Individual Tax Planning

Individual Tax Planning

By Douglas S. Ruttenberg

Executive Tax Forum - November 7, 2013


DRAFT COPY OF 2013 FORM 1040 AS OF JULY 26, 2013

//ha-f1/data/Docs Staff/2013/Doug Ruttenberg/Presentations/EXECUTIVE FORUM NOVEMBER 2013/Doug Powerpoint Presentation.pptx#1. Executive Tax Forum Individual Tax Planning


DRAFT COPY OF 2013 FORM 1040 AS OF JULY 26, 2013

High Earners – Challenging Environment

• Higher top income tax rates – Up to 39.6% - Income > $450,000 Married Filing Joint (MFJ)

• Higher top rates for capital gains & dividends of 20% - Income > $450,000 MFJ

• All taxpayers : Return of the 6.2% Social Security Tax for employees or self employed - 2% increase

Executive Tax Forum - November 7, 2013 4

High Earners – Challenging Environment • New .9% payroll tax on wages & self employment income (SEI)

- If combined wages or SEI > $250,000 - Employers required to withhold on wages > $200,000

• New 3.8 % surtax on net investment income

- Income > $250,000 MFJ

• Limits on personal exemptions (PEP)

- Income > $300,000 MFJ

• Limits on itemized deductions (PEASE)

- Income > $300,000 MFJ


Examples: 2013 vs. 2012 Taxes

• Social Security or S/E Tax – Up ~~ $2,300 per max wage base

• Married Couple with $625,000 of Income and $125,000 of Deductions

– Wages $600,000, Dividends 20,000, Interest $5,000

» $5,000 Increase

– Wages $480,000 Dividends 140,000 , Interest $5,000

» $10,000 Increase

– And what if wages were 1,000,000? $47,000 INCREASE

SOME GOOD NEWS - AMT exemption is permanent (?)


What’s a Taxpayer To Do?

Defer income unless expected higher tax bracket in 2014:

• Avoid reaching AGI thresholds

– Triggers higher rates , phase-puts & limitations

- 39.6% rate, 20% cap. gain/dividend rate,

- PEP & PEASE phase-outs

• Delay bonuses

• Delay option recognition

• For business owners, delay billing – watch cash vs. accrual method


Accelerating Deductions (caution)

• Timing charitable contributions

• Enhanced write-off’s for equipment purchases

– 2013 Section 179 Limits for purchase of tangible personal property

• For taxpayers in states with No State Income Tax, accelerate purchases of large ticket items to benefit from itemized deductions of sales tax (Disappears in 2014 unless extended)

• Phase-out of itemized deductions for high-income taxpayers can eliminate some of tax benefit of prepaying


Obstacles with Deferring Income/Accelerating Expenses

• Alternative Minimum Tax might eliminate tax benefits for

regular tax purposes or mitigate effect of PEP & PEASE

• Passive activity limits bar use of losses

• At risk rules may limit deductions


Who Should Accelerate Income/ Defer Expenses?

• Will additional income put you in a higher bracket in 2014?

• If your status as head of household or surviving spouse ends in 2013

- Loss of preferential brackets (unless extended)

• Planning to marry in 2013?

- What is the impact of the marriage penalty?

• Expect to start drawing Social Security in 2014?

- What is the tax impact of higher AGI


Retirement Plan Distributions

• If Aged 70 ½ & Over

– Direct IRA Distributions ≤ 100,000 for Taxpayers to Charity

• Then distribution does not factor into AGI computation

• 2013 is final year for this tax break unless extended

• Qualifies as RMD

• Limit annual payouts from retirement plans to the RMD; keep AGI down (lower ordinary income/cap gains rates, mitigate Medicare surtax, minimize itemized deduction phase-out, etc.); or

• Accelerate if low tax bracket, losses, etc.


Other Considerations

• Medical expenses threshold now 10% of AGI if < 65

• Over 70 ½

– RMD before December 31st

– Beneficiaries of inherited IRA’s

• Consider your options with respect to Social Security & Medicare

• Review your estate plan – Not just a federal tax


Other Considerations

• Gifting

• Is now the time for a Roth Conversion?

• Maximize 2013 retirement plan contributions?

- Consider plan options

• Does D.O.M.A. change your tax situation?

- INCOME TAX, SOCIAL SECURITY, ESTATE TAX

• Foreign filing requirements

- Bank accounts, investments, trusts & estates, gifts, ownership


Individual Tax Planning

Business

Transcript of Individual Tax Planning