Presentation Transcript

1. Tax Saving Strategiesfor the 2012 Filing Season

   Updated Dec.12, 2011
2. Select 2011 Tax Law Changes 2011 tax changes less drastic than 2010 One wide-ranging change – replacement of Making Work Pay Credit
3. Expiring Provisions Increased Alternative Minimum Tax (AMT) Exemption Amounts State/Local Sales Tax Deduction Mortgage Insurance Premiums Deduction School Teacher Expenses Qualified Charitable Distributions from IRAs
4. Standard Deduction Standard Deduction Additions Itemizing Deductions Charitable Deductions Alternative Minimum Tax (AMT) AMT Exemption Amounts The Basics
5. Standard Deduction
6. Additional standard deduction for taxpayers age 65 and older or blind: $1,450 (single or head of household) $1,150 (married filing jointly, married filing separately or qualifying widow/er) Standard Deduction Additions
7. Alternative to standard deduction Use when total itemized deductions exceed standard deduction Wide range of itemized deductions No phaseout rules Bunching tax breaks AMT consideration Benefits of advance planning Itemizing Deductions
8. Qualified donations only Deductible up to 50% of AGI (for itemizers) Documentation requirements Donations of more than $75 and $250 or more (additional substantiation rules) Donations of appreciated property Clothing, household items and automobiles (requirements and substantiation rules) Charitable Deductions
9. Alternative Minimum Tax (AMT) Additional tax for certain taxpayers AMT triggers: Higher-than-average dependency exemptions Large deductions for state and local income taxes High real estate taxes Miscellaneous itemized deductions and medical expenses
10. AMT Exemption Amounts Exemption amounts:  Single $48,450 Married/Filing jointly $74,450 Phaseout when AMT income exceeds:  $112,500 (single) $150,000 (married filing jointly)
11. Family Education Job Home Investments Retirement Tax Strategies & Incentives
12. Kiddie Tax Child Tax Credit Adoption Credit Health Savings Accounts Health Flexible Spending Arrangements Dependent Care Tax Credit Long-term Care Premium Shifting Income Family Tax Incentives
13. Income shifting to children less beneficial $1,900 investment income threshold Exception if parents deceased Applies to: All children younger than age 18 Most children who are age 18 Most full-time students between ages 19-23 Child who is married filing separately Kiddie Tax
14. $1,000 credit per qualifying child Child: Under age 17 Qualified dependent U.S. citizen, resident or national Child Tax Credit
15. Up to $13,360 per eligible child Employer reimbursement of up to $13,360 Different rules for U.S. and foreign adoptions Special-needs child – full credit regardless of actual expenses Adoption Credit
16. Health Savings Accounts Individuals covered Tax advantages – contributions, earnings and withdrawals Consequences of non-qualified withdrawals
17. Health Flexible Spending Arrangements Tax-free contributions from wages Fully accessible for qualified medical expenses Wide range of reimbursable medical expenses (non-prescription drugs, except insulin, not reimbursable in 2011) Terms and limits determined by company plan Use or lose feature
18. Dependent Care Tax Credit Child must be under age 13 and a dependent 20% to 35% of qualifying expenses (up to $2,100) AGI factor Earned income requirement and joint return if married Up to $3,000 of expenses ($6,000 if two or more dependents) Reduced by certain employer-provided day care ($5,000/$2,500 limits) Applicable to other dependents
19. Long-term Care Premium Tax deduction for portion of insurance costs Age-based deduction amounts:  Age 40 or under - $340 Age 41 to 50 - $640 Age 51 to 60 - $1,270 Age 61 to 70 - $3,390 Age 71 or over - $4,240
20. Shifting Income Kiddie tax Gift tax: Up to $13,000 not subject to gift tax ($26,000 if election by spouse/use other spouse’s exclusion) Cash gifts and present interests in property requirement Family business (hiring your minor children): Legitimate work, adherence to rules/laws and reasonable wages Social Security and Medicare tax advantages if under age18 Kiddie Tax not applicable
21. Education Strategies Tax Credits American Opportunity Tax Credit Lifetime Learning Credit Student Loan Deduction Higher Education Tuition and Fees Deduction Qualified Tuition Programs (529 Plans) Prepaid Tuition Plans U.S. Savings Bonds
22. American Opportunity Tax Credit and Lifetime Learning Credit Credit vs. deduction Mutually exclusive credits in certain circumstances Tax Credits
23. American Opportunity Tax Credit Applies to first four years of college/postsecondary school Recognized educational credential requirement $2,500 per student per year maximum Qualified tuition and related expenses Allowed against AMT *MAGI
