2013 YEAR-END TAX PLANNING

Transcription

1 2013 YEAR-END TAX PLANNING Sponsored by: Presented by: James J. Holtzman, CFP, CPA

2 James J. Holtzman, CFP, CPA James J. Holtzman, CFP, CPA is an Wealth Manager and Shareholder with Legend Financial Advisors, Inc. (Legend) Jim has been selected two consecutive times by Medical Economics as one of The 150 Best Financial Advisors for Doctors in America. Jim serves as the firm s Income Tax and Education Funding and Planning Specialist. Jim s previous professional experience includes employment with various CPA and Financial Advisory organizations where he provided tax, accounting, auditing and financial consulting services to individuals and businesses. Jim s areas of concentration include income tax planning, estate planning, stock option exercise planning, insurance, retirement planning and Section 529 Plans. Jim is a member of the Pennsylvania and American Institute of Certified Public Accountants. He is also a graduate of the Pittsburgh Leadership Development Initiative, which provides young leaders with the tools necessary to affect positive change in the Pittsburgh region, and Pittsburgh Leadership Onboard Programs. Jim also serves on the LaRoche College Board of Governors, is a member of Pittsburgh Cares, and is a former member of the Finance Committee for the Pittsburgh Downtown Partnership. Jim has been quoted in The Wall Street Journal, The Wall Street Journal Online, MSN Money, CBS Marketwatch, Pittsburgh Post-Gazette, Bloomberg Wealth Manager, Financial Planning Magazine, Financial Advisor Magazine, National Underwriter, Smart Money, Investment News, Physician s Personal Advisory, and in Bottom Line Personal. Jim has been interviewed on CNNfn s Your Money and Business Unusual, as well as WPXI-TV s Our Region s Business television programs.

3 ORDINARY INCOME TAX RATES

4 MISCELLANEOUS UPDATES FOR 2013 a. Standard Deduction: a. $12, Married Filing Joint b. $6, Single b. Additional Standard Deduction For Age 65 Or Blind: a. $1, Married Filing Joint b. $1, Single c. Personal Exemption: $3,900.00

5 LONG-TERM CAPITAL GAIN TAX RATE a.currently 20.0% To The Extent That A Taxpayer s Taxable Income Exceeds The Thresholds Set For The 39.6% Ordinary Income Tax Rate. b. All Other Tax Rates Stay At 15.0%.

6 QUALIFIED DIVIDENDS a.currently 20.0% To The Extent That A Taxpayer s Taxable Income Exceeds The Thresholds Set For The 39.6% Ordinary Income Tax Rate. b.all Other Tax Rates Stay At 15.0%.

7 ZERO PERCENT CAPITAL GAIN TAX RATE Will Still Apply For Taxpayers Below The 15.0% Ordinary Income Tax Bracket.

8 EXCHANGE-TRADED FUNDS: TAXATION ETFs structured as Limited Partnerships ETFs that hold futures contracts must be structured as L.P. s All gains passed on to limited partners, the shareholders 60% of gains taxed as long-term capital gains, 40% taxed as short-term capital gains each year K-1 ETFs that invest in foreign currencies All gains from foreign currency exposure, regardless of investment vehicle, are considered debt, and thus taxed as ordinary income by the IRS. ETFs structured as trusts that own physical precious metals Example: SPDR Gold Shares (GLD) The physical commodities such as gold and silver are viewed as collectibles and are taxed at a higher rate (28%). SOURCE: LEGEND FINANCIAL ADVISORS, INC. COPYRIGHT 2012 LEGEND FINANCIAL ADVISORS, INC. REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.

9 ALTERNATIVE MININUM TAX PATCH a. AMT Exemption Is Increased: $78, For Married Filing Joint And $50, For Single Filers. b. Permanent Fix. c. AMT Exemption Will Be Inflation-Adjusted Annually.

10 ITEMIZED DEDUCTION LIMITATION a.reduces The Amount Of Deductions You Can Take By 3% Of Adjusted Gross Income (AGI) Above The Following Thresholds: a.$300, Adjusted Gross Income For Married Filing Joint. b.$250, Adjusted Gross Income For Single Filers. b.inflation-adjusted Going Forward. c.cannot Lose More Than 80% Of The Affected Itemized Deductions. d.deductions Impacted: Mortgage Interest, Charitable Deductions, State and Local Income Tax Payments.

