Planning for Significant Tax Changes

As a result of the likely expiration of the Bush-era tax provisions and the tax increases included in the Affordable Care Act, tax planning is more important now than ever before. Have you devised a game plan so you can take action before the end of the year?

Over 20 Bush-era tax provisions are set to expire at the end of 2012. If Congress and the President fail to extend all or some of the tax provisions, taxpayers will see significant increases in the income taxes they owe. In addition, the Affordable Care Act adds new taxes on top of your current tax burden. It’s time to evaluate your financial situation and develop a plan to minimize the amount of taxes you owe.

When developing your tax plan, you’ll need to consider the following:

  • Should I make gifts in 2012 to take advantage of the $5 million gift exemption limit before it reverts back to $1 million in 2013?
  • Should I implement a grantor retained annuity trust or plan for likely changes in the estate and income tax treatment of grantor trusts?
  • Should I accelerate income into 2012 to avoid the increasing tax rates and new taxes slated to start in 2013?
  • Should I accelerate itemized deductions into 2012 before itemized deductions limitation returns in 2013?

In the past deferring income to future years was the more likely strategy, but with the return of higher tax rate tiers, the elimination of favorable capital gain treatment, and the new taxes included in the Affordable Care Act that become effective in 2013, it will likely be more beneficial to pay your taxes sooner than later.

Consider the new taxes and tax provisions that take effect in 2013 as a result of the Affordable Care Act:

  • The threshold for itemizing medical expenses increases from 7.5% of Adjusted Gross Income (AGI) to 10% of AGI;
  • The employee portion of the Medicare hospital insurance tax part of FICA is increased by 0.9%;
  • The maximum amount available for reimbursement under a health flexible spending arrangement can no longer exceed $2,500;
  • A new Medicare tax on investment income of 3.8%; and
  • A new excise tax of 2.3% on medical device sales.

With so many adverse tax changes on the horizon, don’t be caught off-guard. Contact Flexible Accounting Services of the Triangle today to review your financial situation and to assist you in developing your tax plan.