Individual Tax Projection & Tax Reduction Guide @ W&A 256R North Washington Street Falls Church, VA 22046-3435 Telephone: 703 356-5005 Fax: 703 356-5955 Email: Pete@lowtaxsolutions.com www.lowtaxsolutions.com Dear This is a critical year for tax planning because of the significant changes in tax law we all face. Planning is our passion and we love to use our expertise to save you money via tax savings. We guarantee you will save four times our fee in tax savings or penalty reduction by taking the time to do this planning. We will notify you before we begin if we feel you will not see a benefit worth the effort and charge you nothing. Please note this is not a substitute for the tax preparation information we will need in February of 2014. We will complete the projection with your help and recommend planning actions to reduce your taxes, avoid audit exposure, decrease or eliminate potential penalties and increase personal net worth. The process involves accurate data from you in regard to 2013 income, deductions and credits. To simplify the planning we focus on those items that will change materially, like wages and withholdings. We hold constant those items that will change modestly like real estate taxes. So please review the past year and identify the big changes did you refinance your mortgage, cash in investments or undergo other financial changes? We recommend you review your copy of the 2012 tax returns and review the 2 year comparison to nail down the likely areas of change. If you need another copy please let us know. To start your thinking on tax planning please consider the following: What are your long-term goals for you and your family? If we can free up tax dollars to achieve them they can be realized earlier or easier than you expected. So please share them with us. What challenges do you expect in the coming year or 18 months? How will they impact your cash-flow and tax results? How can we plan to overcome your financial obstacles? Tax law has changed significantly yet again for 2013, all based on income levels: The old Pease limitations are back on itemized deductions and personal exemptions. Capital gains may be taxed at 0%, 15% or 20% depending in income levels. There is a new Medicare surtax on wages (0.9%) and net investment income (3.8%). A more expansive explanation of the more common tax law changes follows at the end of this Guide. Tax information and other ideas are listed on our website at www.lowtaxsolutions.com. The site is for your benefit, so take advantage of it. Please note our office will be closed the week of December 25 th and will re-open January 2, so please call and schedule an appointment now to avoid missing tax saving opportunities for this year and preserve the maximum benefits for the next few years as well. Sincerely, Your tax & accounting team at Wilhelm & Associates, Ltd. 1/12
Name: Individual Tax Projection & Tax Reduction Guide Date: Phone #: (Home) (Office) Email: The following items are needed to prepare an accurate tax projection and allow effective planning. Please send, email or fax this information as soon as possible well before year-end so we can efficiently address your needs and maximize your tax reduction. We recommend you refer to last year's tax return as your starting point. We will assume all numbers are the same as last year unless specifically changed below. The term "you" means the royal you (either you or your spouse). If you check No to a question skip to the next question. Page 6 provides plenty of space for answers and any additional information you wish to impart. A. Background Information 1. Have you been notified we need copies of your prior year tax returns? No Yes If yes, send copies of your prior year Federal and State(s) returns. 2. Will you be over 70½ years old this year? No Yes If yes, do you own IRA or other retirement accounts? No Yes If yes, please provide IRA and other retirement plan distributions made to date this year from each account, the value of the accounts @ 12-31 of last year and the date of birth of you and your spouse. Business and Rental owners. If you own your own business(s) or rental properties please use the Business Tax Projection & Tax Reduction Guide to gather the business and rental information which we will use in conjunction with this Individual Tax Projection & Tax Reduction Guide to assess tax reduction strategies. If you need one please contact our office manager, Lela Lambert. B. Tax Payments Made to Date for the Current Year: 3. Did you pay estimated taxes for this year? No Yes If yes, please recap the payments below: (Other States - please specify) Date Federal State of VA State of? State of? $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ $ 2/12
