Year-End Tax Planning: Manage Brackets with RMDs

Year-End Planning:
Bracket Management
Presented by:
Robert S. Keebler, CPA, MST, AEP
Keebler & Associates LLP

© 2013 Prepared by Keebler & Associates, LLP
All Rights Reserved

Introduction
About the PFP Section & PFS Credential
• The AICPA PFP Section provides information,
resources, advocacy and guidance for CPAs who
specialize in providing estate, tax, retirement, risk
management and investment planning advice to
individuals and their closely held entities (learn more
at aicpa.org/PFP)
• The CPA/Personal Financial Specialist (PFS)
credential distinguishes CPAs as subject-matter
experts who have demonstrated their financial
planning knowledge through experience, education
and testing (learn more at aicpa.org/PFS)
American Institute of CPAs®

Personal Financial Planning Section

2

Introduction
Robert S. Keebler, CPA, MST, AEP

Robert.Keebler@KeeblerandAssociates.com
920-593-1700



3

Time Frame Shift
1980-2002: 3-5 year horizon
2002-2010: EGTRRA Decade
2010-2012: Time of irresolution
2013-Forward: 5-10 year horizon

All Rights Reserved



4

2013 Ordinary Income Tax Rates
10%, 15%, 25% and 28% rates from Bush Administration tax
cuts made permanent
33% and 35% rates made permanent up to certain threshold
levels—
Single taxpayers

$400,000

Head of households

$425,000

Married filing jointly or surviving spouse

$450,000

Married filing separately

$225,000

Amounts of income above these threshold levels taxed at
39.6%
Threshold amounts adjusted for inflation
All Rights Reserved



5

2013—Long-Term Capital Gains & Dividends
Tax rate increases to 20% for taxpayers with income
above the threshold amounts listed on the previous
slide
• As these taxpayers will be above the threshold amounts for the
3.8% surtax, their capital gain rate will actually be 23.8%

Maximum rate stays at 15% for taxpayers with lower
incomes
Qualified dividend treatment is made permanent
0% Rate if you are in the 15% bracket
“Buffet Rule?”
All Rights Reserved



6

Phase-out of Personal Exemptions and
Itemized Deductions
Phase-out of personal exemptions (PEP) and
limitations on itemized deductions (Pease) as
income rises above the following threshold
amounts-Single taxpayers

$250,000

Head of households

$275,000

Married filing jointly or surviving spouse

$300,000

Married filing separately

$150,000

Amounts will be indexed for inflation

All Rights Reserved



7

Phase-out Of Personal Exemptions and
Itemized Deductions
PEP reduces personal exemption by 2% for• every $2,500 of income above the threshold amount for single
taxpayers
• every $1,250 of income above the threshold amount for married
taxpayers filing separately

Reinstatement of the phase-out could have been
worse
• If the full sunset occurred, the applicable threshold amounts
would have been $178,150 for single taxpayers and $267,200
for married taxpayers filing jointly

All Rights Reserved



8

Phase-out Of Personal Exemptions and
Itemized Deductions
Personal Exemption Phaseout

Personal Exemption ($3,800)

$4,000

Phase-Out Begins

$3,500
$3,000

$2,500
$2,000
$1,500

$1,000
$500
$0

AGI

All Rights Reserved



9

Pease Limitation
Pease cuts itemized deductions by 3% of AGI above
the threshold amounts up to a maximum of 80%
Deductions not included:
• Investment Interest
• Medical Expenses
• Casualty, theft and wagering losses

With the full sunset, the threshold amounts would
have been the same $178,150 for single taxpayers
and $267,200 for married filers
All Rights Reserved



10

Pease Limitation

All Rights Reserved



11

Recap
“Flying below the radar”
$450,000 – 39.6%
Ordinary Income Tax Rate
$300,000 – PEP/Pease
$250,000 – 3.8% Surtax

All Rights Reserved



12

Key Management Issues
Capital Gain Rates
Income Tax Rates
Ordinary Income should at least equal Itemized
Deductions plus exemptions
Tax liability should equal tax credits available

All Rights Reserved



13

Taxable Income and RMD
Taxable Income and RMD
$800,000
$600,000
$400,000
$200,000

