April 17, 2014

2012 Year-End Tax Planning Considerations

Consider your future income, capital gain and payroll taxes:

The current tax environment is very uncertain. One thing is certain, if Congress does not take action before the end of the year, tax rates are scheduled to go up for 2013. The tax increases include the following:

  • The maximum marginal tax rate on long term capital gains will increase from 15% to 20%
  • Qualified dividends increase from 15% to ordinary income rates (high of 39.6%)
  • Marginal tax rates increase for ordinary income and the low 10% bracket will be eliminated
  • Payroll taxes increase from 4.2% to 6.2% on employees resulting in an additional 2% in tax

It is possible that Congress will act and these tax increases will be averted. However, even if Congress does act, it is likely that high net worth individuals will still experience a tax increase next year.

Consider your exposure to the 3.8% Medicare surcharge tax:

On January 1, 2013, certain provisions of The Health Care and Education Reconciliation Act of 2010 (the “Act”), including imposition of a new 3.8% Medicare surcharge tax, go into effect. The Medicare surcharge tax applies as follows:

  • The net investment income for high income taxpayers includes a 3.8% Medicare surtax on the lesser of two amounts: (1) their net investment income, or (2) the excess of the taxpayer’s modified adjusted gross income over a threshold amount
  • The threshold amount is $200,000 for single filers or $250,000 for joint filers and $11,650 for irrevocable trusts and estates with discretionary distribution provisions
  • Investment income is defined to include taxable interest and dividends, long and short term capital gains, annuity income, passive rental income, royalties, and passive activity income

Accelerating investment income in 2012 may be advantageous for you. The 3.8% Medicare surcharge tax is imposed on passive activities but not on income derived from an active business. Together with your accountant and financial planners, you may want to assess whether to sell assets and recognize gain, accelerating income this year to avoid the imposition of the 3.8% Medicare surcharge tax next year. Individuals may want to assess whether they are active or passive and explore opportunities of becoming active in their trade or business.

Consider the future of estate and gift taxation:

For the remainder of 2012, the combined gift and estate tax exemption is at $5,120,000 per person. The exemption significantly expands one’s ability to make lifetime gifts without incurring a gift tax. Time is running short to take advantage of the certainty of current law:

  • A married couple can gift a total of $10,240,000 free of any gift tax
  • Many states impose an estate tax, but far fewer impose a gift tax
  • Even at this late date, if you want to make lifetime gifts of amounts above $1,000,000 there is time to effectively and completely make gifts of your assets, removing them from your estate for estate tax purposes
  • Each person can make annual tax-free gifts of $13,000 per person, per recipient, as well as unlimited direct gifts for educational and medical expenses

Currently, this historically large exemption is scheduled to expire on December 31, 2012, with a return to a $1,000,000 exemption and a 55% federal tax rate on gifts over that amount. There is much speculation whether Congress will adopt an exemption over $1,000,000, but the fact is that no one knows and everyone is guessing. Where your legacy is concerned, don’t be caught short relying on speculation.

© 2002-2013 by Williams Kastner ALL RIGHTS RESERVED

About the Author


Abby Wool Landon is a member in the Portland office of Williams Kastner. She is an estate planning, wills and trusts, tax, business and probate attorney with extensive experience advising closely-held family businesses in various capacities. Owner of her own law firm for ten years, business owner and member of several family partnerships, she brings hands-on business experience to her clients. Ms. Landon helps her clients with wills and trusts, complex business transactions, business succession and estate plans. If required, she assists them in navigating the probate process, and probate,...


About the Author

Attorney at Law

Karen Hobson is a tax, estate planning and business attorney in the Portland office of Williams Kastner.  Her practice focuses on estate and gift taxation, estate and trust administration, business transactions and tax controversy work.


Boost: AJAX core statistics

Legal Disclaimer

You are responsible for reading, understanding and agreeing to the National Law Review's (NLR’s) and the National Law Forum LLC's  Terms of Use and Privacy Policy before using the National Law Review website. The National Law Review is a free to use, no-log in database of legal and business articles. The content and links on are intended for general information purposes only. Any legal analysis, legislative updates or other content and links should not be construed as legal or professional advice or a substitute for such advice. No attorney-client or confidential relationship is formed by the transmission of information between you and the National Law Review website or any of the law firms, attorneys or other professionals or organizations who include content on the National Law Review website. If you require legal or professional advice, kindly contact an attorney or other suitable professional advisor.  

Some states have laws and ethical rules regarding solicitation and advertisement practices by attorneys and/or other professionals. The National Law Review is not a law firm nor is  intended to be  a referral service for attorneys and/or other professionals. The NLR does not wish, nor does it intend, to solicit the business of anyone or to refer anyone to an attorney or other professional.  NLR does not answer legal questions nor will we refer you to an attorney or other professional if you request such information from us. 

Under certain state laws the following statements may be required on this website and we have included them in order to be in full compliance with these rules. The choice of a lawyer or other professional is an important decision and should not be based solely upon advertisements. Attorney Advertising Notice: Prior results do not guarantee a similar outcome. Statement in compliance with Texas Rules of Professional Conduct. Unless otherwise noted, attorneys are not certified by the Texas Board of Legal Specialization, nor can NLR attest to the accuracy of any notation of Legal Specialization or other Professional Credentials.

The National Law Review - National Law Forum LLC 4700 Gilbert Ave. Suite 47 #230 Western Springs, IL 60558  Telephone  (708) 357-3317 If you would ike to contact us via email please click here.