Name: Individual Tax Projection & Tax Reduction Guide C. Income and Losses: 4. Will you receive, or have you received, wages or pensions or annuities? No Yes If yes please provide a copy of the most recent pay stubs or payment summaries and anticipated bonus and change in regular pay to occur in this year. Please mark on the paystub the pay period it is for and how many pays you will receive in this year (8/12, 20/26, etc.) Be advised withholding amounts are critical information. See page 6. 5. Will you sell, or have you sold, any securities, real estate or other assets this year? No Yes * If yes please provide a copy of the HUD-1 for real estate and descriptions and amounts of sales price and purchase cost for securities. Or, for securities, a summary of capital gain (loss) to date: Long Term $ Short Term $ 6. Did you suffer losses from bad debts, worthless stock, or other investments? No Yes * If yes, please send details so we may determine the amount and type of loss. 7. Do you have any capital or other losses or gains in your personal (not retirement) accounts that you could take if it would reduce your taxes? No Yes * If yes, please send details of the unrealized gains or losses. Potential Gain (loss) Long Term $ Short Term $ * Get this information from your financial advisor. It is important and may save you > $1,000 8. Are you receiving, or considering starting, Social Security benefits this year? No Yes If yes, please estimate the total amount of benefits to be received in this year: Husband $ Wife $ Or Use last year's numbers (increased by the COLA) 9. Are you a partner, LLC member, beneficiary of a trust or S Corporation shareholder? No Yes If yes, please provide the anticipated amount of current year taxable income and other tax items like credits or separately stated income or deductions for each entity. Ask us for assistance if unsure of how to get this information. (Cash distributions are not a good determinate of taxable income). 10. Are there new forms of income or old sources that will change in amount? No Yes If yes, please provide amount(s), description, business form (Sole Prop, S Corp., LLC, etc.) and details regarding the financing of the activities. 11. Do you have any income from states other than the state in which you live? No Yes If yes, provide details. 12. Do you have income from, or ownership in, foreign entities? No Yes If yes, provide details. 3/12
Name: Individual Tax Projection & Tax Reduction Guide D. Deductions: Note: please look at last year s tax return Schedule A for a baseline and write in SALY (Same As Last Year) in the applicable spaces if no changes are expected. 13. Will you itemize deductions? No Yes Total Anticipated If yes, please indicate the amounts below This Year Amount Description Before Limitations Medical RE and Property Taxes Contributions - Cash * Contributions - Property * Miscellaneous 14. Do you, or will you, have a first trust debt on your principal residence? No Yes If yes, deductible mortgage interest from the first trust expected for this year $ 15. Do you, or will you, have additional debt secured by your principal residence? No Yes If yes, deductible mortgage interest from the additional debt expected for this year $ Please note that if the following conditions exist your deductible interest may vary significantly from last year's amount: A refinance, An interest rate adjustment, Payment(s) of extra principal, Principal balance in excess of $1,100,000 in total for all loans secured by the property, or Additional debt like a second trust or equity loan (aka HELOC) where the loan proceeds were used for purposes other than renovations, remodeling, repairs or improvements to the home. Please share the details of all of your interest expense so we may help you determine the amount of deductible interest expense and how to convert nondeductible interest to deductible interest! If you refinanced or took out a new loan secured or unsecured by your principal residence please send us a copy of the HUD-1 form on the refinance. 16. Did you pay interest on debts used for investments or business or personal use? No Yes If yes, please explain and provide the amount of interest expense anticipated for this year for each type of expense separately. 17. Do you have unreimbursed auto expense? No Yes If yes, provide business use percent and vehicle details if different from last year or Use amounts same as last year * please let us know if you are thinking about changing your charitable giving. 4/12
Name: Individual Tax Projection & Tax Reduction Guide E. Dependents: 18. Any change in dependents for this year? No Yes If yes, please explain on a separate sheet of paper referenced to this question number. 19. Do you have children or other dependents with special needs? No Yes If yes, are some of them going to attend, or currently attending private school? No Yes If yes, is a learning disability or other disability a large factor in the chosen school? No Yes If yes, provide the amount of tuition and we will explain the reason and steps needed to possibly obtain a medical deduction. 20. Do you intend to fund an educational savings account (aka 529 plans) for this year? No Yes F. Other Taxes: 21. Do you have domestic employees? No Yes If so, do you know the amount of payroll taxes you may owe? No Yes If yes, $. If no, provide details of amounts paid per quarter and the SUTA reports. G. Credits: 22. Do you think you qualify for any federal or state credits? No Yes Examples are foreign taxes, dependent care expenses, adoption expenses, energy efficiency expenditures, and Virginia conservation credits. Call if questions. If yes, please describe what credits may apply and how you may qualify. H. Retirement Plans and Planning: 23. Do you have a desire to make retirement contributions for this year? No Yes If yes, please provide the maximum amount of contributions you would like to make for this year if the money could be found: Husband $ Wife $ I. Estate and Gift Planning: 24. Do you have a desire to make gifts or take other estate planning actions for this year? No Yes Note the lifetime exclusion for gifts is $5,250,000 in 2013 and may well revert to a smaller amount in future years. Also valuation discounts may not be allowed in future years. 5/12
