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YEAR-END UPDATE FOR PAYROLL AND RELATED TAXES WITH ADDITIONAL INFORMATION FOR INDIVIDUALS JANUARY 2015

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YEAR-END UPDATE FOR PAYROLL AND RELATED TAXES WITH ADDITIONAL INFORMATION FOR INDIVIDUALS

JANUARY 2015

This memo provides information that is useful in the annual preparation of employment related forms and additional tax updates made effective through 2014 with the Tax Increase Prevention Act of 2014 (the “Tax Extenders”) Some of the Tax Extenders expired as of December 31, 2014. Please feel free to contact members of our staff for help with your questions. Information applicable to individual taxpayers may be found on pages 12 through 18.

1) DEPOSIT REQUIREMENT - ELECTRONIC FUNDS TRANSFER

As in 2014, you must make electronic deposits of federal income tax withheld, Social Security, and Medicare taxes using the Electronic Federal Tax Payment System (EFTPS.) Penalties will be imposed for failure to make deposits electronically. Paper coupons for federal tax deposits are no longer acceptable. Only employers who incur a liability of $2,500 or less in a quarter may remit those taxes by check with a tax return. You may enroll in on-line payment by EFTPS at www.eftps.gov. Use of EFTPS for Form 1040 payments is voluntary and at this time only the ACH Debit method is available to individuals. For more information please contact our office or the Internal Revenue Service at 1-800-555-4477.

New York State employers whose aggregate tax withheld through NYS-45, Quarterly Combined Withholding, Wage Reporting and Unemployment Insurance Return, for the previous tax year was $100,000 or more must enroll in the PrompTax program.

You may enroll at https://www.nysetax.com/TPWeb/ and click on Enroll, or you may call (518) 457-2332. Please note that PrompTax filers are required to have payments settle on the third business day after the salary was paid.

Starting with returns due on or after April 20, 2015, NYS requires electronic filing of the Form NYS-45 as well as payment of the taxes. Filers of paper returns will be subject to penalties. Register for efiling by going to www.tax.ny.gov/ online and clicking Create Account. If you already file your sales tax returns through Online Services, you can use that registration to file your payroll tax returns.

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2) SOCIAL SECURITY AND MEDICARE TAX

For 2015, the Social Security wage base is $118,500 with a tax rate of 6.2%. There is no limit on the amount of earnings subject to the Medicare portion of the tax and that rate is 1.45%. Self-employed persons pay double the rates.

Additional employee portion of payroll tax

Effective with 2013, the employee portion of the Medicare tax increased by 0.9 percent (from 1.45 percent to 2.35 percent) on wages over $250,000 for married taxpayers filing jointly and over $200,000 for other taxpayers. Employers are not required to match this additional tax. It is only imposed on the employee.

Self-employed individuals will pay the additional 0.9 percent tax on net self-employment income that exceeds the threshold. In general, self-employed individuals are allowed an income tax deduction of one-half of the self-employment taxes paid. However, the new tax law does not provide a deduction for any portion of the additional 0.9 percent tax.

3) PER-DIEM REIMBURSEMENTS USING THE HIGH-LOW SUBSTANTIATION METHOD

For purposes of reimbursing employees for per diem allowances for travel away from home, the travel expenses are deemed substantiated, and therefore not includable in the employees’

income, if they do not exceed the Federal per diem rate. Effective October 1, 2014, the rates are $259 for any “high-cost locality”, and $172 for travel to any other locality within the continental U.S. Of the per diem rates noted above, the portion allocated for Meals and Incidental expense remains at $65 for the high-cost localities and at $52 for the low-cost localities. A listing of the high-cost and low-cost localities is available from our office or the Internal Revenue Service. You may request IRS Publication 1542. Rates are also available for those entities that use the ‘city by city’ method of determining per diems.

Please consult our staff for these rates as the need arises, or you can go to www.gsa.gov/portal/category/21287

4) SUMMARY OF STANDARD MILEAGE RATES

For 2015 the standard mileage rates are 57.5 cents/mile for business use of an automobile and 23 cents/mile for purposes of determining travel for medical or moving expenses.

Charitable rates remain unchanged at 14 cents/mile.

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5) SUPPLEMENTAL WAGE WITHHOLDING RATE

For supplemental wages paid in 2015 the withholding rates remain the same: Federal 25 percent, NYS 9.62 percent, NYC 4.25 percent. Supplemental wages are compensation paid to an employee in addition to the employee’s regular wages. Examples of supplemental wages are bonuses, commissions and severance pay.

For supplemental wages of $1 million or more, federal withholding is 39.6 percent, the maximum personal tax rate presently in effect.

