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C.H. Robinson

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Living with Volatility

Written by Summit Wealth on .

The current renewed volatility in financial markets is reviving unwelcome feelings among many investors—feelings of anxiety, fear, and a sense of powerlessness. These are completely natural responses. Acting on those emotions, though, can end up doing us more harm than good.

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Tax Planning Opportunity To Think About – Charitable Contribution and Required Minimum Distributions

Written by Summit Wealth on .

  • Required Minimum Distribution / Charity Opportunity:  A reminder, as we work our way to the end of the year and you still have a Required Minimum Distribution to take.  With the passage of the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, Congress reinstated the ability of taxpayers to make direct qualified charitable distributions (QDC) from an IRA (up to a maximum amount of $100,000) by IRA owners who are at least 70½ years of age.  The maximum QDC is $100,000 per person for 2011
  • KEY PLANNING POINT:  The QDC  is not included in taxable income and therefore no tax is due on the distribution.  That said, no charitable deduction is allowed for the QDC.
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Estate Planning Exemptions Offer Opportunity in 2011 and 2012

Written by Summit Wealth on .

Estate Planning Exemptions for 2011, 2012 & 2013

Estate Tax Exemption:  For 2011 and 2012 the basic exemption is $5 million per person with a top tax rate of 35% for both years.   As things currently stand for 2013, the basic exemption amount will revert back to $1 million per person with no portability and a top estate tax rate of 55%.

Portability of Exemptions:  The 2010 tax act allows for the transfer of a predeceased spouse’s unused estate tax exemption to the surviving spouse if an election is made by the executor of the predeceased spouse’s estate.

NOTE:  Under the current law, the portability provisions sunset at the end of 2012. 

 

Gift Tax Exemption:  For 2011 and 2012 the basic exemption is $5 million per person with a top tax rate of 35% for both years.  As things currently stand for 2013, the basic exemption amount will revert back to $1 million per person and a top gift tax rate of 55%.

NOTE:  Portability does apply to the gift tax exemption.

 

Generation Skipping Tax Exemption:  For 2011 and 2012 the basic exemption is $5 million per person with a top tax rate of 35% for both years.   As things currently stand for 2013, the basic exemption amount will revert back to  $1 million per person and a top generation skipping tax rate of 55%.

        NOTE:  Portability does apply to the gift tax exemption.

KEY PLANNING POINT:  For those looking to transfer assets to their family while they are alive, it is important that you work closely with your financial advisor and estate planning attorney in 2011 / 2012 regarding potential strategies to ensure your gifting is accomplished according to your wishes. 

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Medicare Tax – Opportunity for Concentrated Stock Positions

Written by Summit Wealth on .

Additional Medicare Tax Coming in 2013 

Beginning in 2013 a new 3.8% tax will apply to the “unearned” income of “high income taxpayers”.  An additional 0.90% tax will apply to the “earned” income of many of these same individuals.  Both taxes are referred to as “Medicare” taxes.

For purposes of this new “Medicare” tax,  high income taxpayers are defined as:

  • Single taxpayers with Adjusted Gross Income (AGI) in excess of $200,000
  • Married couples filing a joint tax return with AGI in excess of $250,000

NOTE: These AGI amounts are not indexed for inflation

Unearned income is defined as the income that an individual derives from investing his / her capital.  It includes capital gains, rents, dividends and interest income.  It also comes from some investments in active businesses if the investor is not an active participant in the business.

  • The new 3.8% Medicare tax is assessed only when AGI is more than $200,000 single / $250,000 married filing joint. 

For example, if a single individual has AGI of $275,000, then the excess over $200,000 would be $75,000.  Assume that this individuals net investment income is $60,000.  The new 3.8% tax applies to the smaller amount.  In this example, $60,000 of net investment income is less than the $75,000 excess over the threshold.  Therefore, in this example, the 3.8% tax is levied against the $60,000.

KEY PLANNING POINT:  For those that are looking to diversify out of a concentrated, significantly appreciated stock position, it makes sense to consider doing so in 2011 or 2012, given that upcoming increase in the Medicare tax (due in 2013) along with that anticipated increase in the long-term capital gains tax rate (also anticipated to take effect in 2013).

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Videos – Insurance

Written by Summit Wealth on .

My wife and I sat down last night and took a look at our wedding video (VHS!) that a good friend took at our wedding.  I have to admit, it has been years since we last viewed it.  It was fun to relive that special day.  I highly recommend digging out your wedding video, picture album or high school yearbook and reliving the good old days. 

But then, the financial planner that I am, I got thinking about our house inventory video, and how long it had been since we took the videotape (VHS too!).  Reviewing that tape was fun too (well maybe I do need to get out more), seeing some of the old appliances and furniture we had – emphasis, had.  I realize, we need to get our inventory tape up-to-date.  As much as we recommend clients videotape the contents of their house (documentation for the insurance claim in case of fire, or some other disaster), we assume they know to occasionally update the video.   It isn’t much good if we are asking for replacment of an old black and white TV that long ago went to the recycling.

The message for you, is if you haven’t taken a video of your household, do so.  And if you have, make sure it is up-to-date.   This is a great tool should you need to document your belongings, especially for insurance purposes.  Another side use is documentation of items you give to charity for which you want a tax deduction.   A video is much easier to prepare than listing with each and every one of your belonings, but that is an alternative.  Stop and think about it, could you sit down now, and list all of your household belongings, including what you have hiding in the attic?  The insurance company will ask you for an itemized list of belongings, should you need to make a claim of loss.  Take it from someone who has gone through that process without a reference, it is a pain.

As for that wedding video?  I think I better get that converted to DVD, since we are going to recycle the VHS recorder soon.  Come to think of it, the home inventory better be preserved on DVD as well.

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