11 PERSONAL EXEMPTION DEDUCTION LIMITATION a.the Value Of Each Personal Exemption Is Reduced From Its Full Value By 2 Percent For Each $2,500 Above The Above Specified Income Thresholds. b.beginning At $300, Adjusted Gross Income For Married Filing Joint. c.beginning At $250, Adjusted Gross Income For Single Filers. d. Inflation-Adjusted Going Forward.

12 PRE-TAX SECTION 401(k), 403(b), 457(b) PLANS If Possible, Make An Adjustment To Your Withholding To Increase Your Pre-tax Retirement Contribution Maximum Contribution Limit For Everyone Under The Age Of 50: $17, Catch-up Contribution Limit For Everyone Over The Age Of 50: $5,500.00

13 3 Types Of IRAs 1. Deductible IRA IRA CONTRIBUTIONS 2. Non-deductible IRA (Everyone With Earned Income Can Make This Kind Of IRA Contribution) 3. Roth IRA 2013 Deadline To Make Contribution Is: April 15, IRA Contribution Limit: $5, IRA Catch-up Contribution Limit: $1,000.00

14 INDIVIDUAL 401(k) PLAN For Self-employed Individuals, This Needs To Be Established By 12/31/13. Contribution Deadline: 04/15/14 Typically Provides For A Higher Contribution Than Sep IRA Contribute Up To 100% Of The First $17, ($23, If Age 50+) Of Net Self-employment Income 2013 Maximum Contribution Limit For Everyone Under The Age Of 50: $17, Catch-up Contribution Limit For Everyone Over The Age Of 50: $5,500.00

15 SEP IRA Can Be Established Before 04/15/14 For 2013 Tax Year Contribution Deadline Is 04/15/14 For 2013 Tax Year SOURCE: LEGEND FINANCIAL ADVISORS, INC. COPYRIGHT 2012 LEGEND FINANCIAL ADVISORS, INC. REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.

16 ROTH IRA CONVERSIONS No Modified Adjusted Gross Income Limits. Earnings May Be Withdrawn Without Tax Or Penalty If The Taxpayer Is At Least 59 ½ And Has Held The Roth IRA Account For At Least Five Years. Not Subject To The Required Minimum Distribution Rules. Must Pay Ordinary Federal Income Taxes On The Converted Amount. The Payment Of The Federal Income Taxes Should Be Done With Non-IRA Assets.

17 ROTH IRA CONVERSIONS (Continued) The Tax-free Status Of The Roth IRA Can Be Passed To A Beneficiary And The Beneficiary Will Not Have To Pay Income Tax On Any Distributions. A Taxpayer Can Undo The Roth IRA Conversion By Completing A Roth IRA Recharacterization And The Deadline Is Your Tax-filing Deadline Plus Extensions.

18 RETIREMENT PLAN ROTH CONVERSIONS a.old Law Only Allowed Roth 401(k) Conversion For Plans That Were Eligible To Take A Distribution From The Plan, I.E. Age 59 ½, Death, Disabled, Separated From Service Or Allowed To Take In-Service Withdrawals. b. New Law Allows 401(k) Plan Participants To Convert Pre- Tax Salary Into A Post-Tax Roth 401(k). c. Employer Plan Must Offer In-Plan Roth Conversion Features.

19 BUYING MUTUAL FUNDS BEFORE YEAR-END CAPITAL GAIN DISTRIBUTIONS Be Aware Of Buying A Mutual Fund In A Taxable Account Before The Mutual Fund Pays Their Year-End Capital Gain Distribution.

20 MEDICAL EXPENSE OPPORTUNITIES Make Sure That You Provide Your Accountant With All Medical Insurance Premiums And Non-reimbursed Medical Expenses. Medicare Part B, Medicare Part D, And Medigap Insurance Premiums Can Add Up Quickly And You Might Be Eligible To Deduct A Portion Of These Expenses, Along With Other Non-reimbursed Medical Expenses. The Adjusted Gross Income Floor For Itemizing Medical Expenses Will Increase From 7.5% To 10.0% Of Adjusted Gross Income In 2013.

