Tax Archives - Page 43 of 45 - Whalen & Company, CPAs

The 2012 Gift Tax Annual Exclusion: Use It or Lose It

mnarog on December 6, 2012

The 2012 gift tax annual exclusion allows you to give up to $13,000 per recipient tax-free without using up any of your lifetime gift tax exemption. If you and your spouse “split” the gift, you can give $26,000 per recipient. The exclusion is scheduled to increase to $14,000 ($28,000 for split gifts) in 2013.

The gifted assets are removed from your taxable estate, which can be especially advantageous if you expect them to appreciate. That’s because the future appreciation can avoid gift and estate taxes.

But you need to use your 2012 exclusion by Dec. 31 or you’ll lose it. The exclusion doesn’t carry from one year to the next. For example, if you don’t make an annual exclusion gift to your grandson this year, you can’t add $13,000 to your 2013 exclusion to make a $27,000 tax-free gift to him next year.

We can help you determine how to make the most of your 2012 gift tax annual exclusion.

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Save More Tax With Donations of Appreciated Stock

mnarog on November 21, 2012

Publicly traded stock and other securities you’ve held more than one year are long-term capital gains property, which can make one of the best charitable gifts. Why? Because you can deduct the current fair market value and avoid the capital gains tax you’d pay if you sold the property.

Donations of long-term capital gains property are subject to tighter deduction limits — 30% of adjusted gross income (AGI) for gifts to public charities, 20% for gifts to nonoperating private foundations. In certain, although limited, circumstances it may be better to deduct your tax basis (generally the amount paid for the stock) rather than the fair market value, because it allows you to take advantage of the higher AGI limits that apply to donations of cash and ordinary-income property (such as stock held one year or less).

Don’t donate stock that’s worth less than your basis. Instead, sell the stock so you can deduct the loss and then donate the cash proceeds to charity.

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Projecting Income Can Allow Businesses to Use Timing to Their Tax Advantage

mnarog on November 14, 2012

By projecting your business’s income for this year and next you can determine how to time income and deductions to your advantage.

Typically, it’s better to defer tax. You can do so by:

Deferring income to next year. If your business uses the cash method of accounting, you can defer billing for your products or services. Or, if you use the accrual method, you can delay shipping products or delivering services. But don’t let tax considerations get in the way of making sound business decisions.
Accelerating deductible expenses into the current year. If you’re a cash-basis taxpayer, you may make a state estimated tax payment before Dec. 31, so you can deduct it this year rather than next. But consider the alternative minimum tax (AMT) consequences first. Both cash- and accrual-basis taxpayers can charge expenses on a credit card and deduct them in the year charged, regardless of when the credit card bill is paid.

In 2012, taking the opposite approach might be better. If it’s likely you’ll be in a higher tax bracket next year, accelerating income and deferring deductible expenses may save you more tax. And, because individual income tax rates are scheduled to go up in 2013, if your business structure is a flow-through entity, you may face higher rates even if your tax bracket remains the same.

Congress may, however, extend current tax rates for some or all taxpayers. Keep a close eye on Washington as year end approaches so you can adjust your timing strategy as needed if tax law changes do occur.

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With Election Results In, What's Next for Tax Law Changes?

mnarog on November 8, 2012

President Obama has been reelected, the Senate will remain in the hands of the Democrats (but without a filibuster-proof supermajority) and the House will continue to be controlled by the Republicans. In other words, the political makeup of Washington will be about the same in 2013 as it is now. As a result, it’s still very uncertain what will happen with tax law changes.

When it comes to tax law, Congress and the president have much to address, including tax breaks that expired at the end of 2011 as well as the rates and breaks that are scheduled to expire at the end of this year.

The “lame duck” session is scheduled to begin next week, but Congress will soon break again for Thanksgiving. How long it will be in session from after Thanksgiving through the end of the year is up in the air.

It’s still unclear what Congress will try to accomplish in the lame duck session — and what they’ll punt to next year. (In terms of the latter, tax law changes could be made retroactive.)

The lack of change in the political makeup of Washington could make it very difficult to pass tax legislation, considering how far apart the parties are on what should be done. Yet now that both parties know the outcome of the Nov. 6 elections, they may be more willing to compromise.

Whatever happens, it could have an impact on your year end tax planning. So keep an eye on Congress before implementing year end strategies.

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Consider Tax Implications if You're Awarded Restricted Stock

mnarog on November 2, 2012

In recent years, restricted stock has become a popular form of incentive compensation for executives and other key employees. If you’re awarded restricted stock — stock that’s granted subject to a substantial risk of forfeiture — it’s important to understand the tax implications.

Income recognition is normally deferred until the stock is no longer subject to that risk or you sell it. You then pay taxes based on the stock’s fair market value (FMV) when the restriction lapses and at your ordinary-income rate.

But you can instead make a Section 83(b) election to recognize ordinary income when you receive the stock. This election, which you must make within 30 days after receiving the stock, can be beneficial if the income at the grant date is negligible or the stock is likely to appreciate significantly before income would otherwise be recognized. Why? Because the election allows you to convert future appreciation from ordinary income to long-term capital gains income and defer it until the stock is sold.

There are some disadvantages of a Sec. 83(b) election:

1. You must prepay tax in the current year. But if a company is in the earlier stages of development, this may be a small liability.

2. Any taxes you pay because of the election can’t be refunded if you eventually forfeit the stock or its value decreases. But you’d have a capital loss when you forfeited or sold the stock.

If you’re awarded restricted stock before the end of 2012 and it’s looking like your tax rate will go up in the future, the benefits of a Sec. 83(b) election may be more likely to outweigh the potential disadvantages.

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Category: Tax

News & Tech Tips

The 2012 Gift Tax Annual Exclusion: Use It or Lose It

Save More Tax With Donations of Appreciated Stock

Projecting Income Can Allow Businesses to Use Timing to Their Tax Advantage

With Election Results In, What's Next for Tax Law Changes?

Consider Tax Implications if You're Awarded Restricted Stock