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December 2012


by Andrew D. Schwartz, CPA

It's not too late to cut your 2012 tax bill. Prior to December 31st:

  • Increase your 401(k) and 403(b) contributions if you haven't been contributing at the maximum rate all year.  This year you can put up to $17,000 into your 401(k) or 403(b) plan.  Anyone 50 or older by December 31st can put away an additional $5,500.  Contributing to a 401(k) or 403(b) plan at work is one of the best tax shelters available to you during your working years.  (Think about setting your 2013 retirement savings goals too.)

  • If you’re self-employed, consider setting up a Solo 401(k) by 12/31.  A Solo 401(k) plan lets a self-employed person hit the $50k retirement plan max with less income than a SEP IRA, and also allows a person aged 50 or older to put away $55.5k into a retirement plan for 2012.

  • Take a look at your withholdings and instruct your employer to withhold additional taxes if you haven’t had enough taxes withheld during the year to avoid getting hit with an underpayment penalty.  (Take a look at the IRS' Withholding Calculator to set your withholdings for 2013.)

  • Consider selling your investments held in non-retirement accounts that have decreased in value since your capital losses can offset other capital gains realized during the year (including from your mutual funds).  Excess losses can then be used to offset up to $3,000 of wages and other income.  Make sure to wait at least 31 days before buying back a security sold at a loss, or the IRS will disallow the loss under the "wash sale" rules.

  • Consider selling your investments that have increased in value if you are in the lowest tax bracket since the capital gains rate for you will be 0%, and this rule is slated to expire on 12/31/12.  You can then buy back those securities, and the "cost-basis" will be the higher amount.  This strategy will save you taxes down the road when you sell these securities.  Just make sure that the capital gains don't push you out of the 15% tax bracket, or you'll be taxed on those gains that fall outside that bracket.

  • Send in your January 2013 mortgage payment early enough so it will be processed prior to 12/31/12.  By sending in your payment a few weeks early, you can deduct the interest portion of that payment a full year earlier.

  • Clean out your closets and donate your clothing and household items to a charitable organization, since "non-cash" contributions are deductible if you itemize.  Don’t forget to get a receipt.  And you should make a list of each item donated, along with its condition, and snap a few photos as well.  Remember, only donations of clothing and household items in "good condition or better" qualify for a deduction.  (To track what you donate, download our Non-Cash Contribution Worksheet - Excel Version  or the PDF version, or use the App UDoGood.)

  • For gifts of money, making your donation by credit card before December 31st allows you to deduct the donation on this year's return, even if you don't pay your credit card bill until 2013.  And you always have the option of donating appreciated investments to charities. You get to claim your donation based on the value of the assets donated, without paying any capital gains taxes on the appreciation.  (Use this IRS tool to confirm a charity as legitimate.)

  • Pre-pay your projected state tax shortfall if you'll be itemizing your deductions and not subject to the alternative minimum tax.

  • Pre-pay and pay off your medical bills if your total medical expenses exceed 7.5% of your income and you itemize.

  • Evaluate whether you'll save any taxes by postponing 2012 income or deductions into 2013 or by accelerating 2013 income or deductions into 2012.

Got questions about year-end tax planning?  If so, please contact the closest MDTAXES CPA.



There has been a ton written lately about the upcoming Fiscal Cliff. Check out this article written by Andrew D. Schwartz CPA for the November 10th issue of Medical Economics (starting on Page 35) that details the potential tax increases coming our way on January 1st:



by Richard S. Schwartz CPA. CVA

Here is a list of all the changes that will be made to the Tax Code if Congress and the President aren't able to pass a Tax Act soon:

Personal Income Tax Rates:

  • 10% tax rate increases to 15% tax rate

  • 15% tax rate remains at 15% tax rate (but a portion increases to 28% tax rate for people filing as Married Filing Jointly)

  • 25% tax rate increases to 28% tax rate

  • 28% tax rate increases to 31% tax rate

  • 33% tax rate increases to 36% tax rate

  • 35% tax rate increases to 39.6% tax rate

Tax Rates on Capital Gains and Qualified Dividends: 

  • 0% long-term capital gains tax rate for taxpayers in the 10% and 15% tax brackets will increase to 15%.

  • 15% long-term capital gains tax rate for all other taxpayers will increase to 20%.

  • Qualified dividend tax rate at 15% will no longer exist.  Dividends will be taxed at your marginal tax rate.


  • 3% phase-out on itemized deductions for income that exceeds certain thresholds is re-instated.

  • Phase-out of personal exemptions once income exceeds certain thresholds is re-instated

New Medicare Taxes:

  • 0.9% Medicare tax (referred to as the Health Insurance or HI tax) imposed on wages and SE income that exceeds $200,000 for single filers and $250,000 for MFJ filers. (Payable by employees only.  Employers are not required to match that tax.)

