Issue 3 – October 2012 Part 1
Newsletter Archive

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This month’s newsletter is given over completely to year end tax planning. It is in two parts. Part 1 – Year End Tax Planning For Individuals and Part 2 – Year End Tax Planning For Businesses. 

The tax year end is less than three months away so there is not much time to put any planning points in to action.  Remember that to have a tax effect many planning points need to be acted on before the end of the tax year.

When reading these tax planning points remember the overriding caveat to not allow the "tax tail wag the dog".  In other words if a planning point does not make commercial or personal sense for your circumstances then it is not right to act on it just for the tax savings.

Year end tax planning is more complicated this year due to the uncertainty over many tax issues that have not yet been addressed by Congress.  As it currently stands none of the outstanding issues will be looked at until Congress reconvenes after the General Election.  That will leave them about 6 weeks to sort them out before the end of 2012.

A host of reduced tax rates, credits, deductions, and other incentives (collectively called the "Bush-era" tax cuts) are scheduled to expire after December 31, 2012. To further complicate planning, over 50 tax extenders are up for renewal, either having expired at the end of 2011 or scheduled to expire after 2012. At the same time, the federal government will be under sequestration, which imposes across-the-board spending cuts after 2012.

In the rest of the newsletter I will address how to plan for these outstanding tax issues.

If you have any topics or questions that you would like me to cover in the newsletter do not hesitate to call me on (480) 363-4808 or email me at

Enjoy the newsletter.

Mark Smith – October 2012



Upcoming Dates For Your Diary
Expiring Incentives
Year End Tax Planning For Individuals
Featured Advisor


October 10, 2012 – Any employees with more than $20 of tips in September 2012 need to report these to you.

October 15, 2012 – Individuals who filed an extension must file their 2011 tax returns, forms 1040, 1040A or 1040EZ.  Note that non-residents with a normal filing deadline of June 15 and who filed an extension have until December 17, 2012 to file their 2011 tax return, form 1040NR.

October 31, 2012 – Employers must file their third quarter Federal form 941 and State withholding and unemployment forms.



  • Effective January 1, 2013, the individual income tax rates, are scheduled to increase across-the-board, with the highest rate jumping from 35 percent to 39.6 percent.
  • The current 10 percent rate will expire and marriage penalty relief will sunset.
  • Additionally, the current tax-favorable capital gains and dividends tax rates (15 percent for taxpayers in the 25 percent bracket rate and above and zero percent for all other taxpayers) are scheduled to expire.
  • Higher income taxpayers will also be subject to revived limitations on itemized deductions and their personal exemptions.
  • The child tax credit will be cut in half.
  • Millions of taxpayers would be liable for the alternative minimum tax (AMT) because of expiration of the AMT "patch."
  • The payroll tax holiday (2% reduction in employee social security payments) expires.
  • Countless other incentives for individuals would either disappear or be substantially reduced after 2012.

Whilst there is some bipartisan support to prevent some or all of these tax increases, a year-end planning strategy that protects against "worst-case" situations may be wise to consider this year.



Many of the traditional tax planning techniques can still be used this year.  These include deferring income to the following year and advancing deductions in to this year.  However, in light of the potential tax increases next year you may wish to adapt these for your own personal circumstances and even consider advancing income into this year.  They key is to run some numbers with your tax advisor to see what the potential impact of each planning point might be.

Here are some suggested planning ideas.

Education Expenses – The very beneficial American Opportunity Credit (AOC) is due to expire at the end of 2012 to be replaced by the return of the Hope Credit.  The AOC is available for the first 4 years of post-secondary education with up to 40% of the maximum $2,500 credit repayable even if there is no net tax liability.  To maximize the AOC for 2012 consider paying for 2013 first quarter’s tuition before the end of 2012.

Capital Gains – Given the potential loss of the current beneficial long term capital gains tax rates consider realizing long term capital gains before the end of 2012.  If you want to retain the investment position you can always buy back the investment after the sale.

