Category: New Tax Legislation – 2012 / 2013

How the 2013 Tax Law Change Impacts You and Your Business

With the signing of the American Taxpayer Relief Act of 2012 in January 2013, we avoided a trip over the Fiscal Cliff – Right?  I mean this only impacts the wealthiest 2% of Americans – Right?

Well not entirely, especially for those of us that own a business.  Actually, almost every American’s tax bill will go up in some degree.  In reality, this was a fairly large piece of legislation with hundreds of provisions that will no doubt have an impact on every business owner – especially those business owners that have not been and are currently not proactive with their strategic tax planning.  These tax law changes coupled with the additional taxes, complexities, and costs associated with Obamacare, make 2013 a critical time for business owners to take their tax planning seriously.  You can’t afford not to!  The Tax Act will impact your personal income, your ability to build wealth, retirement planning, and the planning, timing, and tax impact of your exit from the business.

The following is a breakdown of the main provisions of the 2012 Tax Act and a brief explanation of how they will impact you and your business:

  1. The Payroll Tax Holiday is over – Anyone with earned income will see their payroll taxes increase by 2%.  This tax will be felt immediately by almost everyone.
  2. Additional Medicare Tax Under Obamacare – This additional .09% tax kicks in for individuals with wages or self-employment income of $200,000 or $250,000 combined income for married couples.
  3. Tax Rates Increase for High Income Earners – Tax rates will permanently increase for individuals making more than $400,000 or families earning more than $450,000.  For these tax payers we have a return to the Clinton-era top rate of 39.6%.  It’s important to remember that this increase will hit business owners with pass though business PROFITS exceeding the threshold regardless if they pay themselves less.
  4. Obamacare Affordable Care Act Surcharge – This new 3.8% net investment income tax on individuals or families earning more than $200,000 or $250,000 respectively. [NOTE: Items 1 through 4 illustrate why a comprehensive tax plan that diversifies various income streams specifically designed to reduce the potential impact of these tax rate increases is critical.]
  5. Capital Gains / Dividends Tax Increase – Taxpayers with income of more than $400,000 individually, or $450,000 for a family will pay 20% tax on capital gains.  For taxpayer with income under the threshold, the 0% and 15% capital gain rates still apply.
  6. Estate Tax Exemption is now Permanent – As in 2011 and 2012, estates valued at less than $5.0 million will be exempt from estate taxes.  The current Tax Act makes permanent the $5.0 million gift, estate, and Generational Skipping Tax Exemption.  In 2013 the exemption for couples will be $10.0 million.  It’s important to note the actually amount will be higher because the $5.0 million and $10.0 million figure will be adjusted up annually for inflation.
  7. Estate Tax Exemption is now “Portable” for Couples – Again, similar to 2011 and 2012, the Act now makes permanent the “portability” concept whereby the unused estate tax exemption amount of the first spouse to die can be passed to the surviving spouse for future use either during their life or at death.  For example, if the first spouse dies in 2013 with $2.0 million of assets, that deceased first spouse will have a $3.0 million (again adjusted for inflation) unused estate tax exemption, which can be passed to the surviving spouse.  This would give surviving spouse a total of $8.0 million gift and estate tax exemption going forward.  Additional analysis would be necessary if surviving spouse remarries.
  8. Tax Exemption Limitations – The Tax Act phases out both itemized deductions and personal exemptions for higher income taxpayers.  Itemized deductions and exemptions are reduced for individuals when income reaches – $300,000 for couples or $250,000 for individuals.
  9. Temporary Business Tax Breaks for 2013 – If applicable, these should be incorporated into your planning before they expire at the end  of 2013:
  • $500,000 limit on the Section 179 depreciation deduction on equipment
  • 50% bonus depreciation deduction on certain acquisitions
  • Research and Development Credit
  • 100% tax-free capital gains on the sale of small business stock
  • 15 year depreciation schedule for certain leasehold improvements
  • Work Opportunity tax credits

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email:
tfoster@wetaxplan.com

Client Letter – Critical Tax Planning Deadline

Dear Client:

We are currently contacting our clients so that we can conduct a final review in the 4th quarter to ensure they are proactively prepared for all the tax law changes that will happen January 1.

I wanted to reach out to you because this will be the last chance to proactively incorporate planning ideas to reduce your business and personal taxes.  2012 presents historically unique planning opportunities that will be lost if you do not capitalize on them in 2012.  It doesn’t matter when you file your 2012 tax return; it will be about what is incorporated during the final months of this year.  You will be “grandfathered” out of opportunities to reduce your taxes and increase your income.

Please call me if you have any questions.

As way of background and summary:

The Tax Policy Center, a nonpartisan, non political group that routinely releases factual findings based on current and upcoming legislation or in this case legislation about to expire in 2013.  The tax increases will have a dramatic impact on the business owners that we talk to.  Unfortunately, very few people seem to read these type of articles and depend on the media’s interpretation.  The NY Times and other sources only grab a few pieces and seem reluctant to report negatively on the current administration.

To review, in a nutshell, this is what January will bring to business owners:

1.  Increased Income tax rates

2.  Increased payroll taxes for yourself, and what you pay for each employee

3.  Increased taxes on capital gains

4.  Increased taxes on dividends

5.  Eliminated and reduced tax deductions and tax credits

6.  Reduced itemized deductions

7.  New taxes from Healthcare legislation

8.  Reduced child tax credits

Business owners are likely to see taxes increase substantially in 2013. Overall, they will pay higher tax rates on more income because there will be less offsets (credits and deductions) to reduce the amount subject to tax.  The dollars that ultimately end up in their pocket will be DRAMATICALLY reduced.

S-Corporation business owners will be especially hard hit because their taxes are based on corporate profits, that because of a lack of tax planning, is higher than what they actually take as income. So they will be paying even more taxes on money that they never see.

This is by far the worst time in our history to be a procrastinator!  That’s what needs to be reported.  Compared to 2013, 2012 will seem like tax paradise.  Business owners that aren’t taking advantage of 2012 are making a huge mistake.

I have attached the Tax Policy Center report

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email:
tfoster@wetaxplan.com


Copyright 2010 The Business Wealth Preservation Group, LLC.