In Shakespeare’s classic drama Romeo and Juliet, star-crossed protagonists from feuding families meet and fall in love. In Act II, when the impossibility of their courtship has become clear, Juliet leans out her balcony and declares to her lover “What’s in a name? That which we call a rose by any other name would smell as sweet.” The line, of course, implies that Romeo’s last name should mean nothing, and the two should be together.

Shakespeare may or may not have been right about love and roses. But what about taxes? Does that which we call a “tax,” by any other name smell as sour? Apparently, Washington thinks not — if you pay attention to all the new euphemisms, you’d think Washington has given up imposing new “taxes” entirely!

In 1952, the IRS started charging “user fees” when the government provides special benefits to a recipient beyond those given to the general public. Today the government raises over $200 billion per year in fees for services like approving retirement plan applications, driving heavy vehicles, entering national parks, and even walking to the top of the Statue of Liberty. But “user fees” are still “fees,” and Americans seem to have figured out that trick. So, what now?

Now we’re seeing even more clever names for what most of us would consider plain old taxes. Take, for example, the new “unearned income Medicare contribution” that goes into effect on January 1. This is a 3.8% levy on “investment income” (interest dividends, capital gains, rents, royalties, and annuities) for individuals earning over $200,000 or joint filers earning over $250,000. Washington created it as part of the Obamacare package, along with an increase in the Medicare tax on earned incomes over those same thresholds. But, while they call it a “Medicare contribution,” the money doesn’t actually go into the Medicare trust fund. It goes straight into the general revenue fund, where Washington can spend it on whatever they want.

The “unearned income Medicare contribution” isn’t Obamacare’s only euphemism for “tax.” Beginning on January 1, 2014, applicable large employers with 50 or more employees have to offer their employees minimum essential coverage or pay a $2,000/employee “assessable payment.” That’s a nondeductible “assessable payment,” by the way, so the actual cost might be even higher. Sure sounds like a tax to us.

Finally, there are taxes in disguise that have the same bottom-line effect as more direct taxes. If you start taking Social Security benefits before your normal retirement age and earn more than the retirement earnings test exempt amount ($14,640 for 2012), you’ll pay a Social Security earnings penalty of one dollar for every two dollars you earn above that limit. Doesn’t that sound like a 50% tax? (The penalty drops to one dollar for every three dollars in earnings above $33,880 in the year you reach normal retirement age, then disappears after that year.)
The good news here is that we can help. Whether you’re looking to pay less “tax”, minimize your “unearned income medicare contribution,” sidestep the “assessable penalty,” or avoid the “Social Security earnings penalty,” planning is your plain-English solution. So call us — and make sure you do it now before Washington comes up with any more new names for taxes! And remember, we’re here for your family, friends, and colleagues, too!

As the tax-filing season approaches, the identity thieves are gearing up with tax scams to sucker you into providing them with your identity information, which they can then use to charge against your credit cards, tap your bank account, steal your tax refund, file a fraudulent tax return in your name . . . the list goes on and on.

These thieves are clever, and some even disguise e-mails to look as if they come from a government agency; the IRS banner has been used in many scams to steal taxpayer identities.   For example,  you may receive an e-mail with the IRS banner indicating you have a refund coming and directing you to a web site where you are duped into revealing your identity to obtain the refund.

Don’t be a victim! Always be suspicious of such e-mails and keep in mind the IRS never initiates contact via e-mail.  Another tip is look at where the e-mail originated.  If it is not from IRS.gov, then it is a trick.  If you are not sure, please call this office for advice.

If you suspect your identity has been compromised, please call this office for assistance. The IRS also provides guidance at www.irs.gov/uac/identity-protection.

We all know money can’t buy happiness, blah, blah, blah. But money can buy a lot of other good stuff we all want — like comfort, security, freedom, and independence. So, last week, millions of us across America lined up at gas stations, convenience stores, and bodegas to take a shot at last week’s record Powerball jackpot of 588 million bucks.

Admit it — even if you didn’t play, you couldn’t help but dream at least a little about what you would do with all that money. That house you’ve always wanted on the most expensive street in town? The beach house or ski lodge you’ve always wanted to share with your friends? Lavish gifts for your family, favorite charities, and community? (It’s OK to dream just a little bit more before you finish reading.)