21 MORTGAGE INSURANCE PREMIUM DEDUCTION Extended For 2013.

22 STATE AND LOCAL SALES TAX DEDUCTION Extended For 2013.

23 ADDITIONAL MEDICARE TAX ON WAGES Implemented In Single Filers Subject Once Wages Are More Than $200, Married Filing Joint Filers Subject Once Wages Are More Than $250, Tax Rate:.90% This Added Tax Falls Only On The Employee, Even Though The Employer Continues To Pay Half The Base Rate Of 2.9%. Self-employed Individuals Will Be Liable For An Additional Tax Of.90% Of Their Self- Employment Income To The Extent It Exceeds The Relevant Threshold Amount.

24 ADDITIONAL MEDICARE TAX ON WAGE EXAMPLE EXAMPLE: Single Individual Salary: $250, The tax would apply to: a. Wages Exceeding the threshold amount ($200,000.00), or $50, a. Tax Calculation:.90% of $50, = $ SOURCE: LEGEND FINANCIAL ADVISORS, INC. COPYRIGHT 2012 LEGEND FINANCIAL ADVISORS, INC. REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.

25 MEDICARE TAX ON UNEARNED INCOME Implemented in Single filers subject once Modified Adjusted Gross Income (AGI) is more than $200, Married filers subject once Modified AGI is more than $250, Tax Rate: 3.8%. Tax applies to whichever is less: your net investment income or the amount that your Modified AGI exceeds the high-income threshold. Unearned income defined: Capital Gains Interest Dividends Rental Income Passive Investor SOURCE: LEGEND FINANCIAL ADVISORS, INC. COPYRIGHT 2012 LEGEND FINANCIAL ADVISORS, INC. REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.

26 MEDICARE TAX ON UNEARNED INCOME EXAMPLE EXAMPLE: Single Individual Modified AGI: $220, Net Investment Income: $40, The tax would apply to the lesser of: a. Net Investment Income: $40, or a. Modified AGI ($220,000.00) over the threshold amount ($200,000.00), or $20, a. Tax Calculation: 3.8% of $20, = $ SOURCE: LEGEND FINANCIAL ADVISORS, INC. COPYRIGHT 2012 LEGEND FINANCIAL ADVISORS, INC. REPRINTED WITH PERMISSION OF LEGEND FINANCIAL ADVISORS, INC.

27 TAKE YOUR REQUIRED MINIMUM DISTRIBUTIONS BEFORE YEAR-END 2 types of required minimum distributions 1. Age 70 ½ 2. Beneficiary IRA 50% federal penalty of the amount not withdrawn that is required.

28 IRA DISTRIBUTION TO CHARITY A Tax-free Transfer Of Up To $100, To Charity By Taxpayers Over The Age Of 70 ½ Is Extended Through 2013.

29 EDUCATION PLANNING Pennsylvania Allows An Income Tax Deduction For A Section 529 Plan Contribution To Any State's Plan Up To $14, Per Person.

30 EMPLOYER-PROVIDED EDUCATION ASSISTANCE Exclusion From Income For Employer-Provided Education Assistance Of Up To $5, Is Permanent.

31 COVERDELL EDUCATION SAVINGS ACCOUNT a.maximum Contribution Is Permanently Set At $2, b.will Also Include Tax-Free Treatment Of Elementary And Secondary School Expenses.

32 American Opportunity Tax Credit a. Five-Year Extension. b. $2, Credit c. Per Child d. Undergraduate e. More Advantageous Than Hope Credit

33 QUALIFIED TUITION AND RELATED EXPENSE DEDUCTION a. $4, Deduction Is Extended Through b. Above-The-Line Deduction. c. Modified Adjusted Gross Income Limits.

34 STUDENT LOAN INTEREST DEDUCTION a. 60-Month Limit For Deducting $2, Of Interest Expense Is Permanently Eliminated. b. Adjusted Gross Income Range Was Also Expanded.

35 HEALTH SAVINGS ACCOUNT (HSA) An Account Created For An Individual Who Is Covered Under A High Deductible Health Insurance Plan. Tax Benefits 1. Pre-tax Deductions 2. Tax Deferred Earnings 3. Tax Free Withdrawal If Used For Covered Medical Expenses Contribution Limits 1. Family: $6, Plus Catch Up Of $1, Single: $3, Plus Catch Up Of $1,000.00

36 HEALTH SAVINGS ACCOUNT (CONTINUED) Minimum Deductible Requirement For A High Deductible Health Insurance Plan 1. Family: $2, Individual: $1, Maximum Out-of-pocket 1. Family: $12, Individual: $6,250.00

37 COST BASIS REPORTING FROM BROKERAGE FIRMS Brokerage Firms Have To Report Cost Basis For Stocks Bought On Or After January 1, Brokerage Firms Have To Report Cost Basis For Mutual Funds Bought On Or After January 1, On January 1, 2013, Brokerage Firms Must Report Cost Basis For Options, Fixed Income, And Any Security Not Covered In Previous Tax Years. IRS Form 1099-B Will Is Used To Report Cost Basis And Will Reflect Short-term Or Long-term Capital Gain.

