Greene Publishing, Inc.

By Mark Buescher, C.P.A.
Guest Columnist

The new year is in full swing in Madison and it’s time to look forward to the rest of 2012. For tax planning purposes, you might want to look forward to 2013 as well, so you’re ready for federal tax law changes – those presently scheduled to arrive and those likely to be implemented.

For both types, early planning that incorporates strategies for reducing the impact of higher tax rates is a smart move. Why? One reason is the possibility of increased capital gain and ordinary income tax rates in 2013, after current rules expire.

Another is the 2010 health care laws, which introduced two new surtaxes slated to kick in next January. These taxes apply to wages, self-employment, and investment income. There are certain moves to consider now to offset the impact of changes currently scheduled to begin in 2013.

First, make smart investment decisions. As you make investment decisions during 2012, look for ways to take advantage of this year’s maximum long-term capital gain rate of 15%. For instance, you might sell appreciated assets before year-end and postpone selling those with losses until 2013.

When your modified adjusted gross income exceeds $250,000 on a joint return ($200,000 when you’re single), accelerating gains and deferring losses will mitigate the impact of the new 3.8% Medicare surtax on unearned income. This tax is scheduled to take effect January 1, 2013, and it applies to interest, dividends, rents, royalties, annuities, and capital gains in addition to the regular capital gain tax.

Perhaps you believe a stock in your portfolio has the potential for additional appreciation over the next year or two. Review your overall investment strategy, trans- action costs, and your tax bracket, and determine if it makes sense to sell the stock this year and immediately re-purchase it.

The result? You pay tax on your 2012 tax return for the gain already accrued, and you end up with increased basis in the future year when you’re ready to liquidate your stake. Higher basis means lower taxable gain and less tax.

Another thought as we look ahead: plan for higher taxes on dividends. Remember, too, under present rules dividends will no longer qualify for favorable capital gain rates after 2012. Instead, they’ll be taxed as ordinary income. If you are the owner of a C corporation, you might want to distribute dividends to yourself and your shareholders before year-end.

While double taxation of dividends can be a concern, the strategy can be especially effective if you qualify for the 10% or 15% tax brackets, where the applicable capital gain rate for 2012 is zero. When you’re married filing jointly, those brackets – and the zero percent rate – apply to taxable income of up to $70,700 for 2012.

Another way to prepare for higher capital gain rates is to shift your investments to assets that generate tax-exempt income, such as municipal bonds. Tax-exempt income is not part of the calculation when figuring the surtax on unearned income.

Setting up a retirement plan for your business in 2012 is another sound move. Contributing to a qualified plan gives you a double benefit in the future, when the Medicare surtax on net investment income takes effect. Benefit one: The contributions are made pre-tax. That can help keep your modified AGI below the $200,000/ $250,000 threshold imposed by the surtax. Benefit two: Qualified withdrawals you take after you retire are not subject to the surtax.

With the current tax rates scheduled to end after December 31, 2012, this year becomes a critical one for tax planning. The general expectation is that rates will go higher in 2013, at least for wealthier taxpayers.

The coming tax changes are comprehensive and your tax-saving plan needs to be comprehensive as well. The earlier you start, the easier it will be to make adjustments throughout the year as the law and your tax situation evolves.

Mark Buescher, CPA is owner and principal of Buescher and Ruff, LLC, a local full service accounting firm in Madison, specializing in tax preparation, business consulting and tax planning. Tax laws contain varying effective dates and numerous limitations and exemptions that cannot be summarized easily. For details and guidance for your specific situation, contact your tax advisor.

By Jacob Bembry
Editor

Once upon a time, in a fairy tale land and in a fairy tale castle lived the most beautiful princess ever written about. Like Helen of Troy in mythology, her face launched a thousand ships. Poets wrote poems about her but they could not capture her essence. The world’s master artists attempted to paint her but they could not capture her beauty.

She not only had beauty. She also had a great voice and a talent for music. People loved to hear her sing, for in the sound of her song, one could hear the beat of her heart. In that beat, though, there was a longing – the longing was for her one true love and for things not of this world.

Each evening, she would gaze out her window at the heavens and wish upon a star. Somewhere, far away, there had to be a kingdom other than the realm that she reigned over.

Far, far away, there lived a pauper who had only seen one of the paintings of the princess hanging in a museum. The beauty that the master had captured with oils on the canvas had failed miserably at capturing her true beauty but it was enough to stir a passion in the pauper. He yearned to meet her but how could he do it? He was but a poor, hardworking soul that knew his station in life. She was a princess.

The pauper looked at the book that he had owned for years. He felt its leather binding. It had been given to him as a child by his grandmother. It was the only book that he had ever owned but how he loved to read it. The book was filled with stories about history and mystery. There were tales of intrigue in it. It was filled with poetry and there were even stories of romance in it.

