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Hanover, NH office 603.643.6072
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Woodstock, VT office 802.457.9492

September 7, 2012 Newsletter Archive

Late Summer Planning Opportunities

As summer comes to a close it seems like the right time to consider year-end planning. For those of us who have taxable estates there are currently two very different, yet significant year-end tax planning matters for consideration.


We presently have the opportunity to make gifts of up to $5.12 million (less any previously used gift exemption amount). This opportunity is scheduled to expire at the end of this year with the return of a $1 million exemption amount and a higher tax rate (55% compared to 35%). A similar exemption amount reduction is scheduled under the generation skipping tax.

During the summer the Senate passed a bill extending most of the Bush tax cuts for another year. Significantly, the Senate removed from the bill extension of the $5.12 million gift/estate tax exemption amount. Of course there is the upcoming election and how that will impact the future of the estate/gift tax exemption amount in the future is unclear, but the current opportunity will exist for the balance of 2012. Therefore, if you wish to take advantage of the current favorable gift tax rules you need to act expeditiously.


As you know, the Affordable Care Act (ACA) was upheld by the Supreme Court. The ACA is a very complicated law with various triggering dates for its numerous components to come into effect. One significant event set for January 1, 2013, is the implementation of the 3.8% surtax on net investment income for higher income individuals. Higher income individuals are defined as single individuals earning more than $200,000 and married couples with incomes exceeding $250,000. The 3.8% surtax applies to net investment income but only to the extent the taxpayer's income exceeds the applicable $200,000 or $250,000 income threshold. In other words, for a couple with an income of $280,000 and $40,000 of net investment income, $30,000 of their net investment income would be subject to the surtax. If an individual's income exceeds the threshold, then all net investment income up to the amount of total income above the $200,000/$250,000 threshold is subject to the 3.8% surtax.

To fully understand your potential surtax exposure under the ACA, it is critical to understand the definition of net investment income. Net investment income is generally what you would expect it to be, such as interest, dividends, annuities, and net capital gains. It does not include wages, self-employment income, active business income, IRA distributions or qualified retirement plan distributions. It also does not include tax exempt bond income or life insurance proceeds.

One tax planning opportunity available for this year is converting taxable IRAs to Roth IRAs. Taking this action puts the resulting income from the conversion in 2012 and all future years' distributions from the Roth IRA will not be treated as net investment income. Life insurance also continues to be attractive because proceeds are received income tax free and the cash value of the life insurance is available through policy loan. Tax-deferred annuities and installment sales are beneficial because they allow for taxable income to be received over time in smaller increments versus one large taxable event. Whether the ACA law changes dramatically after the upcoming election is very difficult to predict, but at the moment we know that it passed Constitutional muster. Therefore, planning for the January 1 surtax date is essential.

If you have any questions concerning the present gift tax opportunity or how best to structure your affairs this year in preparation for the ACA 3.8% surtax, please contact us at 603-643-6072 or 802-457-9492.

We would love to hear from you! If you are interested in guest writing for our newsletter or simply have a comment to share, please let us know.

Melendy Moritz PLLC is a client centered boutique firm. We focus on your unique needs by providing the individualized legal counseling and advising tailored to your specific situation.

We concentrate on the planning that matters to you.
Call us at 603.643.6072 or 802.457.9492


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