$-

Taxable Income

IRA Distributions

35% Bracket

39.6% Bracket

33% Bracket

All Rights Reserved



14

Amount over 39.6% Tax Bracket

Amount over 39.6% Tax Bracket
150,000
100,000
54,243

61,751 69,642

77,932

86,637

143,148
133,651
124,424
113,820
105,354
95,772

50,000
-

-

-

-


-

-


15

Income Tax Rate

Income Tax Rate
40.00%

39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60% 39.60%

30.00%
28.00% 28.00% 28.00% 28.00% 28.00%

20.00%
10.00%
0.00%

All Rights Reserved



16

Capital Gains Tax Rate
Capital Gains Tax Rate
20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00% 20.00%

20.00%
15.00%

15.00% 15.00% 15.00% 15.00% 15.00%

10.00%
5.00%
0.00%

All Rights Reserved



17

Taxable Income per Bracket
Taxable Income per Bracket
$800,000.00
$700,000.00

143,148
133,651
124,424
113,820
105,354
86,63795,772
69,500
69,64277,932
66,80068,100
64,20065,500
54,24361,751
61,60062,900
59,30060,400
57,10058,200

$600,000.00
$500,000.00

231,500236,100
222,600227,000
209,700213,900218,200
205,600
193,600197,500201,500

$400,000.00
$300,000.00
$200,000.00
$100,000.00

$-

10.00%

-

-

54,236 55,416
50,050 51,300 52,633
-

-

97,000 99,000 101,000103,000
89,700 91,500 93,300 95,100
83,000 84,600 86,300 88,000
76,650 78,200 79,800 81,400
95,500 97,400 99,400
84,800 86,500 88,200 90,000 91,800 93,600
73,900 75,300 76,800 78,300 79,900 81,500 83,100

73,500
54,650 55,800 56,900 58,000 59,100 60,300 61,500 62,700 64,000 65,300 66,600 68,000 69,400 70,700 72,100
$17,850$18,200$18,600$19,000$19,400$19,800$20,200$20,600$21,000$21,400$21,800$22,200$22,600$23,100$23,600$24,100

15.00%

25.00%

28.00%

33.00%

35.00%

39.60%

All Rights Reserved



18

Itemized Deductions
Itemized Deductions
$14,000

$13,000 $13,000 $12,949 $12,769
$12,586

$12,000
$10,000
$8,000
$6,000

$5,061

$4,529
$3,981

$4,000

$3,414

$2,829

$2,600

$2,600

$2,600

$2,600

$2,600

$2,600

$2,000
$-

Total Itemized Deductions

Net Itemized Deductions

All Rights Reserved



19

Example:
5 Year Projection
In 2013:
• $150,000 Wages
• $50,000 Long-Term Capital Gains
• $20,000 Itemized Deductions

In 2015:
• RMDs on a $5,000,000 IRA start

2% Inflation Rate

All Rights Reserved



20

Example:
INCOME

2013

Wages

$

Long-Term Capital Gains

2014

150,000

$

50,000

IRA Distributions

2015

153,000

$

51,000

-

2016

156,100

$

2017

159,200

$

162,400

52,000

54,100

211,245

-

53,000
220,971

231,113

Subtotal

$

200,000

$

204,000

$

419,345

$

433,171

$

447,613

Adjusted Gross Income (AGI)

$

200,000

$

204,000

$

419,345

$

433,171

$

447,613

Total Deduction Taken

$

20,000

$

20,000

$

16,420

$

16,005

$

15,572

Net Personal Exemptions

7,800

8,000

328

-

-

Taxable Income

$

172,200

$

176,000

$

402,598

$

417,166

$

432,041

Regular Income Tax

$

29,908

$

30,590

$

98,843

$

102,981

$

107,194

Alternative Minimum Tax (AMT)

-

-

3,648

3,743

3,966

3.8% Net Investment Income Tax

-

-

1,976

2,014

2,056

TOTAL INCOME TAX

$

29,908

$

30,590

$

104,467

$

108,738

$

113,215

All Rights Reserved



21

Example:
2013
25.00%
15.00%
No
25.00%
15.00%

AVERAGE RATE
DISTANCE TO NEXT TAX BRACKET
DISTANCE TO FOLLOWING BRACKET
AMOUNT ABOVE 39.6% BRACKET

$

2015
33.00%
15.00%
Yes
36.80%
18.80%

2016
33.00%
15.00%
Yes
36.80%
18.80%

2017
33.00%
15.00%
Yes
36.80%
18.80%

14.95%

MARGINAL INCOME TAX RATE
MARGINAL CAPITAL GAINS RATE
CURRENTLY SUBJECT TO NIIT
MARGINAL INCOME TAX RATE if NIIT APPLIES
MARGINAL CAPITAL GAIN TAX RATE WITH NIIT

