DECEMBER 2012 Minnesota Shopping Center Association Vol 26. No. 12 In this Issue 2012 Tax Planning ------ FEATURE 1 Pet Hotels ------------- HOT SPOTS 3 MN Marketplace -------------- 4 Legislative Update ------------ 5 Hussman/Stafford --- MEMBER PROFILES 6 State of Retail ------ PROGRAM RECAP 7 Connection Feature by Eric Tuck , McGladrey LLP 2012 TAX PLANNING UPDATE t the end of 2011, taxpayers were fortunate to have a year until the extended Bush tax cuts would expire. While there was uncertainty as to what would Ahappen in 2013, taxpayers at least had the peace of mind that we knew what the year would bring in 2012. Unfortunately, the end of this year leaves us with uncertainty again. While the results of the recent election provide a better educated guess as to what tax rates and law will do, there are still some important things to be aware of when considering tax planning for 2013. Year-end tax strategies for 2012 will demand more urgent attention from higher income taxpayers as a result of President Obama’s re-election. Tax Rates from 15% to 20%. In addition, qualified dividends will The Bush tax cuts included a decreased income tax rate for increase to be taxed at the same rate as ordinary income. all taxpayers. These rates are set to expire at the end of the year. For taxpayers in some tax brackets, this could mean a Higher-income taxpayers must decide if they think tax rates decrease to their take home pay. will be extended or decide to secure the benefits of current rates for the remainder of 2012. They can accomplish this by The following table compares the current tax rates as if they accelerating income, deferring deductions, harvesting were extended, and as if they expire for married taxpayers capital gains, closing sales and initiating family gifting filing jointly. strategies all before December 31. Phase-Out of Itemized Deductions and Personal Exemptions Taxpayers should consider the timing of their itemized deductions during their year-end planning. In 2012, taxpayers are not limited to the amount of itemized deductions they can take. If the current tax provisions expire, higher income taxpayers can expect to lose all or There is speculation that the tax rates for those with lower part of their itemized deductions and exemptions. adjusted gross incomes will be extended, while joint taxpayers with an adjusted gross income over $250,000 New Medicare Tax ($200,000 for single filers) per year will see increased rates. The new Medicare tax will impact higher income taxpayers Individual income tax rates are not the only rate changes and those with net investment income. This tax was included that taxpayers can expect if the Bush tax cuts are not when the Patient Protection and Affordable Care Act were extended again. Capital gains tax rates are set to increase passed and is likely to be rolled out as scheduled based on President Obama’s re-election. continued on next page msca-online.com 1 MSCA Connection December 2012 2012 Tax Planning Update - continued 2012 Sponsors In 2013, individuals will see a new 3.8% tax parameters in effect for calendar year 2009 on the lesser of net investment income or for estates of decedents dying after ACI Asphalt Contractors, Inc. the amount that their modified adjusted December 31, 2012. That level would set Aspen Waste Systems, Inc. gross income (MAGI) is over $200,000 for the estate tax exclusion at $3.5 million with Barna, Guzy & Steffen, Ltd. single filers, $250,000 for joint filers, and a 45 percent rate and the gift tax lifetime Bremer Bank, N.A. $125,000 for married filing separate filers. exclusion of $1 million. CBRE Net investment income includes income Without congressional action the CSM Properties derived from interest, dividends, royalties, exemption and rates will revert back to Chuck & Don's Pet Food Outlet annuities, rents, passive activities, trading 2001 levels of $1 million and 55%. Colliers International | financial instruments and commodities, and Minneapolis-St. Paul If you are planning on making a gift, and net capital gains from the disposition of expect that the exemption and rates will go Cushman & Wakefield/NorthMarq property not held in a trade or business. back to 2001 levels, it is highly Cutting Edge Property Maintenance Sources of income not included in net recommended to do that in 2012. investment income include active trade or Doran Construction business income, gain on sale of an active Bonus Depreciation Faegre Baker Daniels LLP Fendler Patterson Construction, Inc. interest in a partnership or S corporation, Qualified assets that are placed in service distribution from IRAs or qualified retirement before December 31, 2012 will be eligible Fredrikson & Byron, P.A. plans, income from tax exempt municipal for 50% bonus depreciation. This is set to Gray Plant Mooty bonds, tax deferred