Healthcare Practice Strategies – Winter 2012 - New Medicare Surtax Calls for Strategic Tax Planning
Tax planning will grow increasingly critical as a new 3.8 percent Medicare surtax is levied on “Net Investment Income” beginning in 2013. The tax is imposed on joint filers with Modified Adjusted Gross Income (MAGI) over $250,000 and on single taxpayers with MAGI above $200,000.
With this in mind, consider these opportunities for keeping your MAGI below the threshold:
Entity selection – Utilizing multiple legal entities at the practice level can provide flexibility in managing how you receive income and how that in-come will be taxed. For example, active income in partnerships and
S corporations is generally excluded from gross income. By contrast, income from a limited partnership is not excluded.
Qualified retirement plans – In-creasing contributions to IRAs and 401(k), 403(b) and 457 plans may make sense, as distributions from these qualified retirement plans are excluded from gross income for purposes of the surtax.
Tax-deferred investments – Like-wise, income from tax-exempt and tax-deferred vehicles like municipal bonds, tax-deferred non-qualified annuities, life insurance and non-qualified deferred compensation is not included in investment income.
Roth IRA conversions – Converting traditional IRAs to Roth IRAs prior to 2013 can reduce MAGI in 2013 and beyond, thereby reducing or eliminating surtax exposure.
Sale of assets – The sale of a residence after January 1, 2013, could trigger the surtax if your MAGI exceeds the thresholds and the sale results in a cap-ital gain greater than the IRS exclusion ($500,000 for married couples and $250,000 for singles). Ditto for the sale or transfer of your interest in a business in which you have passive ownership, or the sale or transfer of your ownership interest in a C corporation. Accelerating the sale of these assets into 2012 can help you avoid the tax.
Healthcare Practice Strategies – Winter 2012