where personal attention will never become obsolete! year-end tax planning seminar presented by:...
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Where Personal Attention Will Never Become Obsolete!
Year-End Tax Planning Seminar
Presented By:Walter Deyhle, CPA, CFP
12/07/10
Year-End Tax Planning Seminar
Tonight’s Agenda
• GRF Process• Looking Ahead to 2011• Estate & Gift Tax• Roth IRA• Energy Savings • Health Care Law• Deficit Reduction Commission Report• Questions
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Year-End Tax Planning Seminar
GRF’s Process
• E-filing• CD copies• Portal
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Year-End Tax Planning Seminar
2011
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Year-End Tax Planning Seminar
Rates for the “Rich”: What Could Have Been
• Rich is:• $250,000 MFJ• $200,000 Single
• 35% to 39.5%• 33% to 36% • Capital gains – 20%• Qualified dividend taxes like
ordinary income
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Year-End Tax Planning Seminar
2011 & 2012: What May Be
• President Obama & GOP deal• Current tax rates stay in
effect for 2011 & 2012–35% top tax rate–Capital gains & qualified dividends
taxed at maximum of 15%
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Year-End Tax Planning Seminar
2011 & 2012: What May Be (cont’d)
–Reduced SS tax rate from 6.2% to 4.2% for 2011
– Full expensing of capital investments
–AMT Patch for 2011 & 2012
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Year-End Tax Planning Seminar
Estate & Gift Tax
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Year-End Tax Planning Seminar
Estate Tax Basics
• Unified gift & tax system• No estate tax for taxpayers
dying in 2010• Annual gifting of $13,000• Exclusion for education and
medical payments
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Year-End Tax Planning Seminar
Estate Tax Basics (cont’d)
• Gift tax for gifts exceeding $1 M• With no change in law: 2011 –
estate tax bracket for estates > $1M • Top tax rate of 45%– President Obama and GOP Deal
• 2011 & 2012 – Estate tax for estates>$5M• Top tax rate of 35%
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Year-End Tax Planning Seminar 11
Roth IRA
Year-End Tax Planning Seminar
Convert to a ROTH IRA?
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TRADITIONAL ROTHTax deductible No tax deduction
Qualified distributions taxable
Qualified distributions tax free
Tax deferred growth Tax free growth
Required minimum distribution
No required minimum distribution
Most effective when tax rate lower at retirement
Most effective when tax rate higher at retirement
Year-End Tax Planning Seminar
When To Convert
• Do not need IRA to pay tax• Expect to be in a higher tax
bracket in retirement• Do not need IRA in retirement• Expect to pay estate taxes
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Year-End Tax Planning Seminar
When To Convert (cont’d)
• No required minimum distributions• Pass to heirs• Heirs have required RMD• If conversion occurs in 2010, an
election can be made to report 50% of the income in 2011 and 50% in 2012
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Year-End Tax Planning Seminar
Residential Energy Credit
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Year-End Tax Planning Seminar
Residential Energy Credit
• Removes individual item caps• Increases limit to $1,500 • Increases from 10% to 30%• Prior $500 not counted• For 2009 & 2010 installations• Required energy efficiency
increase
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Year-End Tax Planning Seminar
Health Care Law
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Year-End Tax Planning Seminar
Health Care Law
• 0.9% increase in Medicare tax after 12/31/12 – $200,000/$250,000
• 3.8% increase in tax on investment income after 12/31/12 – $200,000/$250,000
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Year-End Tax Planning Seminar 19
Deficit Reduction Commission Report
Year-End Tax Planning Seminar
Report: Tax Reform
• Lower rates, broaden the bases, and cut spending in tax code
• Cut rates across the board, and reduce the top rate to between 23 and 29 percent
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Year-End Tax Planning Seminar
Report: Tax Reform
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• Simplify key provisions while increasing or maintaining progressivity• Support for low-income workers and families• Mortgage interest only principal residences• Employer-provided health insurance• Charitable giving• Retirement savings and pensions
Year-End Tax Planning Seminar 22
Current Law Illustrative Proposal (Fully Phased In)
Tax rates for Individuals
In 2010, six brackets: 10%|15%|25%|28%|33%|35%
Three brackets: 12%|22%|28%
Alternative Minimum Tax
Scheduled to hit middle-income individuals but “patched” annually
Permanently repealed
Year-End Tax Planning Seminar 23
Current Law Illustrative Proposal (Fully Phased In)
EITC and Child Tax Credit
Partially refundable child tax credit of $1000 per child. Refundable EITC of between $457 and $5,666
Maintain current law or an equivalent alternative
Standard Deduction and Exemptions
Standard deduction of $5,700 ($11,400 for couple) for non-itemizers; personal and dependent exemptions of $3,650
Maintain current law; itemized deductions eliminated, so all individuals take standard deductions
Year-End Tax Planning Seminar 24
Current Law Illustrative Proposal (Fully Phased In)
Capital Gains and Dividends
In 2010, top rate of 15% for capital gains and dividends.
