Where Personal Attention Will Never Become Obsolete! Year-End Tax Planning Seminar Presented By: Walter Deyhle, CPA, CFP 12/07/10

Where Personal Attention Will Never Become Obsolete!

Year-End Tax Planning Seminar

Presented By:Walter Deyhle, CPA, CFP

12/07/10


Tonight’s Agenda

• GRF Process• Looking Ahead to 2011• Estate & Gift Tax• Roth IRA• Energy Savings • Health Care Law• Deficit Reduction Commission Report• Questions

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GRF’s Process

• E-filing• CD copies• Portal

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2011

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Rates for the “Rich”: What Could Have Been

• Rich is:• $250,000 MFJ• $200,000 Single

• 35% to 39.5%• 33% to 36% • Capital gains – 20%• Qualified dividend taxes like

ordinary income

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2011 & 2012: What May Be

• President Obama & GOP deal• Current tax rates stay in

effect for 2011 & 2012–35% top tax rate–Capital gains & qualified dividends

taxed at maximum of 15%

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2011 & 2012: What May Be (cont’d)

–Reduced SS tax rate from 6.2% to 4.2% for 2011

– Full expensing of capital investments

–AMT Patch for 2011 & 2012

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Estate & Gift Tax

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Estate Tax Basics

• Unified gift & tax system• No estate tax for taxpayers

dying in 2010• Annual gifting of $13,000• Exclusion for education and

medical payments

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Estate Tax Basics (cont’d)

• Gift tax for gifts exceeding $1 M• With no change in law: 2011 –

estate tax bracket for estates > $1M • Top tax rate of 45%– President Obama and GOP Deal

• 2011 & 2012 – Estate tax for estates>$5M• Top tax rate of 35%

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Year-End Tax Planning Seminar 11

Roth IRA


Convert to a ROTH IRA?

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TRADITIONAL ROTHTax deductible No tax deduction

Qualified distributions taxable

Qualified distributions tax free

Tax deferred growth Tax free growth

Required minimum distribution

No required minimum distribution

Most effective when tax rate lower at retirement

Most effective when tax rate higher at retirement


When To Convert

• Do not need IRA to pay tax• Expect to be in a higher tax

bracket in retirement• Do not need IRA in retirement• Expect to pay estate taxes

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When To Convert (cont’d)

• No required minimum distributions• Pass to heirs• Heirs have required RMD• If conversion occurs in 2010, an

election can be made to report 50% of the income in 2011 and 50% in 2012

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Residential Energy Credit

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Residential Energy Credit

• Removes individual item caps• Increases limit to $1,500 • Increases from 10% to 30%• Prior $500 not counted• For 2009 & 2010 installations• Required energy efficiency

increase

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Health Care Law

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Health Care Law

• 0.9% increase in Medicare tax after 12/31/12 – $200,000/$250,000

• 3.8% increase in tax on investment income after 12/31/12 – $200,000/$250,000

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Deficit Reduction Commission Report


Report: Tax Reform

• Lower rates, broaden the bases, and cut spending in tax code

• Cut rates across the board, and reduce the top rate to between 23 and 29 percent

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Report: Tax Reform

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• Simplify key provisions while increasing or maintaining progressivity• Support for low-income workers and families• Mortgage interest only principal residences• Employer-provided health insurance• Charitable giving• Retirement savings and pensions


Current Law Illustrative Proposal (Fully Phased In)

Tax rates for Individuals

In 2010, six brackets: 10%|15%|25%|28%|33%|35%

Three brackets: 12%|22%|28%

Alternative Minimum Tax

Scheduled to hit middle-income individuals but “patched” annually

Permanently repealed



EITC and Child Tax Credit

Partially refundable child tax credit of $1000 per child. Refundable EITC of between $457 and $5,666

Maintain current law or an equivalent alternative

Standard Deduction and Exemptions

Standard deduction of $5,700 ($11,400 for couple) for non-itemizers; personal and dependent exemptions of $3,650

Maintain current law; itemized deductions eliminated, so all individuals take standard deductions



Capital Gains and Dividends

In 2010, top rate of 15% for capital gains and dividends.

All capital gains and dividends taxed at ordinary income rates1

1 An alternative could be to exclude a portion of capital gains and dividends from income (e.g. 20%), reducing the effective top rate on investment income. To offset this while maintaining progressivity in the code, the top rate on ordinary income would need to be increased.


Current Law Illustrative Proposal

(Fully Phased In)

Mortgage Interest

Deductible for itemizers; Mortgage capped at $1 million for principal and second residences, plus an additional $100,000 for home equity

12% non-refundable tax credit available to all taxpayers; Mortgage capped at $500,000; No credit for interest from second residence and equity

Employer Provided Health Care Insurance

Excluded from income. 40% excise tax on high cost plans (generally $27,500 for families) begins in 2018; threshold indexed to inflation

Exclusion capped at 75th percentile of premium levels in 2014, with cap frozen in nominal terms through 2018 and phased out by 2038; Excise tax reduced to 12%



(Fully Phased In)

Charitable Giving

Deductible for itemizers 12% non-refundable tax credit available to all taxpayers; available above 2% of Adjusted Gross Income (AGI) floor

State and Municipal Bonds

Interest exempt from incomeInterest taxable as income for newly-issued bonds



(Fully Phased In)

Retirement Multiple retirement account options with different contribution limits; saver’s credit of up to $1,000

Consolidate retirement accounts; cap tax-preferred contributions to lower of $20,000 or 20% of income, expand saver’s credit

Other Tax Expenditures

Over 150 additional tax expenditures

Nearly all other income tax expenditures are eliminated1

1 Under this plan, a few tax expenditures remain, for instance no changes are made to the tax treatment of employer pensions and tax provisions under PPACA largely remain in place. Note that the payroll tax base would remain the same as under current law, though there will be secondary revenue effects on the payroll tax side.


Report: Social Security

• Make retirement benefit formula more progressive

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• Gradually increase early and full retirement age, based on increase to life expectancy

• Increasing the Normal Retirement Age (NRA) to 68 by about 2050

• Increasing the NRA to 69 by about 2075• Increasing the Early Eligibility Age to 63

and 64 in lock step

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• Gradually increase the taxable maximum to cover 90 percent of wages by 2050

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4550 Montgomery Avenue, Suite 650 NBethesda, MD 20814

301-951-9090 • [email protected]

Where Personal Attention Will Never Become Obsolete!

Questions?

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Documents

Where Personal Attention Will Never Become Obsolete! Year-End Tax Planning Seminar Presented By: Walter Deyhle, CPA, CFP 12/07/10