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Take Charge: Your Money. Your Life. Plan Now for 2013: Tax, Gift and Estate
Planning Tips
What to Do Before December 31, 2012
Brought to you by:
360 Degrees of Financial Literacy and
America's CPA Financial Planners
Personal Financial Planning Section 360 Degrees of Financial Literacy
Let’s get this out of the way …
The general information contained in this web seminar
is provided by the American Institute of Certified
Public Accountants as a service to the public and our
members. It is not intended to serve as tax, legal or
any other professional advice applicable to any
particular person or matter.
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Lyle Benson, CPA/PFS
President, L.K. Benson & Co.
Ted Sarenski, CPA/PFS
President, Blue Ocean Strategic Capital, LLC
Scott Sprinkle, CPA/PFS
Partner, Sprinkle Financial Consultants, LLC
Introductions
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Agenda
Setting the stage
Proactive planning opportunities
Reviewing your tax return
Where to find help
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Personal Financial Planning Section 360 Degrees of Financial Literacy
2013 Tax Changes (if no action is taken)
Income Tax
• Bush tax cuts expire: increase in ordinary income, capital gains,
and qualified dividend rates
• 3.8% Medicare surtax on net investment income of high-income
individuals (MAGI > $200k single, $250k MFJ, $125k MFS)
• 0.9% increase in Medicare payroll tax for high earners
• Marriage penalty relief expires
Estate Tax
• $5 million exemption reverts back to $1 million
• Increase in estate tax rate from 35% to 55%
Gift Tax
• $5 million exemption reverts back to $1 million
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Comparison of 2012 vs. 2013 Tax Rates
2012
2013 &
Beyond
10% 15%
15% 15%
25% 28%
28% 31%
33% 36%
35% 39.6%
2012
2013&
Beyond
0% 10%
15% 20%
(23.8% if
surtax
applies)
Ordinary Income Long-Term
Capital Gains
Personal Financial Planning Section 360 Degrees of Financial Literacy
Political Environment Uncertainty = Flexibility
Election Year
• Unlikely that we’ll have any certainty until last quarter
• Start planning now, gathering data, preparing projections, drafting
estate documents, etc.
What the proposals say
• Bush tax cuts – extended or eliminated?
• Tax rates – will we see increases or tax cuts?
• Dividends and capital gains – how will they be taxed?
• AMT – will it stay or go?
• Estate tax in limbo
Much remains to be seen. Don’t wait until after the election to
take action!
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Proactive Planning
Opportunities
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Income Acceleration and Planning Added dynamics of President’s proposal
• Requires min 30% effective rate for those with income over $1
million annually
Harvesting gains
• Last quarter of the year
• Not affected by 30-day wash sale rules
• Monitor elections for deemed sales
Comp and benefit issues
• Exercise stock options
• Pay bonuses before year-end
• Deferred compensation elections
(Don’t necessarily forego deferral accounts, particularly when there are
matching provisions. Educate your clients and consider the political landscape.)
Roth conversions
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Income Acceleration and Planning
Cash basis taxpayers
• Accelerate billings
Other income acceleration ideas
• Accrue bond interest in 2012 versus 2013
• Accelerate installment payments
Other planning
• Re-allocation of portfolio based on tax changes (qualified plan
versus non-qualified plans, etc.)
• AGI planning between 2012 and 2013 to effectively manage the
new 3.8 percent Medicare tax in 2013
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Itemized Deduction Planning
What will happen to itemized deductions?
• Flexibility is important.
