Don’t Wait to Take Advantage of Expiring 2012 Tax Laws

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Here we are almost halfway through 2012 and we still need to think about income taxes, both current and future items that are and will affect us.

You may recall that The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 saw the “Bush Era” tax cuts pushed out for another two years. There was also estate tax relief included yet many of the provisions will end on December 31, 2012.

What happens after that is still anybody’s guess given the contentious state of affairs in Congress and with this being a presidential election year. However, there are some things that can still be done in 2012 to use the current law to the maximum and these include, but are not limited to:

First, since the long term capital gains rate of 15% remains, take time to review your holdings and objectives very closely through the remainder of 2012.

Secondly, Roth conversion opportunities, if it applies to you, may be another facet of the current law that could work to your advantage. If you are considering doing a Roth conversion in 2012, then discuss this with your advisor to utilize the current rates to stay ahead of the anticipated increases looming in 2013.

Third, unfortunately the ability to take distributions from IRAs and donate them to charitable organizations was NOT extended into 2012.

Be Aware That:

Standard deduction for joint filing increases to $11,900 from $11,600 Personal and dependency exemption increases to $3,800 from $3,700

If converting a traditional IRA to a Roth IRA, you will owe ordinary income taxes on any previously deducted traditional IRA contributions and on all earnings. We suggest that you discuss tax issues with a qualified tax advisor.

What’s Ahead for 2013

One of the new changes beginning in 2013 will be the Medicare tax of 3.8% on dividends and other unearned income sources, which will be assessed on joint filers with an adjusted gross income in excess of $250,000.

Finally, both the estate tax changes scheduled in Ohio and the Federal Estate Tax minimums need to be reviewed. The estate tax in Ohio is eliminated for estates after December 31, 2012. Currently the Federal estate exclusion is $5,120,000 per person, and that is also scheduled to change to $1,000,000 after December 31, 2012.

This means that reviewing your estate plan and planning documents is very important in the face of the significant changes that are currently scheduled.

Since this is a transition year, don’t wait until it’s too late to do your reviews with your planner, you should try to stay ahead of these and other changes that are looming on the horizon.

Other Tax-Related Changes

Income phase-outs on itemized deductions and personal exemptions return

Marriage tax penalty returns Certain tax brackets eliminated Educational tax-related benefits reduced:

Deduction for student loan interest ends American Opportunity education tax

credit expires

Coverdell IRA contribution limit reverts to $500 (from $2,000 currently)

Child tax credit reverts back to $500 (currently $1,000)

 

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