Name: Individual Tax Projection & Tax Reduction Guide J. Notes and explanations (please refer to the question number): 6/12
Name: Individual Tax Projection & Tax Reduction Guide Wage & Withholding Projection Data - Please complete Section A or B below: A. Salary and Wages - For W&A to calculate from the paystub(s) you provide. Directions: Columns A, B and C refer to separate employers for husband and wife or those who changed jobs or worked multiple jobs during the year. Please provide the information described below for each separate employer paystub (for more paystubs, please make copies of this form): Directions Paystub Please mark the paystub as A, B, C A B C 1. Employer name. 2. Total # of pays you will receive this year. 3. Number of pays received so far this year as reflected on the paystub provided. 4. Amount of bonus included in year-to-date pay. 5. Bonus you anticipate for the rest of the year. 6. Change in pay anticipated. Enter amount & describe: 7. Change in withholding anticipated. Enter amount & describe: 7/12
Individual Tax Projection & Tax Reduction Guide Year-end tax planning could be especially productive this year because timely action could nail down a host of tax breaks that won't be around next year unless Congress acts to extend them, which, at the present time, looks doubtful. These include, for individuals: the option to deduct state and local sales and use taxes instead of state and local income taxes; the above-the-line deduction for qualified higher education expenses; and tax-free distributions by those age 70-1/2 or older from IRAs for charitable purposes. For businesses, tax breaks that are available through the end of this year but won't be around next year unless Congress acts include: 50% bonus firstyear depreciation for most new machinery, equipment and software; an extraordinarily high $500,000 expensing limitation; the research tax credit; and the 15-year write-off for qualified leasehold improvements, qualified restaurant buildings and improvements and qualified retail improvements. High-income-earners have other factors to keep in mind when mapping out year-end plans. For the first time, they have to take into account the 3.8% tax surtax on unearned income and the additional 0.9% Medicare (hospital insurance, or HI) tax that applies to individuals receiving wages with respect to employment in excess of $200,000 ($250,000 for married couples filing jointly and $125,000 for married couples filing separately). The surtax is 3.8% of the lesser of: (1) net investment income (NII), or (2) the excess of modified adjusted gross income (MAGI) over an unindexed threshold amount ($250,000 for joint filers or surviving spouses, $125,000 for a married individual filing a separate return, and $200,000 in any other case). As year-end nears, a taxpayer's approach to minimizing or eliminating the 3.8% surtax will depend on his estimated MAGI and NII for the year. Some taxpayers should consider ways to minimize (e.g., through deferral) additional NII for the balance of the year, others should try to see if they can reduce MAGI other than unearned income, and others should consider ways to minimize both NII and other types of MAGI. The additional Medicare tax may require year-end actions. Employers must withhold the additional Medicare tax from wages in excess of $200,000 regardless of filing status or other income. Self-employed persons must take it into account in figuring estimated tax. There could be situations where an employee may need to have more withheld toward year end to cover the tax. For example, consider an individual who earns $200,000 from one employer during the first half of the year and a like amount from another employer during the balance of the year. He would owe the additional Medicare tax, but there would be no withholding by either employer for the additional Medicare tax since wages from each employer don't exceed $200,000. Also, in determining whether they may need to make adjustments to avoid a penalty for underpayment of estimated tax, individuals also should be mindful that the additional Medicare tax may be overwithheld. This could occur, for example, where only one of two married spouses works and reaches the threshold for the employer to withhold, but the couple's income won't be high enough to actually cause the tax to be owed 8/12
