Tax Planning Opportunities in 2012

At the end of 2012, the tax law is expected to change and revert back to the tax law in effect in 2001. Many refer current tax rates and exemptions as the Bush Tax Cuts. This expiring tax law will impact income tax rates and exemptions as well as gift, estate and generation skipping tax rates and exemptions. Outlined below is a summary of what is expected to change if congress fails to extend or enact new tax legislation.

Income Tax Planning

Major changes are going to take effect to the current income tax law which is set to expire December 31, 2012. It is therefore critical to review what strategies should be consider this year to maximize income tax savings.

Income Tax Rates: Qualified Dividend Tax Rates: Long-term Capital Gain Tax Rates:

2012 10%, 15%, 25%, 28%., 33% & 35% 15% 15%

2013 15%, 28%, 31%, 36%, & 39.6% 39.6% 20%

Traditional planning strategies to defer may not provide the maximum income tax benefit.

New Net Investment Tax

A new tax is effective January 1, 2013 which imposes a 3.8% tax on net investment income for those taxpayers who have income in excess of $200,000 for single and $250,000 for joint taxpayers. This tax applies to: Interest Capital Gains Dividends Rents Taxable Annuity Income It does not apply to income from Qualified Retirement Plans, IRAs, Roth IRAs and Tax-Exempt Municipal Bonds.

Gift & Estate Tax Planning

Significant estate tax planning opportunities which are available under current legislation may be eliminated or severely restricted after December 31, 2012. It is therefore critical to evaluate whether steps should be taken this year to maximize estate tax savings. For the following reasons, 2012 is the year to implement tax reduction strategies:The federal law provides for a $5.12 million gift tax exemption through year-end which creates significant gifting opportunities. On January 1, 2013, the exemption is scheduled to be reduced to $1 million. 1. Powerful concepts available under current law such as valuation discounts for interests in family entities and transfers to Intentionally Defective Grantor Income Trusts ("IDITs") and short term Grantor Retained Annuity Trusts (GRATs) may be restricted under new tax legislation. 2. Lifetime gifts can achieve significant New Jersey or New York estate tax savings. Neither state has a gift tax and, unlike the federal estate tax, lifetime gifts are generally not taken into account in the calculation of New Jersey or New York estate taxes. 3. Market conditions may produce lower asset valuations, particularly with respect to real estate, which is beneficial from a tax perspective. 4. The low interest-rate environment enhances the tax benefits of several planning strategies that are interestrate sensitive.