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Tax Strategies for 2012

December 17, 2012

As the end of 2012 draws near, now is the time to review any tax law changes. Gunwel Associates Inc encourages all of our clients to call us with any tax questions and we always like to do tax reviews so there are no surprises.

The Bush-era tax cuts which provide for tax brackets of 10, 15,25, 28, 33 and 35% apply for 2012. Now that the November election is over, the House and Senate will once again debate extending the Bush-era tax cuts beyond 2012 and address other various extenders. Without extension of the current rates, the tax brackets for 2013 will be 15, 28, 31, 36 and 39.6%. With that in mind, this blog will examine some tax planning strategies that could reduce your tax bill for tax year 2012, assuming no drastic new legislation is passed retroactive to the beginning of 2012. Deferring income and accelerating tax deductions obviously reduces the current year’s tax liability, but with income tax rates set to increase in 2013, you may actually want to accelerate income into 2013 and defer deductions to a future year if you will be in a higher tax bracket. Each taxpayer’s situation is different, but here are some items to consider.

  • Capital Gain Rates: The Tax Relief Act of 2010 extended the 0% and 15% capital gains rates through 2012. In 2013, these rates will increase to 10% and 20% with rates reduced to 8% and 18% for aggregate capital gains from property held for more than 5 years. For taxpayers in the 10% or 15% ordinary income tax bracket in 2012, there exists an opportunity to recognize long-term capital gains taxed at 0%. Only to the extent that a long-term capital gain causes you to exceed the upper threshold of the 15% ordinary income tax bracket are long-term capital gains taxed at 15%. Taxpayers who will not enter into the 25% tax bracket should consider selling long-term capital assets to avoid being taxed on these gains. Selling assets on installment provides some flexibility to deal with the possibility that the 0/15% favorable capital gains rates might be extended. Even if an asset is sold on installment, you can elect out of installment reporting by reporting the entire gain on your tax return for the year of sale. If the favorable capital gain rates are not extended, you would more likely to elect the entire gain from a 2012 installment sale in 2012. Alternatively, if Congress extends the favorable capital gain rates, you could still report the sale using the installment method and spread the gain over the life of the contract.
  • Qualified Dividends: Qualified dividends receive special tax treatment like long-term capital gains, and the Tax Relief Act extended the 0% and 15% rates for qualified dividends through 2012. Beginning in 2013, all dividends are taxed at ordinary income tax rates, potentially up to 39.6%. For taxpayers owning U.S. corporations or qualified foreign corporations, there is a strong incentive to pay dividends before the end of the year in order to take advantage of the current low capital gains rates.
  • Medicare Surtax: Beginning in 2013, <1411> takes effect. This new Medicare surtax is imposed at the rate of 3.8% of the lesser of (1) net investment income, or (2) the excess of modified adjusted gross income (MAGI) over the threshold amount. MAGI for this purpose is AGI without the foreign earned income exclusion. The threshold amount is $250,000 for a joint return or surviving spouse, $125,000 for a married filing separate return and $200,000 for all others. You should consider accelerating investment income into 2012 or shifting assets for those who will not be subject to the tax in 2013 or later.
  • 0.9% Medicare Hospital Insurance Tax: Beginning in 2013, an additional 0.9% Medicare hospital insurance (HI) tax will be imposed on an individual taxpayer’s wages (including self-employment income) received with respect to employment in excess of $250,000 for joint filers, $125,000 for married filing separately, and $200,000 for all others. The employer is required to withhold the additional 0.9% HI tax on an employee’s wages exceeding $200,000 for all others. Although there is really no way to avoid this tax short of earning less money, you should still be aware of this provision, especially if both spouses earn under $200,000 and their combined earned income exceeds $250,000. In that instance the employer will not be required to withhold for the additional tax, but it will be due with the tax return. To avoid underpayment penalty, you should increase your withholding or estimated tax payments.
  • 179 and Bonus Depreciation: For 2012, the maximum 179 deduction is $139,000 and the beginning phase-out level is $560,000. Bonus depreciation 50%. For 2013, the 179 limit is set to revert back to $25,000 with a beginning phase-out level of $200,000. Bonus depreciation will expire after 2012 without Congressional action.
  • Itemized deductions: Those of you who barely have enough itemized deductions to exceed the standard deductions may choose to pay two years’ worth of real estate taxes and possibly make an extra mortgage payment for the interest deduction in order to bundle your itemized deductions and create the greatest tax benefit. Others who annually itemize deductions may reduce your tax liability with some planning as well.

Those are a few strategies to think about with regards to your 2012 taxes. Gunwel is here is answer any questions or concern you may have re any and all of your financial matters. A lot can change when Congress meets, but be assured that Gunwel is on top of those changes. Give us a call at 615-730-9444 and visit our website at You work hard for your money, let us work smart to help you keep it!

4 Comments leave one →
  1. December 18, 2012 6:11 pm

    Very entertaining information. found a lot of things for yourself useful. Thx!!

  2. December 21, 2012 1:04 pm

    Thank you for sharing this useful information.

  3. December 24, 2012 3:35 pm

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  4. June 11, 2013 9:32 am

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