We have received a many inquiries recently regarding tax planning for next year. There was uncertainty as to what the tax outcomes would be during the presidential election. Since the re-election of President Barack Obama, one of the most important new areas of concern for year-end tax planning in 2012 is the 3.8 percent “unearned income Medicare contribution” tax on higher-income individuals, estates and trusts.
Taking effect immediately on January 1, 2013, the Medicare surtax will be imposed on the taxpayer’s “net investment income” and will generally apply to passive income. The Medicare surtax will also apply to capital gains from the disposition of property. The Medicare surtax will not apply to income derived from a trade or business, or from the sale of property used in a trade or business.
The tax applies to an individual on the lesser of the taxpayer’s net investment income or the amount of “modified” adjusted gross income (AGI) above certain thresholds. The AGI thresholds for the calculation are:
- $250,000 for married individuals filing jointly
- $200,000 for unmarried individuals
- $125,000 for married persons filing separately.
Your AGI is reported on your U.S. tax return and there are several items that are added back to determine your “modified” AGI.
Since the Medicare surtax will not apply until 2013, taxpayers face several important decisions while a window of opportunity still exists:
- Whether to sell off assets and recognize gains in 2012, thus avoiding subjecting them to tax in 2013 or later
- How to reduce net investment income in 2013 and thereafter
- How to reduce modified AGI in 2013 and thereafter
Reprinted from the October 4, 2012 “CCH Tax Briefing”
Until the Department of Treasury issues clarifying regulations, uncertainty remains regarding which types of investment income will be subject to this new tax. Taxpayers whose modified AGI exceeds the thresholds described above should consult their tax adviser to plan for the imposition of this tax. Specifically, business owners should discuss with their tax adviser whether it would be more advantageous to become “active” in their business rather than “passive” for purposes of this tax.
In summary, as the new mandate gets fully implemented is extremely important that you advises us before of any potential transactions.
AG TAX LLP Can Help
If you have any other tax-related queries, and/or need assistance with tax planning/filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and corporate tax returns
- Cross Border Taxation and Business Planning
- Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
- 604-538-8735 (Greater Vancouver Area, BC)
- 780-702-2732 (Greater Edmonton Area, AB)
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.