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