But here’s an ugly reality you probably don’t want to think about. No matter where you choose to spend your windfall, the biggest piece of all will go to your friends at the IRS. (Yes, those nice folks at the Multi-State Lottery Association will send the IRS a Form W-2G alerting them to your good fortune.) With jackpots this big, the tax collectors in Washington will probably put a plaque on the wall with your name on it!

Your first decision involves whether to take your prize in a lump sum this year, or an inflation-adjusted annuity over the next 30 years. And big decisions, as always, mean taking taxes into consideration. Taking your loot all at once means paying the top federal income tax rate of 35%. That may sound like a lot, but at least you’ll know exactly how much the tax will cost. Taking the prize in installments means paying whatever tax rate is in effect the year an installment is paid. Next year, for example, the Bush tax cuts are scheduled to expire, pushing the top tax rate to 39.6%. Next year also marks the first appearance of the Unearned Income Medicare Contribution, a 3.8% tax on “investment income” including annuities. And who knows what other new taxes might appear over the next 30 years?

Uncle Sam isn’t the only one who’s going to want a piece of your action. Forty-three states tax lottery winnings as ordinary income. Some states even tax your winnings if you just buy your ticket there without even living there. Do you live in Pennsylvania and work in New York? Don’t buy your ticket around the corner from the office unless you want to cut the Empire State in for 8.82%!

Of course, there are plenty of strategies you can use to offset the income from the prize. Do you own your own business? Consider establishing or beefing up your qualified retirement plan. Maybe a closely-held insurance company (CHIC) makes sense for even bigger savings. Are you charitably-inclined? You can offset up to 30% of your “adjusted gross income” with gifts to a private foundation and 50% for gifts to a “public” charity.

So, if you find yourself with a winning ticket, call us before you host that press conference and cash your ticket!

But if you don’t win that Powerball jackpot, good tax planning is even more important. That’s because you don’t have millions to waste on taxes you don’t have to pay! So call us anyway — and make sure you do it now before the New Year brings new taxes. And remember, we’re here for your family, friends, and colleagues, too!

The year’s end has historically been a good time to plan tax savings by carefully structuring capital gains and losses.  Let’s consider some possibilities.

If there are losses to date − As an example, suppose the stocks and other capital assets that were sold during the year result in a net loss and that there are other investment assets still owned by the taxpayer that have appreciated in value. Consideration should be given to whether any of the appreciated assets should be sold (if their value has peaked), thereby offsetting those gains with pre-existing losses.

Long-term capital losses offset long-term capital gains before they offset short-term capital gains. Similarly, short-term capital losses offset short-term capital gains before they offset long-term capital gains. Keep in mind that taxpayers may use up to $3,000 of total capital losses in excess of total capital gains as a deduction against ordinary income in computing adjusted gross income (AGI).  Individuals are subject to tax at a rate as high as 35% on short-term capital gains and ordinary income. But long-term capital gains are generally taxed at a maximum rate of 15%.

All of this means that having long-term capital losses offsetting long-term capital gains should be avoided, since those losses will be more valuable if they are used to offset short-term capital gains or ordinary income. Avoiding this requires making sure that the long-term capital losses are not taken in the same year as the long-term capital gains. However, this is not just a tax issue; investment factors also need to be considered. It would not be wise to defer recognizing gain until the following year if there is too much risk that the property’s value will decline before it can be sold. Similarly, one wouldn’t want to risk increasing a loss on property that is expected to continue declining in value by deferring its sale until the following year.

To the extent that taking long-term capital losses in a different year than long-term capital gains is consistent with good investment planning, a taxpayer should take steps to prevent those losses from offsetting those gains.

If there are no net capital losses so far for the year – If a taxpayer expects to realize such losses in the subsequent year well in excess of the $3,000 ceiling, consider shifting some of the sales and resulting excess losses into the current year. That way, the losses can offset current year gains, and up to $3,000 of any excess loss will become deductible against ordinary income in the subsequent year.

For the reasons outlined above, paper losses or gains on stocks may be worth recognizing (i.e., selling the stock) this year in some situations.  But if the stock is sold at a loss with the idea to repurchase it, the repurchase cannot be within a 61-day period (30 days before or 30 days after the date of sale) under the “wash sale” rules.  If it is, the loss will not be recognized and will simply adjust the tax basis of the reacquired stock.

Careful handling of capital gains and losses can save substantial amounts of tax. Please contact this office to discuss year-end planning strategies that apply to your particular situation so as to maximize tax savings.