TAX LAW UPDATE: ITS IMPACT & PLANNING FOR 2012 AND THE FUTURE

1. TAX LAW UPDATE:ITS IMPACT & PLANNING FOR 2012 AND THE FUTURE The Guru Tax & Financial Services, Inc. Satya B. Mitra Ph.D., E.A., CFP® 508-797-0005

2. U. S. INCOME TAX HISTORY • In 1913 tax revenue was 3% of GDP • Currently it is 15-20% of GDP • Noteworthy changes from FDR to Reagan to Clinton to George W. Bush

3. WHERE DO YOUR TAXES GO?

6. CURRENT MAJOR FACTORS TO IMPACT TAX LAWS • High U.S. debt: $16T • Huge budget deficit, 2011: $1.3T • Stubborn unemployment • Cost of social security / health care • 78 million retiring baby boomers • Growing political discontent & disagreement • Presidential election result

7. INCOME TAX RATES • Income tax brackets (married filing jointly) • 36% / 39.6% brackets return

8. CAPITAL GAINS RATES • Long-term capital gains rates are scheduled to increase from 0 to 10% for the 10 and 15% brackets.

9. DIVIDEND RATES • Dividend rates could increase from 15% to 36% or 39.6% depending on a taxpayer’s marginal tax rate

10. MEDICARE EXCISE TAX • EXTRA 3.8% TAX LIABILITY ON UNEARNED INCOME FOR AGI OVER $200,000 (SINGLE) AND $250,000 (MFJ) • Capital gain • Dividends • Interest • Royalty • Net rental income

11. CHANGE IN MEDICARE TAX FOR HIGH EARNING EMPLOYEES • Additional 2.35% on earnings over $250,000.00

12. AMT PATCH EXPIRING:A HUGE IMPACT • 4 MILLION IN 2011 • EXPECTED 31 MILLION IN 2012 • AMT IN 2013?

13. GIVE YOUR GIFT IN 2012:GIFTING IN 2013 COULD BE COSTLY. • LIMIT CHANGES FROM • $5.12M TO $1M!!!

14. ESTATE PLANNING AND HIGHEST ESTATE TAX RATES • Jump from 35% to 55% in 2013 • Exemption amount in 2012 is $5.12M • Expected to go down to $1M in 2013

15. DIRECT DONATION OF IRA DISTRIBUTION TO CHARITY • NOT AVAILABLE IN 2012

16. DEDUCTIONS EXPIRED FOR YEAR 2012 • Mortgage insurance premium • Classroom expenses ($250) for teachers • General sales tax vs. State income tax deduction • Non business energy efficiency credit

17. OTHER SIGNIFICANT TAX LAWS EXPIRING AFTER YEAR 2012 • Social security 2% tax cut • $1,000 child tax credit • 7.5% medical expense deduction • Full use of deductions and exemptions • $2,500 American opportunity tax credit • Enhanced depreciation • Exemption from mortgage debt forgiveness

18. DECLARTION OF FOREIGN BANK ACCOUNT AND FOREIGN ASSETS • Offshore Voluntary Disclosure Program (OVDP) • Possible serious penalties and tax liability

19. ELECTION IMPACT • President Obama • Renew the cuts for those making under $250,000 • Have wealthy pay their fair share • Mitt Romney • Maintain lower income tax rates • Make Bush tax cuts permanent for savings and investments

20. PLANNING STRATEGY (PART 1) • Income acceleration & income deferral • Deductions acceleration & deductions deferral • Keep AMT in equation before exercising stock options • Sell assets with gain in 2012 • Consider yearly dividend earnings from investments • High net worth tax payers consider $5M lifetime gifting to reduce estate tax

21. PLANNING STRATEGY (PART 2) • Business owners plan on setting up right retirement plan, hiring veterans, purchasing vehicles over 6,000 pounds • Hire your children under 18 in your business • Invest in municipal bonds, growth oriented mutual funds, annuity, life insurance • Consider Roth IRA conversion • Contribute appreciated stocks to charity

22. AUDITS • IRS, DET and state audits have significantly increased • Keep good records • Proofs of all deductions for at least 3 years

23. Future of tax law, the election, legislation by congress after election, the extension or repeal of Bush tax laws… ALL ABSOLUTELY UNCERTAIN. STAY TUNED.

24. THE MESSAGE TO YOUR CLIENT IS “PLAN” • Pay • Less • Act • Now

25. T H A N K S FOR YOUR ATTENTION