  • A 3.8% Medicare surtax on net unearned/net investment income if MAGI exceeds $200,000 for single filers and $250,000 for MFJ filers.  Net investment income includes interest, dividends, annuities, royalties, rents, passive income, capital gains.  The surtax is the lesser of:

1.       Net Investment income, or

2.       The excess of MAGI over the threshold amount

 Social Security Tax:

  • Social Security taxes withheld from an employee's salary revert back from 4.2% to 6.2% of earnings.

  • Social Security wage base increases from $110,100 to $113,700.

Alternative Minimum Tax:

 Depreciation and Equipment Purchases: 

  • Maximum Section 179 depreciation reduces from $139,000 to $25,000. 
  • Bonus depreciation expires. 
  • Purchases of medical devises will be subject to a 2.3% excise tax on purchase price of the equipment.

 Estate and Gift Taxes:

  • $5M exemption (with an allowance of portability between spouses – when one spouse died the unused $5M exemption of the deceased spouse would be added to the exemption of the surviving spouse) reverts back to $1M (with no portability).

  • 35% Estate tax rate changes to progressive tax rates with the highest rate set at 55%.

  • Annual gift tax exclusion increased to $14,000.

  • 529 college savings amount increased to $70,000 ($140,000 joint)

 Other Expiring Provisions:

  • Marriage penalty relief (expending of the 15% tax bracket and standard deduction for MFJ filers to be twice that of Single taxpayers).

  • Dependent care credit based upon $3,000 per child and $6,000 for two or more children reduces to $2,400 and $4,800 respectively.

  • The child tax credit amount reverts from $1,000 to $500 and is no longer a "refundable" credit.

  • The American Opportunity college tuition tax credit. (The Hope and Lifetime Learning Credits both continue.)

  • The exclusion from gross income for discharge of indebtedness on a principal residence.

  • The exclusion for employer-provided education assistance (with an annual max of $5,250).

  • The $250 deduction for teacher expenses.

  • The deduction for Mortgage Insurance Premiums.

  • The deduction for state and local sales tax instead of state income taxes on Schedule A.

  • The above the line deduction of up to $4,000 for qualified tuition expenses.

  • The tax-free treatment of charitable distributions made from IRA’s of people over the age of 70.5.

  • Tax credits for plug-in vehicles and alternate fuel vehicles.

  • Tax credits for energy efficient home improvements.

Wait and See:

Will the re-elected President and the new Congress let all these tax rules expires?  We will need to wait and see.




Income Taxes

Saving and Investing




  • 4th quarter state estimates should be paid by 12/31 for people who itemize their deductions and won't be hit by the AMT.
  • Keogh plans and Solo 401(k)'s must be established by 12/31
  • 529 Plans must be funded by 12/31 to take full advantage of this year's gift limit of $13,000.  Next year, the gift limit increases to $14,000.
  • Last chance to maximize annual contributions to your 401(k) or 403(b) plan of up to $17,000, ($22,500 if 50 or older).


2012 & 2013 TAX FACTS

  • For 2012, the standard deduction for a single individual is $5,950 and for a married couple is $11,900. A person will benefit by itemizing once allowable deductions exceed the applicable standard deduction. Itemized deductions include state and local income taxes (or sales taxes), real estate taxes, mortgage interest, charitable contributions, and unreimbursed employee business expenses.
  • For 2012, the personal exemption is $3,800. Individuals will claim a personal deduction for themselves, their spouse, and their dependents. 
  • The maximum earnings subject to social security taxes is $110,100 for 2012, increasing to $113,700 for 2013.
  • The standard mileage rate is $.555 per business mile as of July 1, 2011, up from $.51 per mile for the first six months of 2011.
  • The maximum annual salary deferral into a 401(k) plan or a 403(b) plan is $17,000 in 2012, increasing to $17,500 in 2013.  And if you'll be 50 or older by December 31st, you can contribute an extra $5,500 into your 401(k) or 403(b) account that year.
  • The maximum annual contribution to your IRA is $5,000 for 2012, increasing to $5,500 in 2013.  And if you turn 50 by December 31st, you can contribute an extra $1,000 that year.  You have until April 15, 2013 to make your 2012 IRA contributions. 


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This Month's Topics

Checklist to Cut Your 2012 Taxes

Beware of Higher Taxes As Part of the Fiscal Cliff

2013 Tax Changes at a Glance

The FICA Refund for Medical Residents 

2012 & 2013 Tax Facts

Tax and Financial Planning Calendar for December 2012


Browse our index of previous months' newsletter topics

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In a shocking development, the IRS recently announced that they will be honoring the FICA tax refunds submitted by residency programs and individual doctors.  The catch is that only FICA taxes paid prior to 4/1/05 qualify.

For more information, go to our April 2010 Newsletter, our January 2009 Newsletter, or our February 2001 Newsletter or read through the IRS' Chief Counsel Advice Memorandum on this issue.

Let's work together to keep current on this hugely valuable tax break.  Please post whatever you read or hear regarding this FICA issue on our new Message Board we set up just for this topic.

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