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Paul H. Roskoph Professional Corporation

HAPPY HOLIDAYS AND A HEALTHY 2012

TO ALL THE READERS OF THE PAUL H. ROSKOPH PROF. CORP. WEB PAGE

My apologies for the "vacation" from monthly articles. I had intended to re-start in September but, as one of my clients told me after a delinquency, "Life got in the way."

And so it did, with an extended and wonderful vacation and then a ton of work upon my return – so the articles fell behind; especially when I decided I would try a mini-treatise to inform you all about "Prop 13" and its progeny – a multi-month series on the many issues associated with property tax, taking it with you to a new home and passing it to the children. It got complex and unfinished. I will provide that in 2012, and I look forward to it.

In the meantime, I am including some information on year-end tax planning, IRA minimum distributions (which those who are 70-1/2 must adhere to quickly (by December 31) to avoid severe penalties for failure to withdraw if you have not yet done so.

Thanks for your readership. I hope these notes are helpful. I enjoy preparing them.

Year-End Tax Planning

Once again as we approach year-end, we look to tax ideas that may reduce the income tax bite for the year. The typical ideas include (1) contributions to your IRA or other retirement plan, (2) purchasing items if you are in business that you can immediately write off under the accelerated Section 179 provisions, (3) conversion of your IRA to a ROTH IRA (although this accelerates income tax rather than diminishing it), (4) making charitable gifts using appreciated assets, and (5) prepaying deductible items such as California income taxes. Of course, any plan must consider the alternative minimum tax and should be coordinated with your own personal tax advisor. You should also review your own investment portfolio in this fluctuating market to see if you can offset unrealized long-term capital gains with unrealized losses, and consider selling both to a near-neutral gain and loss result. Remember, also, that if you sell a capital asset (stock, for example) at a loss and repurchase the same stock within 30 days, the loss will be voided.

Tax rates for 2011 and 2012 are the same, so actions should not be based on any proposed tax rate change. Tax rates increase substantially in 2013 under current law.

Gifts to your favorite charity of appreciated assets will grant you a charitable deduction equal to the fair market value if you have held the capital asset more than one year. This will also allow you to avoid the taxable gain on the sale of the asset. So if you plan a gift to a charity of appreciated stock, don't sell it and give proceeds. It will cost you tax. Give the stock directly to the charity BEFORE THE END OF THE YEAR. MAKE SURE THE TRANSFER AGENT HAS TIME TO COMPLETE THE TRANSFER THIS YEAR. Conversely, if you have stock with a loss that you want to give, don't give the stock: sell it, claim the loss and give the proceeds to the charity. Typically these assets include stocks or bonds held for more than one year.

Don't forget gifts to your children and grandchildren if you are able, but these will not save you income taxes; more likely it will produce a smile and maybe a thank you. Saving for education by a contribution to a "529 Plan" is also a good idea but will not save you any income tax. It will allow those assets to grow without tax if the money is eventually used for education.

REQUIRED MINIMUM DISTRIBUTIONS

See the link for information and distribution requirements:
http://www.irs.gov/retirement/article/0,,id=96989,00.html

LOW INTEREST RATE PLANNING ENVIRONMENT

During this historical period of low interest rates, earnings are reduced, but the same factors allow strategic opportunities for estate planning. These opportunities include:

  1. low rate loans to children (or other desired recipients)
  2. loans to "grantor trusts"
  3. loans from "by-pass trusts" established at the death of the first spouse to advance money to children or grandchildren when gifts are not otherwise permitted under the terms of the trust
  4. GRATS (a whole topic unto itself, but if you are interested, you should seek information)
  5. Charitable lead trusts (not remainder trusts, although they are always appropriate for planning consideration)

Details about these will follow in subsequent articles while the rates of interest remain low. These are not year end tax planning issues but longer estate planning considerations.

HAPPY HOLIDAYS AND A HEALTHY 2012 TO ONE AND ALL



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