Federal Income Tax Update Denise Leggett CPE Day - December 5, 2013 Title of PowerPoint Disclaimer This presentation is a summary of selected federal tax developments, and it is not intended to provide any basis for legal, accounting, or other professional services. This information is provided with the understanding that the author/presenter is not engaged in rendering legal, accounting, or other professional services. Due to the constantly changing nature of the subject, this outline should not be used as a resource for any tax or accounting opinion, or tax return position. Title of PowerPoint Outline • New 2013 tax rules • Tax rules expiring in 2013 • New 2014 tax rules Title of PowerPoint Primary Sources of New Tax Law • American Taxpayer Relief Act of 2012 • Passed in early 2013 • Supreme Court’s Windsor Decision • Struck down a key section of DOMA Title of PowerPoint New 2013 Tax Rules – Filing Status • Filing status of married filing jointly (separately) mandatory for same-sex couples regardless of their domicile state • • • Legally married in a state that recognizes samesex marriages on or before December 31, 2013 • Registered domestic partnerships and civil unions do not qualify Amended returns for previous open tax years can be filed Inheritance implications Title of PowerPoint New 2013 Tax Rules - AGI • Moving expense mileage rate is 24¢ per mile • IRA contribution statutory dollar limit is $5,500 • Additional $1,000 for taxpayers age 50 or older • Educator expense deduction of $250 • Tuition and fees deduction Title of PowerPoint New Tax Rules – Itemized Deductions • Medical expense deduction AGI floor increased from 7.5% to 10% • 7.5% if taxpayer or spouse is 65 or older (through 2016) • Sales tax deduction option • New Section C on Form 4684 – Casualty and Thefts • Ponzi scheme losses Title of PowerPoint New 2013 Tax Rules – Taxes and Credits • Pease limitation on itemized deductions and Personal Exemption Phaseout (PEP) restored • Threshold: $300,000 ($150,000)/$275,000/ $250,000 • Thresholds not indexed for inflation • Highest marginal tax rate of 39.6% restored • Threshold: $450,000 ($225,000)/$425,000/ $400,000 Title of PowerPoint New 2013 Tax Rules – Taxes and Credits • 15% maximum capital gains tax rate increased to 20% • Threshold: $450,000 ($225,000)/$425,000/ $400,000 Title of PowerPoint New 2013 Tax Rules – Other Taxes • Additional 0.9% Medicare Tax • Threshold: $250,000($125,000)/$200,000 • Form 8959 • Only applies to employee-paid Medicare Tax • Self-employed taxpayers: 0.9% • Possible underpayment/overpayment scenarios Title of PowerPoint New 2013 Tax Rules – Other Taxes • Net Investment Income Tax • Additional 3.8% tax on unearned income • Form 8960 • Lesser of 1) net investment income or 2) excess MAGI over appropriate threshold • Threshold: $250,000($125,000)/$200,000 Title of PowerPoint New 2013 Tax Rules – Other Taxes • • Net Investment Income is the sum of 1. Interest, dividends, annuities, royalties and rents unless derived in the ordinary course of a trade or business 2. Other passive income derived in a trade or business 3. Net gain attributable to the disposition of property other than property held in a trade or business Minus the allowable deductions allocable to the aforementioned income Title of PowerPoint New 2013 Tax Rules – Other Taxes • Included: • Interest, dividends, annuities, royalties, rents (?), capital gains of individuals, business income from passive activities, and financial instrument trading businesses • Specifically excluded: 1. Income otherwise exempt from taxation 2. Distributions from qualified retirement plans and income subject to self-employment tax 3. Social Security and unemployment benefits and alimony 4. Active income from sole proprietorships, partnerships, S corporations Title of PowerPoint New 2013 Tax Rules – Miscellaneous • Schedule C – Profit or Loss from Business • No separate payment card reporting requirement • Business mileage rate is 56.5¢ per mile • Form 4562 – Depreciation and Amortization • Section 179: $500,000/$2 million • Bonus: 50% • Special allowances for off-the-shelf software and qualified real property Title of PowerPoint New 2013 Tax Rules – Miscellaneous • Home Office Deduction - optional safe harbor method • • All other restrictions apply • • Deduction = square footage x prescribed rate • 300 square foot maximum • Prescribed rate is currently $5 Exception: No depreciation recapture Method can vary from year to year without IRS consent Title of PowerPoint Tax rules expiring in 2013 • Exclusion for discharge of principle residence debt • 100% gain exclusion on qualified small business stock held for more than 5 years • Must be purchased before 12/31/2013 • Above-the-line deductions for • Educator expenses • Qualified higher education tuition and fees Title of PowerPoint Tax rules expiring in 2013 • Tax-free distributions from IRAs for charitable purposes for those 70½ or older • First year bonus depreciation • Sales and Use Tax itemized deduction option Title of PowerPoint Tax rules expiring in 2013 • Tax credit for qualifying research expenses • Tax credits for energy-efficient new homes, energy-efficient appliances, and energysaving home improvements • Work Opportunity Tax Credit • Employers will not be able to claim this credit for otherwise qualified employees hired after 12/31/2013 Title of PowerPoint New 2014 tax rules • Individual AMT exemptions now indexed for inflation • GST tax exemption increases to $5.34 million • Gift tax annual exclusion will remain at $14,000 Title of PowerPoint New 2014 tax rules • Section 179 maximum deduction of $25,000/ $200,000 threshold • Special deductions for off-the-shelf software and qualified real property will no longer be available Title of PowerPoint New 2014 Tax Rules - ACA • Employer health care reporting postponed until 2015 • Hence, “shared responsibility” payments assessed to employers will also postponed • Most employers must provide written notice to employees within 14 days of hire Title of PowerPoint New 2014 Tax Rules - ACA • Health care premium tax credit • • Available to taxpayers who purchase coverage through the health care exchange system because they are either 1. Not eligible for other qualifying coverage OR 2. Don’t have access to affordable employersponsored plans with minimum value Can be taken to reduce health insurance premium payments or as a tax return credit • Penalty for failure to purchase health insurance Title of PowerPoint New 2014 Tax Rules • Final capitalization regs • All costs that facilitate the acquisition or production of real or personal property • All costs for work performed before the asset is placed in service • De minimus safe harbor election • Written plan to expense for nontax purposes • $5,000 with AFS/ $500 without AFS • Per unit Title of PowerPoint Other U.S. Supreme Court Actions • Declined to consider a case involving the New York “Internet Sales Tax” • Agreed to resolve the current court split regarding whether or not severance pay is subject to FICA Title of PowerPoint Questions? • Thank you for your kind attention! Title of PowerPoint Questions? • Thank you for your kind attention!