non-qualified annuities, expire in 2013, and it is unclear if President Great Clips, Inc. and self-employment income. Obama will support an extension of the H.J. Development, Inc. Our current understanding is that a bonus depreciation. Inland Real Estate Corporation qualified real estate professional’s rental If you are planning on purchasing assets, it Jones Lang LaSalle income is not included in net investment may be good to consider purchasing them Kraus-Anderson Companies income. Therefore, in 2013 it may well be and placing them into service before Larkin Hoffman Daly & Lindgren Ltd. advantageous to be a real estate December 31. The Lawn Ranger Outdoor Services professional, if the criteria are met, in order Leonard, Street and Deinard to not be subject to this Medicare tax. The end of 2012 leaves quite a bit of tax uncertainty. As of November 13th, no M & I, a part of BMO Financial Group The following is an example: congressional action had been taken on MFRA, Inc. any of the previously mentioned issues. With A couple with $80,000 of gains and the limited time frame that congress has to McGladrey $290,000 of AGI will owe an extra $1,520 in act on the various tax matters, it is possible Messerli & Kramer P.A. tax—3.8% of the $40,000 excess over that some of issues have been resolved by Mid-America Real Estate – $250,000. A single filer with AGI of $400,000 the time you read this article. Minnesota, LLC and $50,000 of gains owes $1,900 more in Midwest Maintenance & tax—3.8% of $50,000. Be sure to pay attention to any Mechanical, Inc. congressional action involving tax law, There will also be an additional .9% surtax Minneapolis/St. Paul Business especially tax rates, phase out exemptions, Journal on high income households. This tax applies estate and gift tax, and bonus depreciation Minnesota Real Estate Journal to wages and self-employment income. The so that you have the flexibility to take some surtax will be imposed on single filers with Oppidan, Inc. action before year end. wages and self-employment income over The Opus Group $200,000, and married filers over $250,000. Other tax issues that affect real estate Paster Enterprises professionals, including the 15 year Prescription Landscape In 2013, higher income taxpayers will face recovery for qualified leasehold RLK Incorporated both the 3.8% Medicare tax and a top improvements, the New Markets Tax 39.6% tax rate on net investment income. Regis Corporation Credits, and the Alternative Minimum Tax Robert Muir Company It is anticipated that many taxpayers will (AMT) should also be closely followed in Ryan Companies US, Inc. consider rebalancing a portion of their order to determine the potential impact on TCF Bank investment portfolio to increase their your tax situation in 2012 and 2013. TCI Architects/Engineers/ exposure in municipal bonds. Income from Written by Eric Tuck, Tax Partner and Kelly Contractor, Inc. municipal bonds is not considered net Henneberry, Tax Senior Associate, members Target Corporation investment income nor is it considered a of McGladrey LLP’s Real Estate and U.S. Bank component of taxable income. Construction Team. United Properties Estate and Gift Tax Disclaimer: The information contained herein is general Venture Mortgage Corporation in nature and based on authorities that are subject to Weis Builders, Inc. Currently, the lifetime estate and gift tax change. This analysis is not tax advice and is not exemption is set at $5.12 million, with a top intended or written to be used, and cannot be used, for Wells Fargo Bank, N.A. tax rate of 35%. purposes of avoiding tax penalties that may be imposed Westwood Professional Services, Inc. on any taxpayer. This article represents the views of the Wipfli LLP-CPAs & Consultants President Obama has proposed extending author or authors only, and does not necessarily represent the views or professional advice of the federal estate and gift tax under McGladrey. MSCA Connection December 2012 msca-online.com 2 Hot Spots by Richard Jahnke , Sunbelt Business Brokers Featured Sponsors Pet Hotels, Spas and Wipfli LLP-CPAs & Consultants Resorts With approximately 1,000 associates and 22 offices in et ownership has been on the rise among American households. According to the the United States and India, 2011 National Pet Owners Survey, over the past two decades, the number of US Wipfli ranks among the top households that own a pet has risen significantly, up to 72.9 million. Rising pet 30 accounting and business Pownership has similarly increased the demand for grooming, boarding, training and other consulting firms in the nation services provided by the industry. Additionally, demand for these services has proved to and is a trusted business be recession-proof, with industry revenue rising each consecutive year over the last advisor to more than 32,000 decade.