Federal Income Tax Update

Denise LeggettCPE Day - December 5, 2013

Title of PowerPoint

DisclaimerThis 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

same-sex 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 taxation2. Distributions from qualified retirement plans and

income subject to self-employment tax3. Social Security and unemployment benefits and

alimony4. 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• Deduction = square footage x prescribed

rate• 300 square foot maximum• Prescribed rate is currently $5

• All other restrictions apply• 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 energy-saving 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 either1. Not eligible for other qualifying coverage

OR2. Don’t have access to affordable employer-

sponsored 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!