38 FEDERAL ESTIMATED TAX PAYMENTS Avoid Underpayment Penalty 2 Tests To Avoid Underpayment Penalty Pay The Lesser Of: 90% Of Current Year s Tax On A Quarterly Basis Or, Pay 100% Of Last Year s Tax On A Quarterly Basis Use Withholding To Avoid Underpayment Penalty.

39 Utilize Your Capital Loss Carryovers In Future Years When Tax Rates Are Higher (They Are Worth More When Tax Rates Are Higher).

40 KIDDIE TAX a. Tax applied to unearned income earned by children under the age of 19 and college students under the age of 24. b. If child has enough earned income to provide greater than half of his/her support, the unearned income would be taxed at the child s rates. c. The order of how unearned income is taxed: a. First $1, of unearned income is offset by $1, standard deduction. b. Next $1, of unearned income will be taxed at the child s tax rate. c. Unearned income in excess of $2, is taxed at the parent s tax rate.

41 INCOME ACCELERATION IDEAS a. Accelerate Bonus Before Year-end b. Exercise Stock Options c. Sell Assets With Significant Unrealized Capital Gains d. Roth IRA Conversion e. Take IRA Distributions

42 DEDUCTION DEFERRALS a. Pay 2013 Fourth Quarter State And Local Estimated Income Tax Payments In 2014 b. Medical Expenses c. Charitable Contributions d. December Mortgage Payment In January, 2014.

43 GIFTING APPRECIATED SHARES OF AN INVESTMENT Strategy for avoiding capital gains on significant appreciated investments. Most commonly completed to charities and to family members, especially children in order to take advantages of low tax rates. Kiddie tax concerns for children under the age of 19 or under the age of 24 if a full-time student. Be aware of annual gifting limits to an individual ($14, in 2013).

44 ENERGY CREDIT FOR INDIVIDUALS a. Available For Individuals That Make Energy Efficiency Improvements To Their Existing Residence For b.lifetime Credit Limit Is $

45 CHILD AND DEPENDENT CARE CREDIT a. 35.0% Credit Rate Is Permanent. b. $3, Cap On Expenses For One Qualifying Child And $6, Of Two Or More Qualifying Children Is Permanent.

46 ADOPTION CREDIT Permanent Extension Of Enhancements To Adoption Credit And Income Exclusion For Employer-Paid Or Reimbursed Adoption Expenses Up To $10,

47 CHILD TAX CREDIT a. Permanent $1, Credit. b. Modified Adjusted Gross Income Limitations.

48 EXCLUSION OF CANCELLATION OF INDEBTEDNESS ON PRINCIPAL RESIDENCE The Exclusion From Income For Cancellation Of Mortgage Debt Up To $2 Million On A Principal Residence Has Been Extended Through 2013.

49 SECTION 179 SMALL BUSINESS EXPENSING For 2013, Section 179 Depreciation Deduction Will Have A $500, Allowance And $2,000, Investment Limit.

50 BONUS DEPRECIATION For 2013, Bonus Depreciation Of 50.0% Will Be Available. This is in addition to Section 179 Depreciation and Normal First-Year Depreciation.

51 OTHER YEAR-END FINANCIAL PLANNING CONSIDERATIONS Reevaluate Portfolio Risk Property And Casualty Insurance Life Insurance Disability Insurance Long-term Care Insurance Refinance Identify Theft 1. Credit Monitoring Service 2. Protect Your Documents Estate Planning 1. Review Beneficiary Designations

52 QUESTIONS AND ANSWERS

53 CONTACT US Legend Financial Advisors, Inc Corporate Drive, Suite 350 Pittsburgh, PA Phone: (412) EmergingWealth Investment 5700 Corporate Drive, Suite 360 Pittsburgh, PA Phone: (412)