Accountant in Miami Devises Multiple Tax Planning Scenarios
Accountant in Miami are advising their clients to formulate more than one tax planning strategy that could be implemented at the end of the year depending on how and when lawmakers address expired and expiring tax law, Accountant in Miami Gustavo A Viera advised clients.
The need for a multipronged approach was created at the end of 2011 when Congress allowed the “patch” for the alternative minimum tax and dozens of so-called tax extenders to expire. The need intensified in April when Internal Revenue Service Commissioner Douglas Shulman warned that the tax filing season could be a “real disaster” if Congress waits until December to act or if it has to act retroactively in early 2013.
Finally, according to Accountant in Miami VieraCPA, it reached a new level of urgency when Congress adjourned in early August for a five-week break without enacting any tax changes.
“We are looking at our clients’ year-ends on two different scenarios,” said Gustavo A. Viera CPA, managing partner in an Accountant in Miami with a Miami Consulting Service. “We are calculating what it would be based on the existing rules and what it would be based on what the new rules would be.”
If Congress fails to act, the number of middle-income households impacted by the AMT would jump from about 4 million to approximately 30 million. A failure to act also would mean that taxpayers could not claim extenders such as the research and development tax credit, the deduction for state and local taxes, and the allowance of tax-free distributions to charity from an Individual Retirement Arrangement held by someone age 70.5 or older.
But because Congress did not address AMT and extenders in 2011, it must now address them while dealing with a pending expiration of the 2001 and 2003 tax cuts, including the estate tax and the reduced capital gains rate.
Gambling on the Best Deal
“Right now everybody is in a holding pattern,” said Viera, managing partner in an Accountant in Miami.
Viera agreed, but said he advises his upper-income clients not to sit by and wait for Congress to act because, like in 2010, it might not happen until the very end of December and they could be caught off guard. In 2010, IRS had to delay the filing season to mid-February for all but the easiest tax returns.
Viera said he and his clients are coming up with ideas and attaching trigger dates to them, such as the Thanksgiving holiday, for when they should choose which path to go down.
Some decisions are easier than others, however, particularly when it comes to capital gains. Beginning in January, individuals with an adjusted gross income of more than $200,000 ($250,000 for married, filing jointly) will be subject to a 3.8 percent tax on some qualified unearned income such as capital gains. Also, absent congressional action, the 15 percent base capital gains rate would rise to 20 percent, which would jump further to 21.2 percent with the return of the so-called “Pease” provision.
Given the various scenarios, at a minimum, the capital gains rate will increase to 18.8 percent and at a maximum, it will increase to 25 percent. Some lawmakers have said the higher capital gains rate could result in a sell-off of appreciated assets by the end of 2012.
Viera sent his clients a letter at the start of August advising them that if they have capital gains on something they are considering selling, they should go ahead and sell it this year while the rate is still 15 percent.
More Time, Money Spent
Viera explained that clients must spend more money on financial planning and tax planning Miami advice because much more work has to go into their portfolio, as evidenced by Viera’s multiple scenario strategy.
But another consequence is that Accountant in Miami cannot bill and do not get paid until the tax return is filed. When the 2010 tax filing season was delay until mid-February 2011, he said he had corporate and individual tax returns stacked up waiting for the last-minute changes from Congress and then his firm essentially completed six weeks’ worth of labor costs without reimbursement.
Viera said clients are worried because they cannot make even simple tax planning decisions, which means they come to their practitioners, who need to spend more time on their year-end projects, which then costs the clients more money.
“Somebody in Washington really needs to step up and say ‘let’s get this done before the first Tuesday in November,’ but it’s not going to happen,” Viera lamented. There are currently eight scheduled work days in September for the House and Senate.
Viera urged Congress to come back and finish its work fast. “It’s not going to be any less painful next year, so just get it done,” he advised.