Individual Tax Projection & Tax Reduction Guide Rev. 10-24-1 We have compiled a checklist of additional actions based on current tax rules that may help you save tax dollars if you act before year-end. Not all actions will apply in your particular situation, but you will likely benefit from many of them. We can narrow down the specific actions that you can take once we meet with you to tailor a particular plan. In the meantime, please review the following list and contact us at your earliest convenience so that we can advise you on which tax-saving moves to make: Year-End Tax Planning Moves for Individuals Increase the amount you set aside for next year in your employer's health flexible spending account (FSA) if you set aside too little for this year. If you become eligible to make health savings account (HSA) contributions in December of this year, you can make a full year's worth of deductible HSA contributions for 2013. Realize losses on stock while substantially preserving your investment position. There are several ways this can be done. For example, you can sell the original holding, then buy back the same securities at least 31 days later. It may be advisable for us to meet to discuss year-end trades you should consider making. Postpone income until 2014 and accelerate deductions into 2013 to lower your 2013 tax bill. This strategy may enable you to claim larger deductions, credits, and other tax breaks for 2013 that are phased out over varying levels of adjusted gross income (AGI). These include child tax credits, higher education tax credits, the above-the-line deduction for higher-education expenses, and deductions for student loan interest. Postponing income also is desirable for those taxpayers who anticipate being in a lower tax bracket next year due to changed financial circumstances. Note, however, that in some cases, it may pay to actually accelerate income into 2013. For example, this may be the case where a person's marginal tax rate is much lower this year than it will be next year or where lower income in 2014 will result in a higher tax credit for an individual who plans to purchase health insurance on a health exchange and is eligible for a premium assistance credit. If you believe a Roth IRA is better than a traditional IRA, and want to remain in the market for the long term, consider converting traditional-ira money invested in beaten-down stocks (or mutual funds) into a Roth IRA if eligible to do so. Keep in mind, however, that such a conversion will increase your adjusted gross income for 2013. We have methods to reduce or eliminate the tax on conversions. If you converted assets in a traditional IRA to a Roth IRA earlier in the year, the assets in the Roth IRA account may have declined in value, and if you leave things as-is, you will wind up paying a higher tax than is necessary. You can back out of the transaction by recharacterizing the rollover or conversion, that is, by transferring the converted amount (plus earnings, or minus losses) from the Roth IRA back to a traditional 9/12
Individual Tax Projection & Tax Reduction Guide IRA via a trustee-to-trustee transfer. You can later reconvert to a Roth IRA but within time limits. It may be advantageous to try to arrange with your employer to defer a bonus that may be coming your way until 2014. Consider using a credit card to prepay expenses that can generate deductions for this year. If you expect to owe state and local income taxes when you file your return next year, consider asking your employer to increase withholding of state and local taxes (or pay estimated tax payments of state and local taxes) before year-end to pull the deduction of those taxes into 2013 if doing so won't create an alternative minimum tax (AMT) problem. Take an eligible rollover distribution from a qualified retirement plan before the end of 2013 if you are facing a penalty for underpayment of estimated tax and the increased withholding option is unavailable or won't sufficiently address the problem. Income tax will be withheld from the distribution and will be applied toward the taxes owed for 2013. You can then timely roll over the gross amount of the distribution, as increased by the amount of withheld tax, to a traditional IRA. No part of the distribution will be includible in income for 2013, but the withheld tax will be applied pro rata over the full 2013 tax year to reduce previous underpayments of estimated tax. Estimate the effect of any year-end planning moves on the alternative minimum tax (AMT) for 2013, keeping in mind that many tax breaks allowed for purposes of calculating regular taxes are disallowed for AMT purposes. These include the deduction for state property taxes on your residence, state income taxes (or state sales tax if you elect this deduction option), miscellaneous itemized deductions, and personal exemption deductions. Other deductions, such as for medical expenses, are calculated in a more restrictive way for AMT purposes than for regular tax purposes in the case of a taxpayer who is over age 65 or whose spouse is over age 65 as of the close of the tax year. As a result, in some cases, deductions should not be accelerated. Accelerate big ticket purchases into 2013 in order to assure a deduction for sales taxes on the purchases if you will elect to claim a state and local general sales tax deduction instead of a state and local income tax deduction. Unless Congress acts, this election won't be available after 2013. You may be able to save taxes this year and next by applying a bunching strategy to miscellaneous itemized deductions, medical expenses and other itemized deductions. If you are a homeowner, make energy saving improvements to the residence, such as putting in extra insulation or installing energy saving windows, or an energy efficient heater or air conditioner. You may qualify for a tax credit if the assets are installed in your home before 2014. Unless Congress extends it, the up-to-$4,000 above-the-line deduction for qualified higher education expenses will not be available after 2013. Thus, consider prepaying eligible expenses if doing so will 10/12