6) BACK-UP WITHHOLDING

The rate for back-up withholding remains at 28 percent for 2015. Back-up withholding is required if a social security number or TIN is not provided. Form 945 should be filed to report all back-up withholding.

7) USE FORM 945 TO REPORT ALL NONPAYROLL ITEMS

Withholding on nonpayroll items should be reported on Form 945 - Annual Return of Withheld Federal Income Tax. The nonpayroll items include backup withholding and withholding for pensions, annuities, IRAs, and gambling winnings. For example, if federal taxes were withheld from a pension distribution and reported on Form 1099-R, a Form 945 is required to report the liability. Form 945 filers who are required to deposit on a semiweekly deposit schedule are required to attach Form 945-A, Annual Record of Federal Tax Liability.

8) PAYROLL AND NONPAYROLL DEPOSIT RULES

The IRS bases the frequency of an employer’s required deposits on an annual determination that depends upon the aggregate amount of employment taxes reported during a “lookback”

period. The lookback period is the four consecutive quarters ending on June 30 of the prior year. For annual return filers, the lookback period is the calendar year preceding the previous year. Should you have any questions as to when your payroll tax deposits are due, please contact us, and we will assist you in making the correct determination.

An employer who accumulates $100,000 or more of taxes on any day during a deposit period must deposit the tax on the next banking day and is considered a semi-weekly depositor for the rest of the year, as well as for the following calendar year.

Those employers with a liability of less than $2,500 may remit the tax with form 941, 944 or 945, as applicable. The threshold applies to each type of return separately.

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9) SELECTED UPDATES - EMPLOYEE BENEFITS AND RETIREMENT PLAN CONTRIBUTIONS

Transportation exclusions for employees

The monthly mass transportation exclusion is $130 in 2015. The monthly parking exclusion is $250.

Employer-Provided Education Assistance

The American Taxpayer Relief Act permanently extended the exclusion from income and employment taxes of employer-provided education assistance up to $5,250.

Elective deferrals under 401(k) and 403(b)

For 2015, the maximum employee contribution is $18,000. In addition, catch-up provisions will permit employees who are age 50 or over by December 31, 2015 to contribute an additional $6,000.

IRA Contribution

The deduction for 2015 is $5,500 with catch-up of $1,000.

Contributions to a SIMPLE Plan

For 2015 the maximum contribution is $12,500 with catch-up contribution of $3,000 allowed for those ages 50 and over.

Defined Contribution Plans

For 2015 the deduction for contributions to defined contribution plans increases from

$52,000 to $53,000.

Defined Benefit Limits

For 2015, in general, the maximum benefit that may be funded at a participant’s retirement age of 62 through age 65 has remained at $210,000 per year. Adjustments are required for other retirement ages.

Flexible Spending Account Contributions

Employee contributions to health care flexible spending accounts will be limited to

$2,550 per year for 2015. Prior to 2013, the tax code did not limit health care flexible spending account contributions. This limit will be indexed for inflation in future years.

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Maximum Compensation Limits

Beginning with the 2015 plan year, the compensation limit for defined contribution plans has been increased from $260,000 to $265,000.

10) FEDERAL ELECTRONIC FILING REQUIREMENTS

Corporations and certain tax exempt organizations with total assets of $10 million or more must file their 2014 income tax returns electronically, if the entity files a combination of 250 or more information returns in a year (Forms W-2, W-2G, 1042-S, 1098, 1099, and 5498). Exempt organizations with $10 million or more in total assets are required to e-file if the organization files at least 250 returns in a calendar year, including income, excise, employment tax and information returns. Private foundations and non- exempt charitable trusts are required to file Forms 990-PF electronically regardless of their asset size, if they file at least 250 returns annually.

As in the past, if you file 250 or more information returns (Forms W-2, W-2G, 1042-S, 1098, 1099, or 5498), you must file those returns electronically. This requirement applies separately to each type of information return you file. Additional information about this filing method is available from the Social Security Administration (www.ssa.gov) or our office.

Partnerships with more than 100 partners must file federal Form 1065, Partnership Tax Return, electronically. Please contact our office for information regarding this method of filing.

NEW YORK STATE E-FILE REQUIREMENTS

Since December 1, 2011, corporate estimated tax payments must be e-paid through the New York State website.

Individuals, businesses, partnerships and fiduciaries filing in New York State must e-file their income tax returns and all extensions under certain conditions. The e-file requirement will apply if tax software is used to self-prepare a return, the software supports electronic filing and the individual or business has broadband internet access. New York State may assess a penalty on the taxpayer of up to $50 per document for failure to e-file and e-pay.

