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2012 – 2013 Tax Planning

By 2012, Tax Tips

Despite all of the uncertainty over 2013 taxes, one thing we know for sure is that the top rate on capital gains and dividends will increase for higher income taxpayers. The culprit is the new 3.8% Medicare surtax.

This tax boosts the top rate on capital gains and dividends to 18.8%, rather than the current 15% for single taxpayers with modified adjusted gross income over $200,000 and couples over $250,000. Yes, the “marriage penalty” is back into play once again! The surtax is imposed on the lower of the filer’s net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income. It does not include tax free interest or retirement plan distributions.

Also, if the Democrats retain the White House and the Senate this fall, there is a good chance that the top rate for capital gains will increase from 15% to 20%. So, this would then be an 8.8% increase in tax.

It may be a good time to consider selling appreciated assets this year instead of in 2013. We would suggest consulting with your financial adviser in this area.

If you are planning a Roth conversion, doing it this year may be advantageous, as this will increase your AGI and may put you over the Medicare surtax AGI limitation in future years. Deferring compensation beyond 2012 may have the same results, so it may be more beneficial to recognize income in 2012 rather than future years if the opportunity is there.

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Work Opportunity Tax Credit

By 2012, Tax Tips

The Three Percent Withholding Repeal and Job Creation Act, P.L. 112-56, extended the work opportunity tax credit (now called the returning heroes and wounded warriors work opportunity tax credits) for businesses that hire certain military veterans. Employers are eligible for a credit of up to $9,600 for each qualified veteran that they hire after the law’s enactment (Nov. 21, 2011) and before Jan. 1, 2013. Tax-exempt organizations can qualify for a credit against their share of the Federal Insurance Contributions Act (FICA) tax they pay on wages to qualified veterans, provided the veterans are performing services related to the organizations tax-exempt function.

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Homestead Exemption Re-Instated

By 2012, Tax Tips

For 2012 property taxes due in 2013, please read below to see if you qualify:

Property Tax Exemption for Qualifying Seniors

The constitutional amendment providing for a Homestead Exemption for qualifying senior citizens was passed by voters in November 2000. For those who qualify, the exemption exempts 50% of a portion of the appraised actual value of the property from property taxes, as determined by the State Legislature. The portion of appraised actual value to which the 50% exemption applies can be changed by the State Legislature.

A property tax exemption is available to senior citizens, surviving spouses of senior citizens, and disabled veterans. For those who qualify, 50 percent of the first $200,000 in actual value of their primary residence is exempted. The amount of this exemption can be changed each year by the State Legislature (see above). The state pays the exempted portion of the property tax. Application requirements are as follows:

Frequently Asked Questions:

Who is Eligible? 
If you were 65 or older as of January 1, and you have continuously owned and occupied your primary residence in Colorado for at least ten consecutive years prior to January 1.

I applied for the exemption previously. Do I have to apply again? 
You need not reapply for the Senior Exemption if you applied and have been approved or previously received the senior property tax exemption and you still own and occupy the same property (and nothing has changed in ownership or occupancy since being approved for the exemption). You may download an application by visiting the website of your county assessor, or by contacting your county assessor’s office. You must apply by July 15th if not already registered.

How much is the exemption? 
The exemption exempts 50% of a portion of the appraised actual value of the property from property taxes, as determined by the State Legislature. The portion of appraised actual value to which the 50% exemption applies can be changed each year by the State Legislature and can vary from 0% to any amount the Legislature selects given budgetary and other requirements.

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Retirement Plan Contributions

By 2012, Tax Tips

There has been an increase in some retirement plan contributions for 2012. See the chart below for a comparison of 2011 and 2012 amounts:

2012 2011
401(k), 403(b), SARSEP, 457 $17,000 $16,500
SIMPLE Plans $11,500 $11,500
IRA $5,000 $5,000
Defined Contrilbution Wage Limit $50,000 $49,000

The over 50 catch up amounts remain $5,500 for 401(k). $2,500 for SIMPLE and $1,000 for IRA’s.

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Football Stadium District Sales Tax Expired December 31, 2011

By 2012, Tax Tips

Beginning January 1, taxpayers will no longer pay the one-tenth of one percent Football District sales/use tax. The Metropolitan Football Stadium District (FD) tax will end on December 31, 2011 as planned in the law that established the tax.

Taxpayers should not pay this tax after December 31 and businesses should not collect the tax after December 31. The Football District has generally the same geographic boundaries as the Denver area’s Regional Transportation District (RTD). For more information regarding RTD and FD boundaries, please see the form DR 1002 on the Colorado Department of Revenue website

Leases that are still in effect after December 31 may be subject to the Football Stadium District (FD) tax through the life of the contract. Businesses should use the form DR 0200, Colorado Baseball/Football District – Supplement to report the FD tax collected through leases. The same form should be used to report the Baseball Stadium District (BD) tax still being collected on leases entered into before January 1, 2001 that are still in effect.

The RTD and the Scientific and Cultural Facilities District (CD) taxes remain in effect in the Denver area. The RTD tax rates is 1% (one percent) and the CD tax rate is 0.1 % (one-tenth of a percent) for a total Denver metropolitan special district tax of 1.1%.

The Metropolitan Football Stadium District tax went into effect Janaury 1, 2001 to help fund construction of Invesco Field at Mile High, now known as Sports Authority at Mile High. The sales tax replaced the Denver Metropolican Major League Baseball Stadium District (BD) Tax.

Please make sure this change is made to your accounting systems effective 01/01/2012.

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