Critical Tax Planning Advice

An unprecedented number of tax law changes will occur in 2013 due to the expiration of numerous tax provisions and the implementation of new taxes. Do you know what scheduled changes are currently looming in 2013?

If Congress and the President fail to extend, enact or repeal any tax provisions before the end of the year, individuals and small businesses will need to plan for the following major tax changes:

  • Expiring provisions related to individuals: Income tax rates will increase to a maximum of 39.6%, long-term capital gains rates will increase to 20%, and the qualified dividend rate will increase from 15% to as much as 39.6%.
  • Expiring provisions related to small businesses: Section 179 expense will decrease to $25,000, and the 50% bonus depreciation provision will expire.
  • Expiring provisions related to estate and gift taxes: The estate and gift tax exemption decreases from $5.12 million to $1 million, and estates with assets greater than the $1 million exemption will see tax rates increase.
  • New provisions from the Affordable Care Act: Two new Medicare surtaxes will be assessed; a 3.8% tax on net investment income and a 0.9% tax on earned income of high income earners.

If rates rise as indicated above, individuals will need to consider accelerating income, deferring losses and deductions, and harvesting gains in their investment portfolios.

Closely-held C and S corporations with earnings and profits need to seriously consider declaring and paying a dividend by year end, and partnerships and limited liability companies should consider utilizing the S corporation election. Additionally, all businesses will need to consider whether or not to purchase tangible personal property before year end to take advantage of a higher Section 179 deduction and bonus depreciation.

Taxpayers also need to consider making any significant gifts they have been contemplating before the end of 2012 before the gift tax exemption decreases and the tax rate increases from 35% to 55%.

Due to all of the uncertainty about the tax provisions, it is critical to develop several tax plans. Contact Flexible Accounting Services of the Triangle to discuss your alternatives and how to implement the most effective strategies to reach your individual and small business goals.