All capital gains and dividends taxed at ordinary income rates1
1 An alternative could be to exclude a portion of capital gains and dividends from income (e.g. 20%), reducing the effective top rate on investment income. To offset this while maintaining progressivity in the code, the top rate on ordinary income would need to be increased.
Year-End Tax Planning Seminar 25
Current Law Illustrative Proposal
(Fully Phased In)
Mortgage Interest
Deductible for itemizers; Mortgage capped at $1 million for principal and second residences, plus an additional $100,000 for home equity
12% non-refundable tax credit available to all taxpayers; Mortgage capped at $500,000; No credit for interest from second residence and equity
Employer Provided Health Care Insurance
Excluded from income. 40% excise tax on high cost plans (generally $27,500 for families) begins in 2018; threshold indexed to inflation
Exclusion capped at 75th percentile of premium levels in 2014, with cap frozen in nominal terms through 2018 and phased out by 2038; Excise tax reduced to 12%
Year-End Tax Planning Seminar 26
Current Law Illustrative Proposal
(Fully Phased In)
Charitable Giving
Deductible for itemizers 12% non-refundable tax credit available to all taxpayers; available above 2% of Adjusted Gross Income (AGI) floor
State and Municipal Bonds
Interest exempt from incomeInterest taxable as income for newly-issued bonds
Year-End Tax Planning Seminar 27
Current Law Illustrative Proposal
(Fully Phased In)
Retirement Multiple retirement account options with different contribution limits; saver’s credit of up to $1,000
Consolidate retirement accounts; cap tax-preferred contributions to lower of $20,000 or 20% of income, expand saver’s credit
Other Tax Expenditures
Over 150 additional tax expenditures
Nearly all other income tax expenditures are eliminated1
1 Under this plan, a few tax expenditures remain, for instance no changes are made to the tax treatment of employer pensions and tax provisions under PPACA largely remain in place. Note that the payroll tax base would remain the same as under current law, though there will be secondary revenue effects on the payroll tax side.
Year-End Tax Planning Seminar
Report: Social Security
• Make retirement benefit formula more progressive
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Year-End Tax Planning Seminar
• Gradually increase early and full retirement age, based on increase to life expectancy
• Increasing the Normal Retirement Age (NRA) to 68 by about 2050
• Increasing the NRA to 69 by about 2075• Increasing the Early Eligibility Age to 63
and 64 in lock step
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Report: Social Security
Year-End Tax Planning Seminar
Report: Social Security
• Gradually increase the taxable maximum to cover 90 percent of wages by 2050
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Year-End Tax Planning Seminar
4550 Montgomery Avenue, Suite 650 NBethesda, MD 20814
301-951-9090 • wdeyhle@grfcpa.com
Where Personal Attention Will Never Become Obsolete!
Questions?
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