With the recently “upheld” Health Care Reform Act (HCA) and the “Bush Tax Cuts” (BTC) expiring, we are expecting some big tax changes for 2013. This presents some tax planning opportunities that you can be used to minimize the overall tax outlay. In this blog series, we are going to discuss the tax changes and identify some actions that you can take to avoid paying too much in taxes.
Increased Individual Tax Rates (expiration of BTC).
- The individual tax rates currently range from 10% to 35%. With the expiration of the BTC, the new tax rates will revert back to a range of 15% to 39.6%.
Increased Long-Term Capital Gains Tax Rates (expiration of BTC).
- The long-term capital gain tax rates currently are 15% (0% and 5% for some low income taxpayers). With the expiration of the BTC, the new tax rates will revert back to 20%.
Estate and Gift Tax Exemptions Reduced (expiration of BTC).
- The current estate and gift tax exemptions are $5.12 million with a 45% top tax rate. With the expiration of the BTC, the new exemption amounts will revert back to $1.0 million and with a top tax rate of 55%.
Social Security “holiday” for employees and self employed (expiration of stimulus bill).
- For 2011 and for 2012 we have had a stimulus bill in place to put more money into employees and self employed taxpayer’s pockets. The reduced withholding on employees from 6.2% to 4.2% will expire on December 31, 2012.
Planning Opportunities that you may consider for 2012 and 2013:
- Timing of income recognition and use of deductions.
- Consideration of effects of like-kind tax deferred exchanges.
- Gift planning opportunities to avoid paying estate taxes (especially in Oregon).
- Conversion of IRA’s or qualified plans to Roth IRA’s.
- Timing of Stock Option exercise.
- Update of Wills, Trusts and Estate Plan.
We will be following up this Blog Series in a few weeks with additional tax changes from the HCA and the BTC that will likely affect you. Knowing about them ahead of time gives you the opportunity to minimize the effect of these law changes.