Pub. 11 2012-2013 Issue 4

N e w J e r s e y C o a l i t i o n O f A u t o m o t i v e R e t a i l e r s 31 new jersey auto retailer w w w . n j c a r . o r g What the Act Does Not Do Transfer Tax Issues Remain on the Table . Although the Act made the Estate, Gift and GST Tax rates and exemption levels permanent, it did not include other transfer tax changes proposed by the Obama administration in its annual federal budget propos- als. These include: • the estate taxation of grantor trust assets; • imposition of 10-year minimum terms for grantor retained annuity trusts; • limits on the duration of the GST Tax exemption with regard to dynasty trusts; and • limits on valuation discounts for transfers of family entity interests. New Emphasis on Income Tax Planning Expiration of the Payroll Tax Cut . Effective January 1, 2013, the employee portion of the payroll tax reverted to 6.2 percent from 4.2 percent. That generates around $2,000 per year in ad- ditional payroll taxes for an individual earning $113,700 or more (the 2013 cap). Health Care Taxes Have Significant Impact . The Act’s tax increases for high-income taxpayers are in addition to the 3.8 percent Medicare contribution tax on net invest- ment income and the 0.9 percent hospital insurance tax on wages, which apply at thresholds lower than the 39.6 percent thresholds (i.e., $200,000 for single filers; $250,000 for married, filing jointly). Comprehensive Planning Comprehensive financial planning should include ways to reduce or defer income to a later date. The power of compounding in- side a revised Qualified Plan or SERP (Supplemental Executive Retirement Plan) offers another way to build wealth, independent of the business, on a tax-favored basis. There are also several other ancillary planning opportunities that may aid in this quest to lower current income taxes and accumulate assets. Succession Planning For estates in excess of $10,500,000 there are as many strategies available now as there were before the passage of The American Tax Relief Act. Everyone seems to focus on the Federal Estate Tax – but the New Jersey Estate Tax is also large with a graduated rate up to 16% and a filing threshold over $675,000. How and when that tax is paid is directly dependent on your estate planning documents and the titling of your assets. What Was Not Addressed The Act only addressed the federal tax aspects needed to avoid the so-called “fiscal cliff,” leaving many other issues (such as the spending cuts) for later debate. In addition, the revenue effect of the Act, as it stands right now, is negative. As a result, Congress will have to quickly find measures to offset these “revenue los- ers” while addressing the growing concern over spending. In its search for revenue, Congress may consider several of the federal transfer tax changes proposed by the Obama administration in its previous federal budget proposals (the so-called “Green Book”), including the estate taxation of grantor trust assets, imposition of 10-year minimum terms for GRATs, limits on the duration of the GST Tax exemption with regard to dynasty trusts, and additional limits on valuation discounts for transfers of family entity interests. Thus, we all should remain vigilant regarding future tax and budget debates and recommend to anyone seeking to implement tax-efficient plans that they should take advantage of these planning options sooner rather than later. Dennis J. Amico is one of the founding principals of Wealth Preservation Solutions, LLC, a company focused on estate planning, business succession, exit planning and asset management, among other services. Dennis can be reached at 201.632.2037 or 201.632.2036.