Tax Planning for 2012

1. Tax Planning for 2012 By Olga Siazon

2. TAX TALKMaximizing Tax Deductions I.DEDUCTIONS (Support documents strictly necessary to be able to claim deductions) i FORM 1040/1040A deductions: -Moving Expenses ( only job related ) -Alimony (for the payer) -IRA contribution (use your refund to fund your IRA contribution) -Health Saving Account (HSA) contribution for medical expenses -Student loan interest ( 1098-E) -Penalty on early withdrawal of savings (shown in 1099-INT) -Self-employed health insurance deduction -Self-employed SEP, SIMPLE, and qualified plans

3. Maximizing Tax Deductions ii Itemized Deductions: -Medical Expenses over 7.5% of AGI (Adjusted Gross Income) You can deduct a Long-Term Care insurance for a relative -Mortgage Interest & points (purchase/refinance) -Points not reported on 1098 (HUD form: Loan Origination Fee/Loan Charges/Loan Discount or Discount points) -Prepayment Penalty - mortgage paid off early -Contributions - Cash or Non-Cash to a qualified charitable organizations (IRS website - Pub 78) - Contribution in excess of AGI - carryover for 5 years -Casualty & Theft & Losses ( report in the year occurred ) -Only amount not covered by the insurance

4. Miscellaneous Deductions iii Miscellaneous Deductions subject to 2% of AGI: -Unreimbursed employee expenses ( uniforms/union dues, physical examination; professional permits & licenses, subscription to professional journals, safety equipment, small tools, educational expenses (not for a degree), cost for job hunting, etc.) -Legal Fees - related to producing or collecting taxable income or tax advice -Tax preparation fees -Loss on Deposit when financial institutions becomes insolvent or bankrupt - See handout for additional items iv Miscellaneous Deductions not subject to 2% -Gambling Losses up to the Gambling Winnings -Impairment-Related Work expenses -for employees who have disabilities

5. Tax Tips • TAX TIPS: - Child as your Employee -Hire your child who is below 18 in your business and pay no FICA & FUTA taxes for as long as: -you pay your child less than the standard deduction of $5,950 (2012 dollar threshold) - your child has no other earnings more than $950 in unearned income (Only for sole proprietorship and husband and wife partnership type of business) - Vacation Home -Vacation Home rented less than 15 days are non-taxable and expenses are not deductible - Securities -Sell long-term securities in 2012. Capital gain tax rate will go from the 15% to 20% in 2013 - Filing Status -Change "Married Filing Joint" filing status to "Married Filing Separate" if you have high medical expenses

6. Tax Tips -Fresh Start Initiative -TP owes IRS less than $50K can set up an "Installment Payment Agreement" online, no financial statement needed to qualify -Offer In Compromise (OIC) -Agreement between IRS & TP that settles the TP's tax liabilities for less than the full amount (IRS looks at the income and assets as their basis of approval) -IRS Penalties for abatement -Reasonable Cause : death, serious illness, unavoidable Absence, casualty, natural disaster, unknown record, undue hardship

7. Tax Tips Items that do not have to be included as taxable income: -Adoption expense reimbursements for qualifying expenses -Child support payments -Gifts, bequests and inheritances - Workers' compensation benefits (some exceptions may apply; see Publication 525, Taxable and Nontaxable Income) - Meals and lodging for the convenience of your employer -Compensatory damages awarded for physical injury or physical sickness - Welfare benefits - Cash rebates from a dealer or manufacturer - Keep tax records for 3 years

8. 2012 Updates • 2012 Tax Updates -The maximum term of the Installment Agreement has been raised from 60 months to 72 months. - Social Security withholding rate stays @ 4.2% - Business mileage .555 cents/mile - Foreign Financial Asset Reporting - Assets over $100K - Penalty for not reporting - $10K - Expired Tax Benefits: - Mortgage Insurance premium - Deduction of state & local sales taxes - Tuition & Fees - Educator Expenses - American Opportunity Credit

9. Tax Planning IV Tax Planning -Adjust your withholding (W-4) - use IRS & FTB calculators in the website ( www.irs.gov & www.ftb.ca.gov) - additional withholding deduction on W-4, line 6 -Setup an "Estimate Tax Payment" if you expect additional income -Review your Itemize deductions (fill in what is missing) -Review your paycheck for your YTD taxes withheld amount -Document missing can be requested online (www.irs.gov) in a form of a transcript

10. 2013 Changes • FYI for 2013 -Medical expenses deduction rate in Schedule A will increase from 7.5% to 10% -7.5% rate will continue to apply for those age 65 and above -Healthcare legislation on Medicare tax of 3.8% for investment properties sold starting 2013 for Singles w/ AGI $200K; Married AGI $250K -Medicare surtax - additional medicare tax of .9% applies to compensation over $200K for Single; $250K for MFJ; $125K MFS -Maximum tax rate for Net Long-Term capital gain will increase from 15% to 20% ( 0% to 10% for low-income investors) -Ordinary income tax rates will be adjusted upward 33% to 35%; and 36% to 39% -Hope Education Credit returns in 2013 -Child Tax Credit decrease- from $1,000 to $500/child

11. 2012 Tax Tables V. Tax Table for 2012 (incomplete & issubject to change) Personal Exemption - $3,800/person Standard Deductions: Single/MFS $5,950 MFJ or QW $11,900 HOH $8,700 Additional Deductions for age 65 & over and/or blind MFJ,QW, or MFS $1,150 Single or HOH $1,450 IRA/401-K, SEP, and other retirement contributions amounts - not yet available

12. References References: www.irs.gov - Internal Revenue Service www.ftb.ca.gov - Franchise Tax Board www.TaxpayerAdvocate.irs.gov www.RetirementPlans.irs.gov Tax Advocate Service 1-877-777-4778. can help you understand your rights as a TP Follow up your refunds (800) 829-1954 Pub 17 - General Tax Guide Last reference is - yours truly – Olga Siazon -www.mytaxacct.com Call (707) 333-5415