Sale of Residence (after 2012)

High profit sale after 2012 can trigger the special 3.8% Medicare surtax. Starting in 2013, the new health care law imposes a 3.8% tax on investment income of singles with adjusted gross incomes over $200,000 and marrieds above $250,000. Capital gains are treated as investment income. The surtax will be on gains that exceed $250,000 for single taxpayers or $500,000 for married taxpayers. The surtax can take even a bigger bite on sales of second homes where the principal residence exclusions don't apply.

Potential Tax Increases

From the AICPA -- congressional bickering over the upcoming expiration of tax cuts implemented during the G.W. Bush administration is making small-business owners nervous. Taxpayers should take steps now to prepare for an inevitable long-term tax increase -- no matter which politial party wins control of Congress after midterm elections. Among the steps to consider are revising estate plans and accelerating capital gains, compensation and the exercise of stock options into 2010.

Traditional IRA to ROTH Conversion

TIPRA provides that for 2010 conversions only, taxpayers can elect for federal income tax purposes to spread the income triggered by conversions evenly over 2011 and 2012 (50% of the conversion income in each year) and thereby defer the related federal income taxes. For conversion after 2010, the conversion taxes owed cannot be stretched out.