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Tax planning for 2012 and 2013 By Martha S. Bethea, CPA T HE NEW YEAR is here and it is time to prepare your 2011 income tax returns. While you are focusing on gathering your 2011 data to forward to your tax preparer, you should also be thinking about tax strategies for the next two years. With the expiration of the Bush tax cuts now scheduled for the end of 2012 you may want to consider tax planning and timing for the next two tax years. New taxes from Health Care Reform come into play in 2013. Personal income tax rates are scheduled to change as follows: + 2012 Rate of 10% will increase to 15% + 2012 Rate of 25% will increase to 28% + 2012 Rate of 33% will increase to 36% + 2012 Rate of 35% will increase to 39.6% Using the following facts, let's analyze the tax implications for this income for 2012 and 2013. INCOME Wage income – physician Wage income – spouse Interest income Qualified dividends Non-qualified dividends LLC income (real estate) Long-term capital gain DEDUCTIONS Charitable contributions Mortgage interest Real estate taxes State income tax Local tax What are the federal income tax consequences for 2012 and 2013 using the same income and deductions? 2012 Regular tax (capital gains) Alternative Minimum Tax High Income – Medicare tax 89,178 13,190 -0- Medicare Investment Income -0- Total Tax 102,368 2013 CHANGE 108,678 19,500 -0- 1,215 1,235 111,128 (13,190) 1,215 1,235 8,760 What planning can be done to improve this tax situation? In 2012 alternative minimum tax eliminates the tax benefit of state, local and real estate taxes. Because of the increased regular tax brackets in 2013, the taxpayer is not subject to alternative minimum tax. This taxpayer would benefit from delaying payment of state, local or real estate taxes to 2013, where possible. Wages paid in 2012 are not subject to the increased Medicare tax. To the extent the taxpayer can accelerate earnings into 2012; those earnings will not be subject to this tax of .9% of wages in excess of $250,000 (married filing jointly). For those individuals with modified adjusted gross income in 350,000 35,000 1,000 1,000 50 10,000 20,000 1,500 15,000 4,000 21,500 8,600 excess of $250,000 (married filing jointly) will be subject to a 3.8% Medicare tax. Interest, dividends, capital gains, partnership and LLC income fall into the category of unearned income. This taxpayer may want to consider growth investments rather than dividend paying investments. In addition, if the taxpayer takes the long-term capital gain in 2012, they will benefit from the 15% long term capital gains tax. Currently, long term capital gains rates increase to 20% in 2013. These are just a few of the tax saving steps you can take in 2012. Your tax advisor can prepare projections and make recommenda- tions based on your personal income tax situation. In addition, it is also important to review you gifting and estate planning information to make sure you are taking tax-wise steps in your long-term estate plan. Martha Bethea is a CPA and the managing director in charge of the Medical Practice Management Group of CBIZ/MHM LLC in Akron, Ohio. ■ 46 | Cleveland-Akron-Canton MD NEWS n MDNEWS.COM n MARCH-APRIL 2012