- Year End Tax Planning -
- Retirement Plans -
People Do Crazy
voter approval of Prop 30 on Tuesday results in an increase
in California income taxes starting with this 2012 tax year.
These new California tax rates will be effective to the end
of 2018, and are as follows:
tax rate on individuals with income $250,000 to $300,000, and
joint filers with income $500,000 to $600,000, will increase
1% from 9.3% to 10.3%.
tax rate on individuals with income $300,000 to $500,000, and
joint filers with income $600,000 to $1,000,000 will increase
2% from 9.3% to 11.3%; and
rate on individuals with income more than $500,000 and joint
filers with income more than $1,000,000 will increase 3%
from 9.3% to 12.3%.
there is an additional 1% tax for incomes over $1,000,000
under the previously approved California Mental Health
Services Tax. The result is a maximum California income tax
rate of 13.3% for single filers with income of more than
$500,000 or joint filers with income of more than $1,000,000.
These above income brackets will be adjusted for inflation in
future years under Prop 30.
These new California tax rates will effect people selling
their businesses, real estate, houses and those with large
At this time it still remains unclear what changes Congress
and the President will agree to on the federal income taxes,
and estate and gift taxes. As you can observe in the News a
lot of predictions are being thrown around of what changes to
the federal tax system will be made and when those changes
Employers Hiring Veterans by Year’s End May Get Expanded Tax
planning to claim an expanded tax credit for hiring certain
veterans should act soon, according to the IRS.
Many businesses may qualify to receive thousands of dollars
through the Work Opportunity Tax Credit, but only if the
veteran begins work before the new year.
Here are six key facts about the WOTC as expanded by
VOW to Hire Heroes Act of 2011.
1. Hiring Deadline: Employers may be able
to claim the expanded WOTC for qualified veterans who begin
work on or after Nov. 22, 2011 but before Jan. 1, 2013.
2. Maximum Credit: The maximum tax credit
is $9,600 per worker for employers that operate for-profit
businesses, or $6,240 per worker for tax-exempt organizations.
3. Credit Factors: The amount of credit
will depend on a number of factors. Such factors include the
length of the veteran’s unemployment before being hired, the
number of hours the veteran works and the amount of the wages
the veteran receives during the first-year of employment.
4. Disabled Veterans: Employers hiring
veterans with service-related disabilities may be eligible for
the maximum tax credit.
5. State Certification: Employers must
file Form 8850, Pre-Screening Notice and Certification Request
for the Work Opportunity Credit, with their state workforce
agency. The form must be filed within 28 days after the
qualified veteran starts work. For additional information
about your SWA visit the U.S. Department of Labor’s WOTC
6. E-file: Some states accept Form 8850
Visit the IRS.gov website and enter ‘WOTC’ in the search
field for forms and more details about the expanded tax credit
for hiring veterans.
Year-End Tax Planning Moves Forward
With or Without Congress
fate of many of the tax incentives taxpayers have grown
accustomed to over recent years will likely remain up in the
air until Congress and the Administration finally face off
weeks before year-end 2012.
While the results of Election Day will have bearing on the
outcome, no crystal ball can predict how the ultimate
short-term compromise will unfold.
As a result, some year-end tax planning must be deferred and
executed ”at the eleventh hour” only after Congress passes and
the President signs what will likely result in a stopgap,
temporary compromise for 2013.
Tax rates for higher-bracket individuals and a long list of
“extenders” provisions such as the child tax credit, the
enhanced education credits and the optional deduction for
state and local sales tax, hang in the balance. Real tax
reform for 2014 and beyond, in any event, won’t be hammered
out until 2013 is well underway.
For Traditional Planning for Individuals (click
For Traditional Planning for Businesses (click
to Qualify for Bonus Depreciation
Before Year-End 2012
The tax code provides for 50 percent first-year bonus
depreciation for 2012. If property qualifies for bonus
depreciation, the taxpayer can deduct 50 percent of the cost
of the property in 2012.
This can help a business bear the cost of investing in needed
equipment, as well as facilitate cash flow and provide
operating funds for the business. It is not too late to
qualify for 50-percent bonus depreciation for 2012.
In 2011, bonus depreciation was 100 percent. There have been
proposals to reinstate 100 percent bonus depreciation for
2012, but they have not been acted on. For 2012, 50 percent
bonus depreciation is available.
It expires at the end of 2012 and is not available for 2013.
(Note that certain longer production-period property and
transportation property still qualifies for 100 percent bonus
depreciation if it is acquired and placed in service during
Qualified property must be depreciable under the Modified
Accelerated Cost Recovery System (MACRS) and have a recovery
period of 20 years or less. Qualified property also includes
computer software, water utility property, and qualified
leasehold improvement property. The property generally has to
be depreciable under MACRS; thus, intangible assets amortized
over 15 years do not qualify for bonus depreciation.
