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Affecting ALL taxpayers regardless of income:
- Reduced Health flexible spending arrangements (FSAs): Maximum amount available for reimbursement of incurred medical expenses under a health FSA for a plan year must not exceed $2,500 down from $5,000 currently.
- Medical care itemized deduction threshold: Itemized deductions for unreimbursed medical expenses is increased to 10% of adjusted gross income (AGI) from 7.5% currently.
Consider:
If you have pending medical care needs in late 2012, accelerate spending on medical care into 2012 to take advantage of the 7.5% threshold.
Affecting higher income taxpayers:
-Additional Medicare tax:Employee portion of the Medicare hospital insurance tax part of FICA is increased by 0.9% on wages that exceed $200,000 for single filers ($250,000 for married filers).
- Medicare surtax on investment income: Imposes a 3.8% tax on the lesser of the individual's net investment income for the year or the amount the individual's modified adjusted gross income exceeds $200,000 for single filers ($250,000 for married filers).
Net investment income includes interest, dividends, capital gains, annuities, rents, royalties and passive activity income.
Consider:
- Similar to the strategy with increasing tax rates, accelerate income into 2012 including both ordinary income and net investment income (especially if either will put you above the threshold amount.
- Convert IRAs to Roth IRAs. Qualified distributions from Roth IRAs are tax-free in future years. You pay taxes on the conversion in 2012 when tax rates are lower and medicare surtax is not in effect.
- If you are 70 1/2 years old, take your first required minimum distribution in 2012 rather than deferring it to 2013 when you would have to take two distributions.
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