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Happy Holidays!

As we are about to enter the last week or so of 2012, I thought it best to point out a few tax-saving strategies that can still be implemented before the 2012 tax year ends.  I know that with all of the excitement of the holidays and the last minute preparations, taxes are the probably the last thing on your mind, but it only takes one of the strategies listed below to help to lower your 2012 tax bill.

Just like last year, my original goal was to hold off on sending out this information until after the President and Congress finalized their extensions of any expiring tax cuts as well as the other tax issues currently being debated, but as usual, they have spent months working on legislation that has yet to pass.  So I thought it best to go ahead and issue these tips ahead of their decisions and I will send out an update to the information below when there is one. As always, please contact someone at our firm should you have any questions about the information below and how it applies to your individual tax situation

Year-End Tax Planning for Individual Taxpayers

• Prepay your mortgage payment that is due on January 1, 2013 by December 31, 2012.  You can deduct the interest on your 2012 tax return.
• Charge deductible expenses like medical bills, state and local taxes, real estate taxes and charitable donations to your credit card.  By charging these expenses now, they become deductible in 2012 even if you do not pay the credit card bill until next year.
• Pay your state estimated tax payment that is due on January 15, 2013 no later than December 31, 2012.  This will count towards your itemized deductions on your 2012 tax return.
• Sell stock losses before the year ends.  This will help to offset any capital gains and possibly enable you to take a loss of up to $3,000 on your 2012 tax return.
• Maximize your charitable contributions and donate unwanted items before the year is over.  Please try to document the items that were donated and take pictures as well if possible.  Also, hold on to the receipts that you receive when donating.
• Exhaust all of the funds contributed to your Flexible Spending Account (FSA) by year-end. You may be able to charge expenses for 2012 through March 15, 2013, but please verify this with your employer as this is at their discretion.  Any remaining funds after the spending deadline are forfeited.

Year-End Tax Planning for Business Owners

• Cash-basis taxpayers, pay any outstanding bills by December 31,2012 (this includes mailing the check on December 31, 2012).   This will allow you to deduct the expense in the current tax year even though the payments may not hit your account until January 2nd or 3rd.
• Also for cash-basis taxpayers, remember that all payments that are received on or before December 31, 2012 are taxable in the current year.
• For accrual-basis taxpayers, write off any non-collectible accounts receivable before the year ends.
• Also for accrual-basis taxpayers, remember that your revenues are calculated based on what you invoice and bill between January 1, 2012 and December 31, 2012. Any invoices created after December 31, 2012 will be included in income for the 2013 tax year.
• If you are planning on upgrading your computer or any other office equipment, try to do so before year-end.  This will allow you to take advantage of any holiday promotions that are in effect and in most cases you can write off the entire purchase amount (against profits) for the 2012 tax year.
• Write off any obsolete inventory as of year-end.
• Purchase equipment before year end.  You can write-off up to $139,000 in equipment purchases in 2012.  If you are facing a profitable year and therefore, higher taxes, this could offer an instant last-minute deduction for your business.

There are quite a few important tax breaks that are set to expire at the end of this year – the “Fiscal Cliff” that is all over the news and the internet.  If Congress does not act to extend the majority of these benefits, pretty much everyone reading this will see an increase in their tax bill next year.  Below is a summary of some of the tax laws that are currently set to expire on December 31, 2012.

For individual taxpayers:

• The 2% reduction in Social Security taxes for employees will end and will go back to the prior rate of 6.2%
• Single filing taxpayers earning more than $200,000 and married filing taxpayers earning more than $250,000 will be assessed an additional 0.9% of Medicare taxes as well as an additional 3.8% tax on investment income
• The maximum amount of earnings that Social Security taxes are withheld on will increase from $110,100 to $113,700
• The current personal tax brackets of 10%, 15%, 25%, 28%, 33% and 35% will be increased to 15%, 28%, 31%, 36% and 39.6%
• The maximum capital gains tax rate will increase from 15% to 20%
• Dividends will now be taxed at regular income tax rates, which raises the maximum tax on dividend income from 15% to 39.6% for taxpayers in the highest tax bracket
• Currently, all taxpayers are entitled to an exemption of income based on the number of dependents claimed on a tax return, this will now be limited and phased out at higher levels of income
• The standard deduction for married couples will decrease from 200% of the standard deduction amount of a single tax filer to 167% of the standard deduction amount of a single tax filer
• Currently, there is no limitation on itemized deductions on Schedule A of your personal tax return, no matter what your income level may be – itemized deductions will now be reduced by 3% of the amount that higher income taxpayers earn over a predetermined income threshold
• Currently, medical expenses over 7.5% of a taxpayer’s adjusted gross income are deductible on Schedule A for taxpayers that itemize deductions, this minimum will now increase to 10% of adjusted gross income for all taxpayers under the age of 65
• The Child Tax Credit will be reduced from $1,000 per child to $500 per child
• The child care deduction limit of $3,000 for one child and $6,000 for two or more reduces to $2,400 for one child and $4,800 for two or more
• In 2012, only estates worth more than $5.12 million are taxed and they are taxed at a 35% tax rate – in 2013, estates valued at $1 million or more are taxable at a rate of 55%
• The Adoption Tax Credit will now only apply to the adoption of special needs children and both the tax credit amounts and the income phase-out ranges have been decreased
• The $5,250 of qualifying employer provided educational assistance that is currently excluded from employee taxable income will now be taxable to the employee receiving the benefit
• The American Opportunity Tax Credit which pays up to $2,500 per year in the first four years of higher education, will no longer be available
• The income tax exemption for debt forgiven on home foreclosures and repossessions will expire, thereby making any income realized on a foreclosure or repossession a fully taxable event

For businesses:

• The maximum Section 179 depreciation deduction on newly acquired fixed assets will decrease from $139,000 to $25,000
• The 15 year amortization(write-off) period for qualified leasehold improvements will revert to the previous term of 39 years
• 50% Bonus and Special Depreciation on new fixed asset purchases will no longer be available
• The research and experimentation tax credit will expire

Please remember, the information above contains general tax-savings information and it may or may not apply to your particular situation.  It is advised that you call and speak with someone at Shurek Accounting & Tax or your own tax adviser before making any of the moves listed above if you are not sure as to their deductibility.

Also, please be sure to check our website in the upcoming weeks for updates on the tax laws changes mentioned above that are currently being debated.  Once Congress and the President finalize the changes/extensions to the tax code, we will post updates so you have all of the relevant information.

Shurek Accounting & Tax would like to thank you for your business this past year and we hope that you and your family have a safe and enjoyable holiday season.