MDNews - San Antonio

++++++++++++++++++ + + ++++++++++++++++++ ACCOUNTING +++ +++ B Tax Planning, 2013 By Jim Rice, CPA ARR ING A MI RACU LOU S bipartisan agreement on tax legislation before December 31, there are high-impact tax laws that will change on January 1, 2013. Those changes need to be understood now so timely planning can be done. The income tax rates are set to increase January 1, with the highest rate going from 35% to 39.6%, for a 4.6% increase. On additional taxable income of $200,000, this means another $9,200 in income taxes. Acceleration of income into this year, versus collecting that income in 2013, could provide a sizable tax savings. I say "could" provide a savings because your actual income in 2013 would have to be at least equal to the income taxable this year to see a savings. If income is likely to be down next year, then acceleration of income may not be beneficial. Likewise, if income in 2013 will be comparable to or higher than this year's, deferring deductions to next year will provide a greater tax-deduction benefit. Estimating what your income will be this year and next year is critical to a decision here. Long-term capital gain tax rates have been at a longtime low of 15% for most capital gain assets. Beginning next year, for many types of capital gain assets, the 15% rate increases to 20% with an additional Medicare 14 | San Antonio MD NEWS ■ MDNEWS.COM tax of 3.8%. This is an 8.8% tax rate increase. If you are considering selling capital assets soon, you must consider the increase in tax rates when decid- ing to aggressively push to sell. The additional tax on a gain of $200,000 could be $17,600. A proposed selling price on an asset you own that is lower than what you want may need to be reviewed more closely in light of the scheduled higher tax rates next year. Additionally, should you sell on an installment basis wherein the buyer will pay you over a period of years, you will want to consider electing out of the install- ment rules of reporting the gain as you collect the money. Doing this would lock in the tax rate at the lower current rates. Payroll taxes can be a major tax hit to many physicians. The Medicare tax rate increases to 3.8% for a married person's wages when those wages exceed $250,000. The wage limit is $200,000 for a single person. In addition, there will be a Medicare tax of 3.8% on all interest income, dividends, royalties, rent and nonbusiness capital gains for married couples with a modified adjusted gross income in excess of $250,000. The limit is also $200,000 for a single person. Under the current laws that are not scheduled to change, the use of an "S" corporation could help minimize the Medicare payroll taxes from compensation paid by a medical practice to its physicians. On additional compensation of $200,000 from a medical practice, the Medicare tax savings could be $7,600. A change in entity tax structure to an S corporation, or the creation of a new S corporation tax entity, takes time to properly set up. The ability to transfer assets out of your estate on a tax-free basis is essential to passing on your hard-earned worth to your children, grandchildren and other loved ones. Through December, you are allowed to transfer $5,120,000 of your estate (in total during your lifetime), tax free, to others. The current estate tax rate on an estate above that $5 million level is 35%. Effective January 1, the amount you would be allowed to transfer tax-free decreases to $1,000,000 with an estate tax rate of 55% for an estate above $1,000,000. The 2013 tax rate increase in this area is so large that any planning in this area should be done this year. Proper planning could include retaining some control over the assets transferred out of your estate, but careful steps must be taken to ensure that no laws are violated. The bottom line: Tax planning is more important this year than before. Don't wait to discuss with your certified public accountant what you need to do. Jim Rice, CPA, is a shareholder at Sol Schwartz & Associates, P.C. He has 32 years of experience in public accounting. In addition to providing business consulta- tion, financial planning and various other accounting services, Rice specializes in income tax planning and consultation. He works with a high concentration of physician practices and high-net-worth individuals. Contact him at (210) 384-8000, Ext. 112 or jprice@ssacpa.com. ■

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