Big Changes Coming – Year End Tax Planning and Strategies

August 17, 2012 Posted by Rick

We are working harder in the second half of the year than any of us remember ever having to do before because of the changes in the tax laws that are looming. Here’s a little inside baseball that CPAs are being forced to play in order to prepare for the end of 2012, when the Bush-era tax will expire, estate and gift tax exemptions shrink to $1 million, and the planning advantages of grantor and dynasty trusts will probably be diminished. Now is the time to avail yourselves of the expertise that your CPA offers. Time is short, and the tax savings are large.

We are operating under the assumption that Bush-era tax breaks will NOT be extended, as they were in 2010.

  1. We are educating clients on the impact of the tax-breaks expiration. They need to consider having their attorneys draft documents early and have valuations prepared, if necessary.
  2.  Our clients have a short period of time remaining to save a significant amount in federal and state estate and gift tax. We are helping them determine whether to use the $5 million gift exemption that may revert to $1 million in 2013.
  3. For our clients whose situation warrants, we are working with them to implement grantor retained annuity trusts (GRATs).The benefits of GRATs could be curtailed if President Barack Obama’s proposed limits are enacted.
  4. We are discussing with clients the potential change in estate and income treatment of grantor trusts. Proposals include changes in grantor trust assets in taxable estates and gifts and impose tax on trust distributions.
  5. We are helping clients anticipate possible changes in the rules governing generation-skipping transfers (GSTs). One proposal limits the life of the GST tax exemption to 90 years, reducing the value of dynasty trusts.
  6. If tax rates jump in 2013, coupled with the new 3.8% Medicare surtax on investment income, significant savings may be possible. We are preparing to accelerate our clients’ income while deferring expenses.  Targets of the surtax include rents, taxable interest, dividends, passive royalties and annuity income. Tools in our arsenal include shifting income into 2012, reducing net investment income and modified adjusted gross income in 2013 and afterward, and accelerating gain harvesting, Roth conversions, and retirement distributions.
  7. Itemized deductions will likely be limited in 2013, We are working with our clients to accelerate these deductions into 2012.
  8. We are assessing the reallocation of our clients’ investment portfolios. Shifting assets between qualified and nonqualified accounts and rethink asset allocation (i.e., growth vs. income stocks, muni bonds, etc.) may be a prudent measure.
  9. We are running projections determine how much our clients can save utilizing effective planning strategies to anticipate the scenarios that may occur.

I’ve touched on this in an earlier post, but it bears repeating. Big changes in the tax code are coming, and if you are not prepared, you stand to lose…big time.

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