Capital Losses – If you have investments showing a loss consider if it would be beneficial to sell the investment in 2012 or a later year to realize the loss.  If you have capital gains in 2012 see if they are being taxed at the beneficial 0% long term rate.  If so you will probably want to delay realizing any losses until a later year when the 0% long term rate may no longer apply.  When realizing capital losses don’t forget the wash sale rule which prevents a deduction for the loss if you buy the same asset within 30 days of the sale.

Investment Income – Starting in 2013 a new 3.8% Medicare surtax on investment income will apply to joint filers with an adjusted income (AGI) greater than $250,000 or single filers with AGI greater than $200,000.  Investment income includes interest, dividends, annuity income, rents and royalties.  Consider advancing some of this income in to 2012 and also maybe gifting investment assets to other family members.  Also, putting more funds into retirement plans may be beneficial as the future withdrawals will not be treated as investment income.

Itemized Deductions – If you itemize deductions consider bringing some forward in to 2012 if the 2013 income limitations might reduce the amount of itemized deductions you can claim.

Medical Expenses – Starting in 2013 those under 65 will only be able to claim medical expenses if they exceed 10% of their AGI.  In 2012 the limit is 7.5%.  For those over 65 this will apply in 2017.  Consider bringing forward medical expenses or paying off medical expense debts in 2012 when it will be easier to exceed the limit.

Advancing Income – Normal year end tax planning would try to delay the receipt of income so that the tax on that income is delayed as well.  However if it looks like you might be in a higher tax bracket in 2013 consider asking your employer to pay any bonus or commission before the end of 2012.  Similarly if you are over 59 1/2 years old taking a distribution from your IRA in 2012 may mean less tax than taking it in 2013.

Pensions –  If the higher tax rates do come in to effect in 2013 there may be a more compelling argument to convert traditional IRAs to Roth IRAs.  The future distributions from a Roth IRA are tax free so it may be worth paying tax on the conversion in 2012 at tax rates that might be lower than would be suffered on future distributions from the traditional IRA.  As with all pension planning always talk to your investment advisor before implementing any pension changes.



They key to year end tax planning this year is run the numbers for your own personal circumstances based on the "Bush tax cuts" being extended and with them not.  See what the difference is and remember don’t let the "tax tail wag the dog".



In each newsletter I feature an advisor who you may find helpful for your business or personal needs.  If any of my clients would like to be featured send me an email with your up to date details and suggested wording to describe your services.

For this issue I am featuring Andrea Brundage a professional organizer.

Name – Andrea Brundage

Firm – Simple Organized Solutions (S.O.S.)

Tel – 480-832-1085

Email –

Web –

Professional organizers can take you from chaos into calm.

Sort. Organize. Simplify

Is your home your sanctuary or just another place of stress?

Do you need help getting organized? At home? At work?

Do you find yourself sorting through the same piles day-after-day?

Do you just need someone to help get you started?

Are you ready to make a positive change in your life?

Simple Organized Solutions (S.O.S.) is a professional organizing company that can help turn your chaos into calm. S.O.S. provides organizational services to business owners, homeowners, and winter visitors that are customized to meet each client’s needs.

Founder, Andrea Brundage, has 25+ years of administrative management/accounting experience in the corporate world, and an MBA degree, but her true love is helping people remove the chaos out of daily living and replace it with calm, whether at home or in the office. She is a creative problem-solver, she enjoys working with people, and many clients have commented how calm they feel after working with her.

Home & Business Offices

 Business office set-up or reorganization

Streamlining and simplifying processes

Administrative: job descriptions, Standard Operating Procedures, etc.

De-cluttering: homes, home offices and business offices

Closets, pantries, offices, etc.

Downsizing or “right” sizing

Packing and unpacking for transitional moves

Customized services

Computer & Software Training

Basic computer/internet training

Assistance with financial record organization

Andrea Brundage is available for speaking engagements and workshops. Call (480) 832-1085 or visit for more information. She can also be found on LinkedIn and Facebook.


Disclaimer – This newsletter does not constitute personal accounting or tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate accounting or tax planning depends on your personal and unique circumstances.