A Review of Upcoming Tax Law Changes | Tax Tip of the Week | No. 120

Year-End Tax Planning-Part 4

As we said when we started this series of year-end strategies, you should normally look at the current year and the next year when doing your planning. This year, however, you should also take into account some of the future tax law changes that may occur.Currently over 50 tax provisions are scheduled to expire by the end of 2011.  Many others are scheduled to expire at the end of next year.  This group of provisions often known as “the extenders” may or may not be renewed by Congress who is concerned with many issues such as deficit spending.A quick recap of what we believe to be some of the more relevant ones that will expire at the end of 2011:EXPIRING PROVISIONS FOR INDIVIDUALS- Employee share of their OASDI portion that was formerly reduced from 6.2 percent to 4.2 percent.- Reduction of AMT exemption amount- Deductibility of mortgage insurance premium- IRA distributions to charity up to $100,000EXPIRING PROVISIONS FOR BUSINESSES- Bonus Depreciation – 100 percent deductions of qualified capital assets (typically “new” assets) placed in service in 2011 is currently allowed.  This is scheduled to decrease to 50 percent in 2012 and zero thereafter.- Section 179 Depreciation – For 2011, the global asset expensing limitation for qualifying (typically new or used) capital assets is set at $500,000, which lowers to $125,000 in 2012, and to $25,000, thereafter.ADDITIONAL TAXES COMING IN 2013Some future tax changes have already been enacted but have yet to take effect:- Effective January 1, 2013, a new Medicare Hospital Insurance (HI) tax applies to high income individual taxpayers.- The Medicare Hospital Insurance tax is 0.9 percent of earned income in excess of $200,000 for single filers ($250,000 for joint returns).- A 3.8 percent tax applies to investment income (including dividends, annuities, royalties and rents, etc.) for the same individuals.  Consider talking with your tax adviser about strategies for minimizing this tax.- In 2013, the threshold for the itemized deduction for unreimbursed medical expenses is increased to 10 percent of adjusted gross income from the current 7.5 percent.  You may want to plan for unreimbursed medical procedures in 2011 or 2012 to maximize your tax benefit.  There is a break for older taxpayers.  If an individual or spouse is age 65 or older, the threshold remains at 7.5 percent of adjusted gross income through 2016.Year-end planning typically revolves around the deferral or acceleration of income and/or expenses to take advantage of either a “sunsetting” provision or a new upcoming tax law which may also entail a change in tax brackets.  Being proactive, especially in today’s uncertain economic times, can reap some huge tax savings.Year-end tax planning is really a year-round process.  We're here if you have any questions.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.Rick Prewitt - the guy behind TTWTax Tip of the Week Video Series:http://www.youtube.com/user/bradstreetcpas?feature=mhee...until next week.