Individual Tax Projection & Tax Reduction Guide increase your deduction for qualified higher education expenses. Generally, the deduction is allowed for qualified education expenses paid in 2013 in connection with enrollment at an institution of higher education during 2013 or for an academic period beginning in 2013 or in the first 3 months of 2014. You may want to pay contested taxes to be able to deduct them this year while continuing to contest them next year. You may want to settle an insurance or damage claim in order to maximize your casualty loss deduction this year. Purchase qualified small business stock (QSBS) before the end of this year. There is no tax on gain from the sale of such stock if it is (1) purchased after September 27, 2010 and before January 1, 2014, and (2) held for more than five years. In addition, such sales won't cause AMT preference problems. To qualify for these breaks, the stock must be issued by a regular (C) corporation with total gross assets of $50 million or less, and a number of other technical requirements must be met. Our office can fill you in on the details. If you are age 70-1/2 or older, own IRAs and are thinking of making a charitable gift, consider arranging for the gift to be made directly by the IRA trustee. Such a transfer, if made before year-end, can achieve important tax savings. Take required minimum distributions (RMDs) from your IRA or 401(k) plan (or other employer-sponsored retired plan) if you have reached age 70-1/2. Failure to take a required withdrawal can result in a penalty of 50% of the amount of the RMD not withdrawn. If you turned age 70-1/2 in 2013, you can delay the first required distribution to 2013, but if you do, you will have to take a double distribution in 2014 the amount required for 2013 plus the amount required for 2014. Think twice before delaying 2013 distributions to 2014 bunching income into 2014 might push you into a higher tax bracket or have a detrimental impact on various income tax deductions that are reduced at higher income levels. However, it could be beneficial to take both distributions in 2014 if you will be in a substantially lower bracket that year, for example, because you plan to retire late this year. Make gifts sheltered by the annual gift tax exclusion before the end of the year and thereby save gift and estate taxes. You can give $14,000 in 2013 to each of an unlimited number of individuals but you can't carry over unused exclusions from one year to the next. The transfers also may save family income taxes where income-earning property is given to family members in lower income tax brackets who are not subject to the kiddie tax. Year-End Tax-Planning Moves for Businesses & Business Owners Businesses should consider making expenditures that qualify for the business property expensing option. 11/12
Individual Tax Projection & Tax Reduction Guide For tax years beginning in 2013, the expensing limit is $500,000 and the investment ceiling limit is $2,000,000. And a limited amount of expensing may be claimed for qualified real property. However, unless Congress changes the rules, for tax years beginning in 2014, the dollar limit will drop to $25,000, the beginning-of-phaseout amount will drop to $200,000, and expensing won't be available for qualified real property. The generous dollar ceilings that apply this year mean that many small and medium sized businesses that make timely purchases will be able to currently deduct most if not all their outlays for machinery and equipment. What's more, the expensing deduction is not prorated for the time that the asset is in service during the year. This opens up significant year-end planning opportunities. Businesses also should consider making expenditures that qualify for 50% bonus first year depreciation if bought and placed in service this year. This bonus write-off generally won't be available next year unless Congress acts to extend it. Thus, enterprises planning to purchase new depreciable property this year or the next should try to accelerate their buying plans, if doing so makes sound business sense. Nail down a work opportunity tax credit (WOTC) by hiring qualifying workers (such as certain veterans) before the end of 2013. Under current law, the WOTC won't be available for workers hired after this year. Make qualified research expenses before the end of 2013 to claim a research credit, which won't be available for post-2013 expenditures unless Congress extends the credit. If you are self-employed and haven't done so yet, set up a self-employed retirement plan with our guidance. Depending on your particular situation, you may also want to consider deferring a debt-cancellation event until 2014, and disposing of a passive activity to allow you to deduct suspended losses. If you own an interest in a partnership or S corporation you may need to increase your basis in the entity so you can deduct a loss from it for this year. Or abandon a worthless interest to get an ordinary loss. These are just some of the year-end steps that can be taken to save taxes. We will tailor a particular plan that will work best for you. 12/12