There are other requirements for taking 50-percent bonus
depreciation in 2012. The original use of the property must
begin with the taxpayer. The property must be new, must be
acquired before January 1, 2013 (title must pass), and must be
placed in service before January 1, 2013. Being placed in
service requires that the property be installed and ready for
use in the business. The property must be in a condition or
state of readiness to be used on a regular, ongoing basis. The
property must be available for a specifically assigned
function in the trade or business.
The original use is the first use to which the property is
put. That, if a taxpayer purchases used property from another
business, the property will not qualify for bonus
depreciation. However, if the taxpayer makes additional
expenditures to recondition or rebuild acquired property,
these expenses can satisfy the original use requirement. A
person who acquires new property for personal use and then
converts it to business use is still considered the original
user of the property.
The acquisition date rules require that there not be a written
binding contract in effort before January 1, 2008 to acquire
the property. Property can qualify if the taxpayer entered
into a written binding contract for its acquisition after
December 31, 2007 and before January 1, 2013.
Self-manufactured property can qualify if the taxpayer begins
manufacturing, constructing or producing the property before
January 1, 2013. Property is deemed acquired when reduced to
physical possession or control. Regardless of the manner of
acquisition, the property must be placed in service before
January 1, 2013.
If the business does not have profits in the current year, it
can use the bonus depreciation deduction to create a net
operating loss, which can then be carried back (or forward) to
a profitable year and generate a refund. However, bonus
depreciation is not mandatory. Taxpayers may choose to elect
out of bonus depreciation, so that they can spread
depreciation deductions more evenly over future years.
Plan Loans as a Source of Ready Cash:
The Pros and
it is generally not considered prudent to withdraw funds from
a retirement savings account until retirement, sometimes it
may appear that life leaves no other option.
However, borrowing from certain
qualified retirement savings account rather than taking an
outright distribution might prove the best solution to getting
you through a difficult period.
If borrowing from a 401(k) plan
or other retirement savings plan becomes necessary, for
example to pay emergency medical expenses or for a replacement
vehicle essential to getting to work, you should be aware that
there is a right way and a number of wrong ways to go about
When a plan loan is not a taxable distribution
In general, a loan from a qualified employer plan, such as a
401(a) or 401(k) account, must be treated as a taxable
distribution unless you can meet certain requirements with
respect to amount, repayment period, and repayment method.
First, however, the terms of the employer-plan must allow for
plan loans. Due to administrative costs and other
considerations, plan loans are made optional for employer
plans. If permitted, however, loans must be made available to
A loan to a participant or beneficiary is generally not
treated as a taxable distribution if:
- The loan is evidenced by a legally enforceable written
agreement that specifies the amount and term of the loan and
the repayment schedule;
- The amount of the loan does not exceed $50,000 or half of
the participant's vested accrued benefit under the plan
(whichever is less);
- The loan, by its terms, requires repayment within five
years, except for certain home loans; and
- The loan is amortized in level installments over the term of
Plan loans may be made only from employer-based plans.
Individual retirement accounts (IRAs) cannot be used as
collateral for a loan, nor can a direct loan be made from the
IRA to the account holder.
People Do the
Larsen, former New York Yankee baseball pitcher, suddenly
decides to sell the uniform he wore when he pitched a perfect
game during the 1956 World Series.
Former NCAA basketball coach Bob Knight
decides to sell all his basketball championship rings.
Also up for auction: Ozzie Smith, famed St. Louis Cardinal
shortstop, Gold Glove awards Pete Rose’s signed agreement
banning him from baseball in 1989 Former boxing champion
Evander Holyfield’s championship belts
What is happening?
1) Collectibles tax rates could be going up substantially in
2013 because the 28% tax rate on gains from the sale of these
collectibles could be as high as 33-39.6%.
2) Investment sales, like collectibles, could impact your
Alternative Minimum Tax (AMT) exposure, effectively raising
taxes on your other income in 2013.
3) In addition, there could be an additional 3.8% tax on their
memorabilia sales in 2013 because of a new Medicare surtax
beginning in 2013 on investment earnings over $200,000 single
and, with a marriage penalty, $250,000 for married couples
filing joint tax returns.
4) Even non-collectible investment tax rates are scheduled to
rise. Long-term capital gains tax rates could go from 15% to
20% or higher.
Review your investment portfolio for possible tax efficient
transactions. This could mean selling a valuable collectible
or other long-term gain investments.
Consider making tax projections if the sale of investments
might expose your income to the two Medicare surtax provisions
(.9% of wages and 3.8% of investment income).
Conversely, if you are an avid collector look for deals in
December as other collectors sell their memorabilia to take
advantage of the lower tax rates in 2012!
To read this & my other articles online go to
and click on the Newsletter section.
always you can call me at 714-619-0667 if you have any
questions about investing, retirement or any other tax &
accounting related issues.
Regards, Monica Rebella, CPA/IAR
President, Rebella Accountancy