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As year-end approaches, investors typically consider a
tax strategy called "harvesting" capital losses. There's
an added wrinkle to this tax move this year. Due to
pending tax law changes, you might try instead to reap
more capital gains than losses in 2012. Thus, the usual
strategy of harvesting losses could be turned upside down.
Here's a recap of the basic rules. The capital gains and capital losses you realize during the year are "netted" under complex rules when you file your tax return. A gain or loss is treated as being long-term if you've held the securities for more than one year. For 2012, net long-term capital gain is taxed at a maximum tax rate of 15% (0% for investors in the regular 10% and 15% tax brackets). If you're showing a net capital gain on paper as year-end
approaches, any capital losses you realize will reduce
the amount of the taxable gain or offset it completely.
An excess loss can then offset up to $3,000 of highly
taxed ordinary income before any remainder is carried
over to next year. However, the usual strategy of
harvesting losses is complicated this year by three key
tax law changes scheduled for 2013.
* The maximum tax rate for net long-term capital gain will increase to 20% (10% for investors in the lower tax brackets). * Ordinary tax rates are going up. For example, the top rates of 33% and 35% will increase to 36% and 39.6%, respectively. * A special 3.8% Medicare surtax will apply to the lesser of net investment income for the year or the amount by which modified adjusted gross income (MAGI) exceeds $250,000 ($200,000 for single filers). Barring any late legislation by Congress, investors may
be inclined to harvest capital gains instead of losses
at year-end. As a result, you can benefit from the
favorable tax rates in effect for 2012. If you've
already realized short-term gains in 2012, you might
want to realize short-term losses to offset those gains.
But don't use short-term losses to offset long-term
gains, if you can help it, because long-term gains are
taxed at a maximum rate of only 15% in 2012.
Other considerations may come into play. The best approach is to do what's best for your situation. See me for a review of your year-end investment tax strategy. |
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According to the Congressional Research Service, 34
million taxpayers could be hit by the alternative
minimum tax (AMT) this year. Are you one of the many
unsuspecting or uninformed taxpayers who will be caught
by the AMT in 2012? With a better understanding of the
rules, you may be able to avoid or reduce adverse tax
consequences.
The AMT was set up in the 1960s to make sure wealthy
taxpayers didn't use deductions and exemptions to avoid
paying any income tax. The AMT applies a 26% or 28% tax
rate to income above a certain exempt amount. Because
this exempt amount is not indexed for inflation, the
AMT has begun to affect more and more middle-income
taxpayers each year.
The AMT is a separate tax calculation that parallels
the regular income tax, but it does not let you claim
personal or dependent exemptions, the standard
deduction, and certain itemized deductions. You compute
your tax liability under the regular tax system; then
you make the necessary adjustments for "tax preferences"
and calculate your tax under the AMT rules. You compare
your AMT liability to your regular tax liability and
pay whichever tax is greater.
It's wise to estimate your AMT exposure before year-end.
Depending on your situation, it may make sense to avoid
tax preference items or postpone certain deductions.
Strategies might include adjusting when you make tax
payments or charitable contributions, accelerating
income, or changing how you exercise stock options.
For a review of your situation in relation to the AMT, give me a call. |
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Are you a grandparent who wants to help pay for a
grandchild's college education? You'll find several
ways to do this, each with its own limitations and tax
consequences.
GIFTS. The simplest way is to make an outright cash gift to your grandchild each year. In 2012, you can give up to $13,000 without any gift tax liability. If your spouse joins in the gift, you can jointly give each grandchild up to $26,000 each year. DIRECT PAYMENTS. You can give unlimited amounts without gift tax consequences if you make the payments directly to a qualified education institution on behalf of your grandchild. Payments can only be for tuition, not for dorm fees, meals, books, etc. EDUCATION ACCOUNTS. You could set up a Coverdell
education savings account or a Section 529 plan for
your grandchild. These plans offer tax-free growth of
amounts you contribute to them. Age, income, and
contribution limits apply, however.
To discuss the options best suited to your circumstances, contact my office. |
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Tax Tip of the Week: Do you employ tipped workers or are you a tipped worker with the offer to have your tips classified as a service charge? Changing classification from tips to a service charge will have some tax ramifications for the employer and employee. Be informed before making any changes to your situation. Check out this article for more information.
Business Tip of the Month: Is it good for your business to hire your children? There are pros and cons and, in any case, there must be clarity about what is expected in the position that you are hiring them for. Read this article for some tips on what to do if you're thinking of hiring your children. Financial Tip of the Month: Do those "payday" loans sound appealing to you when you've hit the "in-between-paycheck" cash crunch? There are several reasons not to borrow from these companies. Read the article for more information and reasons why this would not be a good idea.
Fraud Alert: Do you have a timeshare that you would like to sell? Protect yourself from timeshare fraud by checking out an agent or company. Read the article for tips on what to look for in hiring someone to sell your timeshare. Don't be scammed! |
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https://www.facebook.com/pages/Linda-L-Heineman-CPA/266124360085715?ref=tn_tnmn
Sincerely,
Linda Heineman
Linda L. Heineman, CPA
email:
linda@llhcpa.com
phone:
626-577-0979
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