Year End Tax Planning
December 8, 2011
Presented By:Jeffrey G. Cohen, CPA, MST
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Expiring Federal Tax Provisions
AMT
$250 Educator expenses
Deduction for qualified higher education
Research and development
Payroll tax break
Depreciation
Sales tax deduction
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Uncertainty Traditional Strategy of Deferring
Income Is Dicey This Year This strategy makes sense if you are
confident you will be in the same or lower tax bracket next year.
The top two tax rates have widely been expected to increase.
The elections could cause legislators to delay any tax increase.
Congress must take action for existing laws to be left in place for next year.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
What Entity is Appropriate?
Limited Liability Company (LLC)
S-Corporation
C-Corporation
Individual _______________________ www.glassjacobson.com _______________________
10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850
410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Limited Liability Company
Liability protection Losses flow to partners Flexible Single member – disregarded entity Appreciation not trapped Basis in debt Step-up basis Social Security Issues
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
S-Corporation
Liability protection/exposure Losses flow to shareholders Basis in debt from shareholders Wages and social security issues
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
C-Corporation
Liability protection/exposure Appreciation and losses trapped Double taxation Potential lower tax rate
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Individual
Tort liability Debt liability Types of ownership
Tenants by Entirety Tenants in Common Joint Tenants
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Setting Up The Entity Entity choice
Articles of incorporation/bylaws
Federal identification number
Potential S election
Setting up bank account
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Setting Up The Entity (Cont.) Operating agreement
Partnership agreement
Cash vs. Accrual
Insurance Fire, theft, flood, credit, public/employer liability,
employee medical, use and occupancy, business interruption, workers compensation
Accounting Software
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Important Issues
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
What Strategy is Right for You? Does your business operate on a cash
or accrual basis?
Do you expect a profit or a loss for 2011?
Do you anticipate that 2012 will bring significantly higher revenue, expenses, or a tax bracket change?
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Depreciation Issues
Section 179: Buying New Equipment In 2010 and 2011, the maximum Section
179 has doubled. Maxing out at $500,000 Phase-out at $800,000 to $2 million
In 2012, phase-out becomes $125,000 and $500,000.
Then becomes $25,000 in 2013 No more 100% bonus.
50% for 2012 only
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Depreciation Issues (Cont.)
Fix the Business Premises Deduct the cost of minor repairs to your
business building. Cost of most major improvements must be
capitalized. Handle repairs before January 1st to maximize
your deduction fro the previous year. If repairs and improvements are lumped
together, the entire cost may have to be capitalized.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Investments Confirm investment goals and strategy
Review asset allocation
Review fundamentals of portfolio positions
Revisit income and savings needs
Zero percent capital gain rate
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Retirement Consider converting Traditional IRA into
Roth IRA Will trigger a current tax hit on the amount
you convert. But, with your Traditional IRA balance at a
depressed level, the tax hit will be less. All the income and gains that accumulate in
your Roth IRA, and all withdrawals after you reach age 59 ½, will be totally free of Federal taxes.
Future withdrawals from a Traditional IRA could be hit with tax rates that are higher than today’s rates.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Retirement (Cont.)
Maximize Contributions to 401(k) Plans Contribute as much as you can stand,
especially if your employer make matching contributions.
You give up “free money” when you fail to participate to the max.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Retirement (Cont.) Take Advantage of Flexible
Spending Accounts (FSAs) Before year-end, you must specify how
much of your 2011 salary to convert into tax-free contributions.
You can then take tax free withdrawals next year to reimburse yourself.
Out-of-pocket medical/dental expenses and child care costs.
“Use it or lose it” Don’t set aside more than you what you will
likely have in qualifying expenses for the year.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Retirement (Cont.) Open a retirement plan if newly self-employed.
Take required minimum distribution from IRA.
Review overall retirement strategy.
Review Long-Term Care and Disability Coverage.
If you are age 70 ½ or older, you generally must take your required distribution before the end of the year to avoid penalty.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Tax Credits Hiring Incentives to Restore Employment
6.2% payroll tax exemption for qualified workers hired between 2/3/10 and 1/1/11.
Tax credit of up to $1,000 if workers are retained for 52 consecutive weeks.
Workers cannot have been employed for more than 40 hours during the previous 60 days.
Maryland Credit_______________________ www.glassjacobson.com _______________________
10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850
410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Tax Credits (Cont.)
Heath Insurance Tax Credit Qualifying small employers can claim.
No more than 25 Full-Time Equivalent workers. Pays an average FTE wage of less than $50,000. Has a qualifying healthcare arrangement in place.
Pay at least 50% of each enrolled employee’s coverage.
Pay the same percentage for all employees.
Can cover up to 35% of the cost of providing health insurance coverage to employees.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Tax Credits (Cont.)
Payroll Tax Credit
2% raise for 2011 only at this point
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Tax Credits (Cont.)
Research and Development An incentive to encourage employers to
develop products and processes in the U.S.
Applies to most industries. Based on expenses not revenue. Can amend back three years for refunds.
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Tax Credits (Cont.)
Miscellaneous MD Credits
Empowerment Zone Employment Opportunity Research and Development Job Creation and Recovery Heritage Structure Rehabilitation
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Planning Tips Defer Income, Prepay Expenses
Have a year end tax projection prepared State Taxes, AMT Issues, Cash Flow vs. Taxable
Income
Review potential deductions/credits by year end
Shifting income using trusts (e.g. – defective trust, family partnership)
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Planning Tips (Cont.) “Bunching” Strategy to Itemize Deductions
Interest/Taxes, Misc.
Repairs vs. Depreciation
Manage Adjusted Growth Income Phase-outs
Self Employed Retirement Plan IRA, ROTH, Self Directed ROTH, Solo 401K Evaluate conversions
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Planning Tips (Cont.) If it looks like you are going to owe income taxes,
consider increasing Federal income taxes withheld from your paychecks.
Take advantage of tax breaks for purchasing equipment, software, and certain real property.
Collect cost-basis information on securities sold
Review realized and unrealized gains and losses
Basis in S-Corporation and Partnership
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Planning Tips (Cont.) Review your estimated tax requirements and
payments that have been made
Character of income (e.g. – sell raw land)
Regulate Level of Participation
Stock Sales / Dispose Passive Activity
Contribute to education accounts
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Planning Tips (Cont.) Prepay rent or mortgage
Donating property to charity
New contractor deduction
Employees vs. Independent contractor
1099’s
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Planning Tips (Cont.) Pay children
Compensation issues
Selling real estate contracts
Cost Segregation
1031 Exchange
Accounting / Quickbooks_______________________ www.glassjacobson.com _______________________
10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300 Rockville, MD 20850
410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060
Questions?
_______________________ www.glassjacobson.com _______________________10711 Red Run Blvd, Suite 101 Owings Mills, MD 21117 1901 Research Blvd, Suite 300
Rockville, MD 20850 410.356.1000 – 800.356.7666 – fax 410.356.2892 301.917.3040 – fax 301.738.7060