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