2014
25.00%
15.00%
No
25.00%
15.00%
15.00%

24.91%

25.10%

25.29%

50,850 $
226,150
-

47,050 $
222,350
-

47,402 $
Max
-

32,834 $
Max
-

17,959
Max
-

2015

2016

2017

2013
DISTANCE TO PEP/PEASE

TAX COST OF PEP/PEASE

$

$

2014

100,000 $

-

$

96,000 $ 119,345 Over $ 133,171 Over $ 147,613 Over

-

$

3,779 $

4,090 $

4,299

RATE IMPACT OF PEP/PEASE

0.00%

0.00%

0.94%

0.98%

1.00%

% OF ITEMIZED DEDUCTIONS LOST (MAX 80%)

0.00%

0.00%

17.90%

19.98%

22.14%

All Rights Reserved



22

Example:
2013

MAGI LESS THRESHOLD (A)
NET INVESTMENT INCOME (B)

$

LESSOR OF A OR B
NIIT @ 3.8%

2014

50,000

$
$

$

-

DISTANCE TO 3.8% NIIT
AMOUNT OVER THRESHOLD

$
$

2016
183,171
53,000

$

2017
197,613
54,100

52,000
1,976

$
$

53,000
2,014

$
$

54,100
2,056

Over
169,345

2014

MARGINAL CAPITAL GAINS RATE

$
50,000 $
$

$
51,000 $
$

277,800 $

274,000 $
15.00%

2013
29,908
28,742
-

$

$

AMT EXEMPTION REMAINING
Appx. DISTANCE UNTIL AMT APPLIES

$

$

4,163

2014
30,590
29,516
-

$

$

$

3,836

Over
183,171

2015

15.00%

DISTANCE TO NEXT CAPITAL GAINS BRACKET

REGULAR INCOME TAX
TENTATIVE MINIMUM TAX
ALTERNATIVE TAX DUE

$

46,000
N/A

2013
$
$
$

2015
169,345
52,000

$
$

-

50,000
N/A

CAPITAL GAINS TAXED AT 0% PERCENT

$

51,000

$

$

Over
197,613

2016

$
52,000 $
$

2017

$
53,000 $
$

54,100
-

47,402 $

32,834 $

17,959

15.00%

15.00%

15.00%

2015
98,843
102,491
3,648

Applies

$

$

2016
102,981
106,724
3,743

Applies

$

$

2017
107,194
111,160
3,966

Applies

All Rights Reserved



23

Required Disclosure Under Circular 230
Pursuant to the rules of professional conduct set forth in Circular 230, as promulgated
by the United States Department of the Treasury, nothing contained in this
communication was intended or written to be used by any taxpayer for the purpose of
avoiding penalties that may be imposed on the taxpayer by the Internal Revenue
Service, and it cannot be used by any taxpayer for such purpose. No one, without
our express prior written permission, may use or refer to any tax advice in this
communication in promoting, marketing, or recommending a partnership or other
entity, investment plan or arrangement to any other party.

For discussion purposes only. This work is intended to provide general information
about the tax and other laws applicable to retirement benefits. The author, his firm or
anyone forwarding or reproducing this work shall have neither liability nor
responsibility to any person or entity with respect to any loss or damage caused, or
alleged to be caused, directly or indirectly by the information contained in this work.
This work does not represent tax, accounting, or legal advice. The individual
taxpayer is advised to and should rely on their own advisors.



24

PFP Section Resources (aicpa.org/PFP)
The CPA’s Guide to Financial & Estate Planning– 1000-page, 4 volume,
in-depth guide for practitioners (updated for ATRA)

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• Client education and communication tool
• Written by CPAs, attorneys and other subject matter experts
• More than 3,000 resources covering personal financial planning,
including estate, tax, retirement, investment and risk management
planning
• Keyword searches: American Taxpayer Relief Act, net investment
income tax



25

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Planning After ATRA and the Net Investment Income Tax Toolkit
•
•

aicpa.org/pfp/proactiveplanning
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26

Proactive Year-End Financial and Tax Planning
Where to Find More Education
10/25/2013
1:00-2:00p.m. ET

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Net Investment Income Tax (Overview)*

11/11/2013
1:00-2:45p.m. ET

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• 2-day pre-conference workshop on implementing a PFP practice,
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To register and to view the full calendar of upcoming PFP
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*To access the archives, visit aicpa.org/pfp/webseminars.


27

Contact AICPA PFP Team Staff with
Questions
financialplanning@aicpa.org



28

Year-End Tax Planning: Manage Brackets with RMDs

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