Winter 2012 Volume XVII, No. 2 Newsletter

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Winter Notes:

winterIt’s hard to believe that a year has passed since Travis and I combined our individual tax practices.

Here are some of our 2012 highlights:

  • We moved to larger offices within our existing facility.
  • We e-filed over 98% of our individual tax returns.
  • We retained our valuable employees, Jeff Linker and Marilee Turnbull.
  • We added Robin Kline as our Quickbooks certified bookkeeper.

Social media rules! That seems to be the anthem all around town for the past few years. Expanding your ability to communicate and learn exponentially is an awesome thing. Social media is a force. It has become ingrained in the ways we work, play and communicate – and it’s pretty darned cool too. But it’s not a replacement for meeting with clients and socializing with them too. Social media is meant to enhance what we do, not replace it. Keeping that in mind, when it comes to the social part, it’s hard to beat that old-school face to face. That’s what we believe…  

Maryland Tax Law Changes:

When the Maryland legislature met last spring in a Special Session to complete the state budget, the result was an increase in taxes and fees. Specifically, Maryland state individual income tax rate brackets were changed, moving more income into the higher rate brackets and adding a new top income tax bracket, beginning in tax year 2012. The changes impact Maryland individuals with taxable income in excess of $100,000 and households with taxable income in excess of $150,000.

The deduction for personal exemptions was reduced or eliminated for high income individual taxpayers. Under the new law the phase-out of the exemption is accelerated for high income taxpayers and the minimum exemption amount is reduced from $600 to zero. Individual taxpayers with more than $100,000 (single) and $150,000 (households) of taxable income have been targeted for the change.

While the amount of increase in your Maryland tax obligation will depend on your individual situation, a joint filer, living in Maryland with two children and $300,000 of Maryland taxable income would see their Maryland state and local tax increase by approximately $1,500.00.

Tax/Budget Uncertainties Impact 2012 Planning Strategies:

America is facing an urgent crisis, brought on by the more than $600 billion in spending cuts and tax increases that will automatically take effect on January 1st, unless the President and Congress act soon. While many news accounts predict the dire consequences of an upcoming “fiscal cliff”, I’d like to concentrate on potential tax changes scheduled to occur during 2012 and 2013:

Alternative Minimum Tax (AMT) is a formerly obscure provision of the tax code which dates back to the Nixon era. Unless Congress acts by the end of the year, more that 26 million households will face AMT for the first time. Residents living in high-cost urban areas usually are hit the hardest since AMT preys on taxpayers taking itemized deductions such as state taxes and property taxes. Year-end tax planning has traditionally looked at a taxpayer’s potential liability for AMT, and 2012 is no different. As in past years, taxpayers are waiting to see if Congress will enact an AMT “patch” for 2012. The last patch expired after 2011.

Chances are good that tax rates will not get any lower than they are right now. The Bush-era income tax rates are set to expire at year-end. It is possible that the current lame-duck Congress could once again punt the tax provisions to the new Congress that will meet in January, 2013. The same goes for capital gains and qualified dividends which have been taxed at low rates (15% or less) for the past decade.

In our last newsletter we covered the higher taxes created by the health care reform legislation. Specifically they are the 3.8% Medicare contribution tax on investment income which starts in 2013. In addition, high-income wage earners must also contend with a 0.9% additional Medicare tax that starts in 2013.

The 2011 and 2012 payroll tax holiday is set to expire after December 31, 2012, raising the employee’s share of FICA from 4.2% to 6.2%.

Education costs are a key component of year-end planning for many taxpayers. 2012 is the final year of the American Opportunity Tax Credit (AOTC), which was enacted in 2009. During 2013, the Hope Credit and Lifetime Learning Credit will reappear. We hope that Congress brings back the AOTC – as CPA’s we’ve observed over the years what a big assist that the AOTC has been for taxpayers making less than $180,000. Education tax credits for taxpayers form the backbone of incentives that allow our children to achieve higher learning.

Health flexible spending arrangements (FSA’s) are a popular savings vehicle for qualified health care expenses. After 2012, however, the maximum contribution to a health FSA will be capped at $2,500 instead of the past $5,000 limit.

The current estate and gift tax rates effective through 2012 are set at a maximum rate of 35 percent with a $5 million exemption amount. Unless extended, the maximum estate tax rate will now revert to 55 percent after 2012, with a $1 million exemption amount.

Now that we are past the election, I believe that the Affordable Care Act will go into effect, more or less on schedule, ensuring that nearly every American has health insurance. Financial reforms will continue to be hammered out, and Wall Street will continue to be hemmed in. Whatever deficit-reduction deal we reach will include tax increases on wealthier Americans and defense cuts overall.

Closing

On November 14, Travis and I hosted a client appreciation lunch event for our corporate clients entitled “Your Retirement Options“. We provided lunch catered by Nordstrom Café in our brand new state-of-the-art training room located here in Columbia. Scot Millen from Brightworks Wealth Management was our co-presenter and gave us some wonderful insights.

On December 6, we will once again be teaming with the folks from Scott & Stringfellow (Martin Miller & Matt Horn) to present a dinner seminar entitled “Challenges Facing Equity Investors”. This informative seminar will be held at Eggspectation in Ellicott City and will feature Farley Shiner from Scott & Stringfellow. Farley has spoken successfully at a number of our past dinner seminars and he will be putting together a fabulous and riveting presentation. As always, there is no charge and you can RSVP anytime. Due to space limitations we are limited to the first thirty respondents.

It’s hard to believe another year has gone by, and it’s time to think about gathering all of that tax information again. We hope that you had a great 2012 and are happy and healthy. This tax season we return all of our exceptional professionals. We sincerely appreciate your continued business and look forward to speaking with each of you shortly. As we head into what promises to be a very busy and productive season, we’d like to thank everyone who came in recently for year-end planning – I think you will agree that it was time well spent. I’d like to thank everyone for their thoughtful referrals. We couldn’t do what we do without our terrific client base and our valued networking partners, and it’s certainly appreciated when you take time out of your busy day to refer us a new client. So, thank you!

 

 

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Matthew R. Horowitz, C.P.A.
(410) 312-7622 • email
10015 Old Columbia Rd. Suite B-215, Columbia, Maryland 21046