Towards the end of the book, there seemed to be a theme that brought the first part of the book together. In that part, there were stories about one Man. The pauper thought of how the princess would love to read about the Man.

He lovingly wrote a letter to the princess and found a box to put the treasured book in. He scraped up enough pennies for postage and mailed the letter and the book to the princess.

When the princess got the book, she began to read it. She devoured every word in it. As she got near the end, she learned about the Man. The Man’s name was Jesus.

As she sat in the bedroom of her castle, everything that had once before appeared beautiful to her now seemed drab and ugly. Even her reflection in the mirror had changed.

She fell to her knees beside her bed and asked Jesus to come into her heart and fill that longing and make everything beautiful again. He heard that prayer and faithfully answered it.

The longing for her one true love remained but she knew where to find him. She looked at the return address on the box containing the book. She ordered a team of horses drawn up and she had her driver take her to the pauper.

When she arrived, their eyes locked. She was beautiful but she saw in him a beauty she knew that was created by his warm, caring heart.

They embraced. She whispered in his ear that he was to come and marry her and be her prince.

The two of them lived in the kingdom on Earth, but knew that they had been promised a kingdom not made with man’s hands because in accepting Jesus Christ as their Savior, they were both children of the King of Kings and Lord of Lords.

And they lived happily ever after on Earth and then in Heaven.

By Diann Douglas
Guest Columnist

USDA Dietary Guidelines recommend choosing a diet low in fat, saturated fat, cholesterol, trans fats and using monounsaturated fats; all part of a plan to reduce your risk of heart disease. What a tall order! And, do you understand the difference between these fats? This week in National Heart Month, let’s explore the issue of fat and ways to get more heart healthy fats into your diet.

According to Dr. Linda Bobroff, UF Extension Nutrition Specialist, fat is an essential nutrient in our diets. It is a source of energy, or calories and is needed to help with the absorption of fat soluble vitamins. The problem with fat in our diets is that we eat too much.

Fats are made up of a mixture of fatty acids; they can be saturated, monounsaturated, or polyunsaturated fatty acids.

Saturated fats tend to raise cholesterol levels which increase your risk of heart disease; it is recommended we limit the intake of foods high in this type of fat. Saturated fats are solid at room temperature and can be found in animal sources of food; examples are butter, cream, and beef fat. The exceptions to the rule are coconut, palm and palm kernel oil, which are often used in commercial baked goods, cookies and crackers.

Cholesterol is a fat-like substance that is part of all human and animal cells. It is needed to form hormones, cell membranes and other body substances. Since your body makes its own, you don’t need extra cholesterol in your diet. Over time, high levels of cholesterol cause plaque to collect along the walls of your blood vessels resulting in restricted blood flow or blockages. It is recommended that you keep cholesterol take to 300 mg. each day. Cholesterol is found animal sources of food; meat and whole dairy. Usually when you alter you fat intake for saturated fats you also reduce cholesterol.

Trans fats have been in the news in recent years, they are formed when liquid oils are made into solid fats, although small amounts are found naturally in some animal-based foods. Like saturated fat, trans fats raise LDL cholesterol in blood, which increases the risk of heart disease. Manufacturers now have to label their products for trans fats.

Reading nutrition labels and ingredients lists can help identify the amount of fat in a food product. The nutrition label will also list total fat—saturated, unsaturated and trans -fats. Ingredients are listed in descending order. To keep your fat intake within reason, choose foods with fat listed lower on the ingredient list. Choose foods with low amounts of fat, saturated and trans fats on the label.

Polyunsaturated fats are liquid at room temperature and do not increase cholesterol levels. Corn oil is an example of this type of fat. It is a healthier fat to use and many recipes have been developed to use this fat in baked produce such as biscuits.

Monounsaturated fats are the better choice; they are liquid at room temperature and tend to help lower cholesterol. That’s right, they help carry cholesterol out of the body. Remember though, all fats are high in calories and should be used sparingly. Canola oil is the highest in monounsaturated fats. Other liquid oils like olive, peanut and safflower are all high in monounsaturated fats.

So, how do you apply these recommendations in daily eating habits? When preparing food, use fat free milk, lean cuts of meat and remove the skin from poultry. Forget frying altogether, there are so many interesting low fat cooking methods; try baking, roasting, steaming or grilling. If you have grandma’s favorite recipe that is high fat and can’t live without it, consider eating it less often, have a smaller portion or modify the recipe and use a heart healthy fat.

All fats are not equal, change the type of fat you use and then reduce the total amount. Start by drastically reducing saturated fats and substitute monounsaturated fats in your diet. For more information on fat in your diet, call the Madison Extension office for your copy of “Nutrition for Health and Fitness: Fat in Your Diet”.

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