24. Lifetime Learning Credit Worth up to $2,000 per year Not limited to any number of years Applies to undergraduate, graduate and professional-degree expenses Available to each taxpayer – not each student No educational-credential requirement *Pertains to MAGI
25. Deduct loan interest up to $2,500 No limit on repayment period No need to itemize Qualification requirements Phaseout ranges apply Student Loan Deduction
26. Up to $2,000 or $4,000 deduction Available every qualifying year Covered expenses similar to American Opportunity Tax Credit and Lifetime Learning Credit Broad availability Barred in certain circumstances Phaseout ranges apply Higher Education Tuition and Fees Deduction *MAGI
27. Tax-advantaged way to save for college expenses Money in plan grows tax free Tax-free qualified withdrawals State income tax breaks in certain circumstances Wide range of qualified expenses (no dollar limit) Gifts from family members Qualified Tuition Programs (529 Plans)
28. State-instituted plans Plan inception date and child’s age key factors to amount contributed Tuition costs covered — not room, board or books In-state vs. out-of-state school Tax treatment similar to 529 Plan Prepaid Tuition Plans
29. Tax benefits for qualified higher-education expenses No dollar limit on exclusion Series EE bonds (issued after 1989) and Series I bonds U.S. Savings Bonds
30. Job Strategies Unreimbursed employment-related costs Deduction – greater than 2% of AGI Job search expenses Line-of-work requirement Possible disallowance if long-term unemployment period Not applicable to first job
31. Homeowner Strategies Deductions Selling Your Home First-time Homebuyer Credit Home Energy Incentives
32. Deductions Mortgage interest: Deduct up to $1 million of home-acquisition loans Deduct up to $100,000 of home-equity loans No restrictions on use of proceeds Special rules on deducting points Real estate taxes: No limits on number of homes or dollar amount Prepay/delay decision
33. Exclude up to $250,000 in capital gains ($500,000 if married filing jointly or surviving spouse in certain cases) Home owned/used as principal residence at least two (aggregate) of five years preceding sale Temporary absences from residence Special rules for specific homeowners Repay/recapture First-time Homebuyer Credit Selling Your Home
34. First-time Homebuyer Credit Limited credit for 2011 home purchases Credit repayment for some home purchasers
35. Home Energy Incentives Nonbusiness Energy Property Credit 10% and 100% credits for certain improvements and expenditures Dollar limits for specific types of property $500 maximum lifetime credit Wide range of improvements Residential Energy Efficient Property Credit Wide range of costs Two types of 30% credits Dollar limit, principal residence and kilowatt-capacity considerations
36. Dividends Capital Gains Tax Offset Capital Gains with Losses Investment Strategies
37. Top tax rate of 15% for qualified dividends 0% for taxpayers in 10% or 15% tax bracket Dividends
38. 15% maximum tax rate on net capital gains 0% for taxpayers in 10% or 15% income tax bracket Asset must be held more than one year before sale Capital Gains Tax
39. Capital losses netted against capital gains $3,000 in capital losses can be deducted against ordinary income Ability to carry losses forward Keep track of losses – unused, and short and long term Beware of wash sale rule Offset Capital Gains with Losses
40. Employer Sponsored Plans Individual Retirement Accounts (IRAs) Conversion to Roth IRA Retirement Strategies
41. Pre-tax contributions help reduce tax bill Employer matches and earned income – tax deferred $16,500 maximum contribution (younger than age 50) $5,500 additional catch-up contribution (age 50 or older) Employer Sponsored Plans
42. Two types: Traditional and Roth $5,000 maximum annual contribution for either $1,000 additional catch-up contribution (age 50 or older) Contribution restrictions Traditional IRA: deductible contributions – modified AGI and employer-sponsored plan considerations & distribution requirements Roth IRA: nondeductible contributions and tax-free withdrawals Tax-free earnings until distribution Open/contribution deadline: April 17, 2012 Individual Retirement Accounts (IRAs)
43. Conversion to Roth IRA No dollar limit on conversion amount Conversion results in taxable income No early-distribution penalty under certain conditions No modified AGI requirement Opportunity to reverse conversion
44. Partner with your CPA Ask questions when considering advice Plan for tax savings year-round Key Takeaways
45. Thank you