Articles Tagged ‘Sub S Company’

What You Can Do This Year to Reduce Higher Taxes in 2013 & Beyond

Thursday, September 27th, 2012

This year began with the fate of the Bush-era tax cuts uncertain. Today, prospects of any agreement between Democrats and Republicans before the November elections are a long-shot at best. The likelihood of a lame-duck Congress deciding the fate of the Bush-era tax cuts increases daily. We are also facing mounting uncertainty about how taxes will be structured in 2013 and beyond.

If your company is a Sub S and your company’s profits flow through to your personal tax returns, you have a great opportunity to do some very important tax planning this year (approximately the next 90 days). If the Bush tax cuts are eliminated, here are some key changes that we know about. Dick Morris has more info which we will cover later in this newsletter.

Income Tax Rates for Individuals
•10%, 15%, 25%, 28%, 33% and 35% rates are gone and are replaced with
•15%, 28%, 31%, 36% and 39.6% rates
•Capital gains increases from 15% to 20%
•Marriage penalty back in law. The deductions for married couples will be 167% of the deduction for single individuals rather than 200% now.
•Higher income tax payers may see their deductions for personal exemptions reduced or eliminated under the personal exemption phase-out rules.
•Child Tax Credit will be reduced from $1,000 now to $500 per eligible child.
•Company Education Assistance Exclusion – more stringent rules
•Student Loan Interest deduction will be reduced when adjusted gross income exceeds $60,000 for singles and $125,000 for couples.
•Generational-skipping transfer tax, rate dramatically increases

Example – What is the impact of the elimination of the Bush-era Tax cuts:

#1. Assume a couple with two children eligible for the child tax credit, filing a joint return, taking the standard deductions, with $130k income, $10k net capital gains and $2k dividend income. Their tax liability for 2013 is estimated to be:

With Bush Tax Cuts…………………………$19,485 tax due for 2013

Without Bush Tax Cuts………………………$25,898 tax due for 2013

Difference…………………………………….$6,413

#2. Assume a couple has no children, filing a joint return, taking the standard deduction, with $300k income, $50k net capital gains, and $5k dividend income. Their tax liability for 2013 is estimated to be:

With Bush Tax Cuts…………………………$77,721 tax due for 2013

Without Bush Tax Cuts………………………$89,934 tax due for 2013

Difference…………………………………….$12,213

Dick Morris recently came out with a video giving his estimates of tax changes, given a second Obama administration. http://www.youtube.com/watch_popup?v=-wIfI2whjiM
•Top tax rate increasing from 35% to 39.6%
•Social Security taxes, currently limited to first $106,000, will be based on all compensation earned – no cap
•Elimination of state and local taxes on federal return
•No mortgage deductions for income above $250,000
•Limited mortgage deduction on income $100k – $150k
•Capital gains tax on houses sold over $250,000, currently no taxes paid
•Capital gains tax increased from current 15% to 30%

Who really pays for Federal Taxes in the United States? This was sourced from the National Tax Payers web site www.ntu.org.
•Top 1% paid 38.02% of all federal taxes
•Top 5% paid 58.72% of all federal taxes
•Top 10% paid 69.94% of all federal taxes
•Top 25% paid 86.34% of all federal taxes
•Top 50% paid 97.30% of all federal taxes
•The bottom 47% of tax payers pay no federal taxes at all

Get with your tax accountant and tell them how much money you expect to make this year (W-2 and company-if you are Sub S) and start planning to move expenses into 2013 and 2014; don’t take drastic steps to reduce taxable income in 2012. But the key word is PLAN. Take advantage of this opportunity now, unless you enjoy paying more taxes.

Dan Lacy
Growth & Profit Coach, Financial Strategist, Cash Flow Doctor, CEO Mentor
dan@dynastybuilder.com
phone: 765-644-8887

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