33% 15% 15%
35% 15% 15%
39.6% N/A 20%
Be careful:
AMT Considerations
may increase actual cost
to possibly 22-27%
Stealth features return
•Phaseout of Itemized
Deductions
•Phaseout of Personal
exemptions
Individual Income Tax provisions
Heads Up
Remember “layering” or “stacking”
Understand filing status
Planning Opportunities
Income shifting
Use tax bracket (acceleration/deferral)
Gotcha
Threshold is taxable income (for this issue)
Underpayment penalty
Individual Income Tax provisions Return of Pease limitation
Itemized Deduction Phaseout
Excludes Medical Expenses; Investment Interest Expense;
Casualty and Theft Losses; Gambling Losses
3% of AGI above threshold, not to exceed 80% of
itemized deductions
2013 threshold (inflation adjustment after 2013)
MFJ and QW $300,000
HH $275,000
Single $250,000
MFS $150,000
Not applicable to AMT
Individual Income Tax provisions
Return of Personal Exemption Phaseout (PEP)
2% of exemption phases out for each $2,500 of
AGI ($1,250 for MFS) above threshold
2013 threshold (inflation adjustment after 2013)
MFJ and QW $300,000
HH $275,000
Single $250,000
MFS $150,000
Remember - No personal exemption allowed for
AMT
Individual Income Tax provisions
Heads Up
Subtract Pease add back for AMT
$125,000 above threshold – no personal exemption
Planning Opportunities
Who can claim exemption?
Timing of itemized deductions
Gotcha
Threshold is AGI (for these issues)
Individual Income Tax provisions – AMT Patch
Marginal rates
AMT Regular
<$78,750 0% 0%–25%
$78,751–$150,000 26% 25%–28%
$150,001–$233,000 32.5% 28%–33%
$233,001–$465,000 35% 33%-35%
>$465,000 28% 35%
2012 married filing jointly taxpayers:
Source: IRS, www.irs.gov
Individual Income Tax provisions – AMT Patch
Marginal rates
AMT Regular
<$80,800 0% 0%–25%
$80,801–$153,900 26% 25%–28%
$153,901–$239,020 32.5% 28%–33%
$239,021–$473,000 35% 33%-39.6%
>$473,000 28% 39.6%
2013 married filing jointly taxpayers:
Individual Income Tax provisions
– AMT Patch Heads Up
AMT Land still exists but is likely shorter
Planning Opportunities
AMT Sweet Spot still exists
Sweeter
Shorter
Gotcha
Most tax preparers and taxpayers don’t understand
AMT
AMT on; AMT off
Individual Income Tax provisions
Extenders through 2013
Above the line deductions:
Up to $4,000 qualified tuition and expenses
Up to $250 out of pocket teacher expenses
Below the line deductions:
State and Local sales tax (in lieu of income tax)
Qualified mortgage insurance premium
Exclusions:
Transit and parking fringe benefit
Principal residence debt forgiveness (reduces basis)
$500 lifetime Energy Credit
Individual Income Tax provisions Qualified Charitable Distribution (QCD) from IRA
Extended through 2013
Same rules for qualification
Options for 2012 QCD:
Actual QCD 1/1 – 11/30/12
QCD from IRA in January 2013
IRA distribution in December 2012 can be given to charity by
1/31/13
Presumably to be disclosed on 2012 1040
“QCD” on line 15 of 1040; No 1099R Code for QCD
Payroll Tax Holiday expires – return to 6.2% employee portion of
OASDI in 2013
AMT Refundable Credit?
Individual Income Tax provisions
Extended through 2017:
Earned Income Tax Credit
American Opportunity Tax Credit
$2,500 maximum; 40% refundable
Enhanced Child Tax Credit
Lower earnings threshold ($3,000) increases opportunity
for credit
Individual Income Tax provisions
“Permanent” extensions:
Child Tax Credit
Adoption Credit/Exclusion for Reimbursed
Adoption Expenses
Child and Dependent Care Credit
Student Loan Interest above the line deduction
Coverdell ESA
Employer Provided Education Assistance
Individual Income Tax provisions
Heads Up
QCD may not be best option
Planning Opportunities
Best use of education options (deduction/credit)
Best taxpayer to use education break (parent/student)
Credits can reduce regular tax and AMT
Gotcha
Not all extenders “permanent”
Lifetime limit on energy credit
Trust and Estate Income Tax
Provisions Rates:
2012
15%, 25%, 28%, 33%, 35%
2013 “Permanent”
15%, 25%, 28%, 33%, 39.6%
Trust and Estate Income Tax
Provisions Heads Up
39.6% bracket at $11,950 taxable income (2013)
Medicare Surtax at $11,950 taxable income (2013)
Planning Opportunities
Fiscal YE for estate of 2012 decedent (up to
11/30/13)
Trustees reviewing distribution options
Gotcha
Beneficiary tax situation
Business Tax Provisions Extension of a host of tax credits through 2013
Extension of immediate deduction opportunities
for qualifying property through 2013
50% Bonus depreciation
$500,000 Section 179 expense
Extension of shorter depreciation period (15 yrs.)
for qualified leasehold/retail improvements;
qualified restaurant property
Extends 100% exclusion for Qualified Small
Business Stock acquired through 12/31/13
C Corp held five years
Business Tax Provisions
Expansion of In Plan Roth Conversions
Removes requirement to otherwise be eligible to take
a distribution from a qualified plan
Qualified Plan must have:
Roth feature
In Plan Roth Conversion option
Remember – In Plan Roth Conversion cannot be
recharacterized
Business Tax Provisions
Heads Up
Section 179/Bonus Depreciation from multiple entities
No loss from immediate expensing
Creditor protection for in plan Roth
Planning Opportunities
Perhaps only Roth conversion opportunity
Use tax bracket
Gotcha
5 year clock
RMD from QP Roth
Other Tax Law Changes Taking
Effect in 2013 Medicare Surtax
3.8% on Net Investment Income
Above MAGI threshold ($200,000/$250,000)
0.9% on Earned Income
Above Earned Income threshold ($200,000/250,000)
Includes Self Employment Income
No above the line deduction for 0.9% tax
Surtax is added to greater of regular tax or AMT
FSA Health - $2,500 maximum
Medical Expense AGI floor increased to 10%
65 and older retain 7.5% floor until 2016
Other Tax Law Changes Taking
Effect in 2013 Heads Up
Definition of “net investment income” (NII)
Either spouse on joint return age 65 – 7.5% AGI floor
Planning Opportunities
FSA Health instead of out of pocket
3.8% Surtax – lesser of NII or MAGI above threshold
3.8% Surtax on; 3.8% Surtax off
Gotcha
3.8% Surtax – MAGI threshold (AGI plus foreign income
exclusion)
0.9% Surtax – AGI threshold (combined earned income MFJ)
Are We Done With the Cliff? Politics aside:
Debt Ceiling
Sequestration
Budget
Other tax possibilities:
Itemized deductions (bucket; cap; rate)
AMT reform
Carried Interest
Corporate Income Tax - May see more C Corp
Estate and Gift Issues
GRATs; Grantor Trusts; Discounts