We usually try and keep these dispatches light and entertaining.
We know you'd rather read about "Tax Strategies for Somali Pirates"
than, say, the latest regulations governing domestic international sales
corporations. But every so often it's time to put on our serious face,
and this is one of those times.
By now, of course, we all know
that Congress spent their New Year's crafting a last-minute deal to
avoid a "fiscal cliff" disaster. The "American Taxpayer Relief Act of
2012" extended the Bush tax cuts, permanently, for incomes up to
$400,000 for single filers and $450,000 for joint filers. Ordinary
income above those thresholds will be taxed at 39.6%; corporate
dividends and long-term capital gains will be taxed at 20%. The
Alternative Minimum Tax is "patched" for good, and the estate tax is
eliminated for estates under $5 million.
If your income isn't
quite that high, you may think you've just dodged a bullet. But the sad
reality is, you're probably already paying more tax, even if your income
is nowhere near $400,000:
- The fiscal cliff legislation
includes provisions phasing out personalized exemptions and itemized
deductions for singles earning over $250,000 and joint filers earning
over $300,000. You'll lose 2% of your personal exemptions for every
$2,500 over the threshold. And you'll lose $3 of your itemized
deductions, up to 80% of the total, for every $100 of income above the
- The 2% payroll tax "holiday" that we enjoyed in 2011 and 2012 is over, and won't be coming back.
the new Medicare tax provisions of the Affordable Care Act take effect.
Medicare taxes on earned income go from 2.9% to 3.8% on incomes above
$200,000 ($250,000 for joint filers). And there's a new "unearned income
Medicare contribution" on "Investment income" (interest, dividends,
capital gains, rents, royalties, and annuities) above those same
Here's the bottom line. If you woke up on January 2, read the headlines, saw "$400,000," and thought you were safe, think again.
the bright side, fiscal cliff legislation extends all sorts of tax
breaks that were in danger of expiring. These include expanded
first-year expensing and bonus depreciation deductions for business
equipment, tax-free charitable gifts from IRA accounts, expanded student
loan interest, and even the above-the-line deduction for educator
expenses. The bill even extends a critical break for NASCAR track
owners, letting them write off land improvements and support facilities
over just seven years instead of fifteen! (If you happen to own a
"motorsports entertainment complex," you really need to call us for planning!)
The tax provisions of the fiscal cliff legislation run over 80 pages. Even the Senate explanation takes up 15 pages. So we're still doing our homework and sorting out all the opportunities. But we can promise you that we're here to help make the best of the new law. And remember, we're here for your family, friends, and colleagues, too!
Hoffman counsels Entrepreneurs, Professionals and Select Individuals in
taking control of their taxes, and businesses. Discover how I can help
you overcome your tax and business challenges. To start the conversation
or to become a client, call Kenneth Hoffman at (954) 591-8290 Monday -
Friday between 8:30 a.m. to 1:00 p.m. for a no cost consultation, or
drop me a note.