Accelerate itemized deductions in 2012
• Set up donor advised funds and fund future year’s charitable
contributions in 2012
• Accelerate miscellaneous itemized deductions by prepaying
expenses to get above the 2% limit
Interest rates at historically low levels
• Look at the clients Form 1098 and mortgage statement
• Discuss their refinancing strategy
• Evaluate all of the client’s debt
Alternative minimum tax situation
• Consider prepaying real estate taxes and personal property
taxes
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Estate & Gift Tax Planning 2012 Estate/gift tax exemption linked at $5,120,000
One way…
• Estate/GST $3.5 million exemption
• Gift tax $1 million exemption
• Rates jump from 35% to 45%
• Retain portability
• Disregard valuation discounts
• Limit GRAT to 10-year term (zeroed out GRAT goes away)
• Limit GST to 90 years – dynasty trusts no longer viable
• Grantor trust benefits go away
Or the other…
• Status quo - keep $5 million+ exemption for estate and gift
If nothing passes:
• $1 million exemption and 55% rate
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Estate & Gift Tax Planning
Who can benefit most from planning
• Elderly or ill, those who live in a state where state estate tax is
decoupled from fed, clients who have asset protection needs,
non-married same sex couples and wealthy
Impediment towards getting your clients to take
action
• Complexity (setting up trusts, etc.), cost of advisors, appraisals,
etc., disbelief that changes are going to take place, uncertainty
• Advisors need to help their clients understand the detriments to
not planning ahead and taking action when necessary (run
projections and show them the impact)
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Estate & Gift Tax Planning
Start now! Use up exemption in 2012
• Some techniques take months to implement (GRATs, IDGTs),
etc.)
• Need to start now to educate clients, draft documents, prepare
valuations, etc.
Income generation through CRUTs
Opportunities with low interest rates (GRAT)
Asset efficiency implications of gifting
Drafting to gift but not gift
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Estate & Gift Tax Planning Beware of large outright gifts
• They are not protected from creditors claims and the remainder
is not kept in the family
Reasons to gift now:
• Save estate tax (federal and state)
• Asset protection (if via trust)
• Grandfather for GST
• Grandfather for grantor trust changes
• Lock in discounts
• Remove appreciation from estate
Cash flow planning and running of projections is
essential before taking action (create plan to ensure
client is comfortable before triggering)
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Examples of Issues to Consider Based on the Tax Return
Your age can be great starting point for discussions
with your CPA financial planner or CPA/PFS!
Baby Boomers
• When to collect Social Security (spousal considerations)
• Medicare and healthcare considerations
• Safe withdrawal rates
• Required minimum distributions
• Roth conversion planning
• Long-term care insurance (start these conversations with clients
even in their 40s!)
Younger clients
• Retirement planning (comp & benefit planning)
• Education planning for children
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Personal Financial Planning Section 360 Degrees of Financial Literacy
Investment planning • Capital gain harvesting
• Investment strategy from tax standpoint
• Diversification and asset allocations
• Adequacy of savings
• Consider providing copies of your investment statements even if your
CPA financial planner is not managing the assets
Itemized Deductions • Interest
• Medical expenses
• Charitable contributions
• State and local taxes
• Casualty and theft losses
• Gambling losses
• Miscellaneous
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Examples of Issues to Consider Based on the Tax Return
Personal Financial Planning Section 360 Degrees of Financial Literacy
Use this checklist to
identify financial planning
opportunities as you
analyze your tax return.
Download this checklist at
www.360financialliteracy.org
along with other
resources
Tax Return for PFP Checklist
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Personal Financial Planning Section 360 Degrees of Financial Literacy
How to Choose the Right CPA Financial Planner
Choosing the right financial planner may be one of the
more important decisions you make in your lifetime.
Ideally, you will be creating a trusted relationship that
works for the long term. Selecting a planner is like
choosing a CFO, a confidant, a friend, a teacher, a
psychiatrist and counselor all rolled into one. Here are
some tips to help you make this important decision:
• Educate yourself
• Ask about qualifications
• Inquire and investigate
• Connect
• Choose a CPA/PFS or CPA financial planner
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www.findacpapfs.org
Personal Financial Planning Section 360 Degrees of Financial Literacy
Resources
Additional resources are available online at
www.360financialliteracy.org. Among them:
• Ask the Money Doctor
• Checklists to use with your own return
• Today’s PowerPoint presentation
• Archived recording of today’s webinar
• Tips on choosing a financial advisor
www.findacpapfs.org
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