GAIN CLARITY
CRITICAL TAX ISSUES
ON TRACK
WITH YOUR AGENDA
•
Health Care Reform
•
Cost Recovery
•
Form 1099-K Reporting
•
Foreign Bank Account Reporting
•
Changes for 2013
•
2013 Federal Budget Proposal
HEATH CARE REFORM
•
Revenue Raisers
•
Small Business Health Care Tax Credit
REVENUE RAISERS
•
Itemized deductions for medical expenses
•
Additional Medicare tax
• 0.90% on wages exceeding $250,000
joint / $200,000 single
• Employee portion only
REVENUE RAISERS
$400,000
X
1.45% = $5,800
Wages (incl. bonus)
Medicare tax
$150,000
X
0.90% = $1,350
Additional tax
REVENUE RAISERS
•
3.8% Medicare tax assessed on lesser of:
• Net investment income,
or
• Excess of MAGI over threshold
amounts $250,000 joint / $200,000
single
•
Tax years beginning after December 31,
2012
REVENUE RAISERS
•
Must have net investment income
• What is included?
• What is excluded?
• Real estate?
REVENUE RAISERS
•
Partnership & S Corporation income
REVENUE RAISERS
Combined wages
$150,000
Dividend income50,000
S Corp income
200,000
MAGI$400,000
Investment income subject to tax =
$50,000
Additional tax =
$ 1,900
REVENUE RAISERS
Investment income Additional tax
subject to tax ($150,000 x 3.8%)
$75,000 + $325,000 = $400,000
Pension income Capital gain MAGI
MAGI
Threshold Excess$150,000
$5,700
REVENUE RAISERS
Current 2013 No Surtax 2013 With Surtax Top Individual Rate 35% 39.6% 43.4% Capital Gains 15% 20% 23.8% Qualified Dividends 15% 39.6% 43.4%REVENUE RAISERS
Tax Planning Strategies
•
Reduce MAGI: Timing of transactions
•
Reduce net investment income (and MAGI):
Investment choice
•
Managing threshold amounts
•
Roth IRA conversions
•
Capital gain harvesting
SMALL BUSINESS HEALTH
CARE TAX CREDIT
Providing the intended relief to small
businesses?
SMALL BUSINESS HEALTH
CARE TAX CREDIT
Maximum credit equals 35% of employer
health insurance cost (50% for 2014-2016)
•
10 or fewer FTE’s
•
Average annual wages less than $25,000
AND
•
Employer pays 50% or more of insurance
premium
RETIREE PRESCRIPTION
DRUG SUBSIDY
Deduction eliminated for tax years
beginning after December 31, 2012
COST RECOVERY
•
Repair / Capitalization Regulations
•
Bonus Depreciation Update
CAPITALIZATION RULE
Types of Expenditures
Capital Expenditures are amounts paid for:
•
Acquisition of property with a useful life
beyond the tax year
OR
•
Permanent improvement or betterment
beyond the tax year
UNIT OF PROPERTY
Identifying the item purchased or improved
Unit of Property (UOP) = new term used by the IRS
Interdependence Test:
• Applies to property other than buildings (which have special rule)
• All the components that are functionally interdependent comprise a
single UOP
• Components are functionally interdependent if the placing in service of
one component is dependent on the placing in service of the other component
Example – Uniform/Linen Rental Business:
• Plant property – Machines to treat, launder and prepare items for rental
• Sorter, water boiler, washer, dryer, folder
• All are separate UOP’s as they need not be placed in service at the
UNIT OF PROPERTY
• Buildings
• Each building and its structural components are considered a UOP
• Improvements include
• Building structure or systems
• HVAC
• Electrical/Plumbing
• Escalators/Elevators
De MINIMIS RULE
Not required to capitalize (can expense) if certain conditions
are met:
• Applicable Financial Statement (AFS)
• Written policy of expensing
• Treats as expense on AFS
• Maximum expense per year is greater of
• 0.1% of gross receipts; or
De MINIMIS RULE
Assume:
• Gross receipts of $10 million
• Depreciation/amortization of $250,000
• All requirements met for use of De Minimis Rule
Limitation Computation:
• Gross receipts: $10,000,000 x 0.1% = $10,000
• Depreciation/amortization: $250,000 x 2.0% = $5,000
REPAIR OR IMPROVEMENT
• New rules are:
• Restatement of prior rules; and • Entirely new rules
• Evaluate impact as soon as possible because accounting
method changes may be necessary
• Three standards: • Betterment • Restoration
ROUTINE MAINTENANCE
SAFE HARBOR
• Recurring activities are currently deductible
• Perform more than once during life of asset
• Inspections, cleanings, testing, parts replacement.
BONUS DEPRECIATION
UPDATE
• 2011: 100% of asset cost (new assets)
• 2012: 50% of asset cost (new assets)
• 2013: bonus depreciation not available
AMT treatment is same as regular tax treatment for bonus assets.
SECTION 179
DEPRECIATION UPDATE
• 2011: Expense $500,000; limited if acquisition > $2,000,000
• 2012: Expense $125,000; limited if acquisition > $500,000 (inflation indexing allows $139,000; limited if acquisition > $560,000)
• 2013: Currently scheduled to return to 2003 limits Expense $25,000; limited if acquisition > $200,000
Section 179 expensing is allowed for both regular and AMT purposes.
STATE RULES
MAINE/NEW HAMPSHIRE
Do State rules align with federal regulations?
Maine New Hampshire
Bonus
Depreciation
No – Adjustment must be made. Addback current year bonus and deduct prior year amounts
No – Adjustment must be made. Addback current year bonus and deduct prior
amounts
Section 179 Expensing
Yes – After 1/1/2011 full conformity; 1/1/2003 –
12/31/2010 did not conform
No – Limited to $25,000 for assets placed in service after 1/1/2012
Other Rules
2011 and 2012 tax credit available for ME asset with federal bonus claimed