It should be noted that the New York State Form IT-204-LL, which also must be filed electronically, is due within 60 days after the last day of the entity’s tax year.

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11) REPORTING REQUIREMENTS: W-2 AND 1099s

Form W-2: Pursuant to recent health care legislation, employers who file more than 250 W-2's in 2014 will be required to report the total cost of health insurance coverage provided to each employee on Form W-2. This amount should be entered in Box 14 with a code of DD. The reporting is optional for employers filing fewer than 250 W-2's. There is no reporting on Form W-3 of the total of these amounts for all the employer’s employees.

Form 1099-MISC: Required when a trade or business makes payments of $600 or more in one calendar year to an individual or an unincorporated entity, such as an LLC or LLP that provided service to that trade or business. Payments made to an attorney in the course of your trade or business in connection with legal services of $600 or more require 1099 reporting. Payments made by credit card are not required to be reported on Form 1099-MISC. (See Form 1099-K below).

Form 1099: Each recipient copy must have a contact phone number for the payer. If your form does not contain a field for the phone number, use one of the address fields.

Form 1099-K: Credit card companies and banks must report card payments to merchants on Form 1099-K if:

• The gross amount of total reportable payment transactions exceeds $20,000, and

• The total number of such transactions exceeds 200

12) REMINDERS WHEN PREPARING 2014 FORMS W-2

a. Payments of accident and health insurance premiums for a qualified plan, paid on behalf of a more than 2% "S Corporation" shareholder-employee, must be included in Box 1(wages, tips, and other compensation.) However, these payments are not subject to Social Security and Medicare.

b. If you provided more than $50,000 of group-term life insurance coverage to an employee, include the cost of coverage over $50,000 (as published in Internal Revenue Code Regulations) in boxes 1, 3, and 5. In Box 12 denote this excess premium with a code "C".

c. If you reimburse your employee for business expenses under an accountable plan using per diem rates and the amount reimbursed exceeded the (1) standard mileage rate, (2) government per diem rates or (3) the high-low substantiation method, you must reflect amounts as follows:

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1) Include in Boxes 1, 3 and 5 only the amount in excess of the government specified rates.

2) Enter in Box 12, using code "L" the portion of the reimbursement that is equal to the amount allowed under the government specified rates.

If you reimbursed your employee for business expenses under a non-accountable plan, the full amount of the reimbursement is includable in Boxes 1, 3, and 5 and is subject to income tax withholding and Social Security and Medicare taxes.

In addition, other fringe benefits may need to be separately stated on Form W-2.

Please refer to the instructions or contact us with any questions.

d. Signing bonuses are considered taxable wages and therefore subject to payroll tax withholding.

e. An employee’s use of an employer provided vehicle is considered a taxable fringe benefit if the employee uses the vehicle for commuting and/or personal purposes.

These non-cash fringe benefits are subject to income and FICA taxes. Please refer to IRS Publication 15-B for the amount to include on the employee's W-2 or contact us with any questions. The amount included in wages may be separately disclosed as a taxable fringe benefit in Box 14 (other.)

13) PAYROLL AND OTHER COMPENSATION REPORTING FORMS WAGE NOTIFICATION AND RECORDKEEPING REQUIREMENTS

Since January 2012, the New York Wage Theft Protection Act (WTPA) of 2010 requires that each employer provide new notice annually by February 1st of each year to every employee, in addition to providing notice at time of hire, regarding rate of pay, basis of pay, pay date and other related information. Effective with 2015, this notice must be given to employees at time of hire only, not annually. You must have a signed Notice of Acknowledgement on file for each employee, provide a copy to your employees and retain a copy in your files for six years. Contact your payroll service provider or our office for a template that you may use to provide this notice. In addition, wage statements that show the employer's name, address, phone number, the period covered by the payment as well as the hours worked, wage rate and gross to net breakdown, are still required every time wages are paid to an employee. Household, commercial and nonprofit employers are all required to provide this data. Penalties of $100 per employee per week will be imposed for failure to provide wage statements and $50 per employee for not having a Notice of Acknowledgement on file.

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OTHER PAYROLL REPORTING FORMS

- Form 940: The FUTA tax rate for 2015 is 0.60 percent on the first $7,000 of wages.

Certain states are subject to a reduction of the usual credit of 5.4 percent against the full FUTA tax rate of 6 percent. NY is one of the states subject to this credit reduction, which effectively raised the tax rate to 1.8 percent in 2014, a maximum tax of $126 per employee, and an expected rate of 2.1 percent in 2015. Nonprofits are not required to pay FUTA but are required to pay SUI.

- Form 944 Employer’s Annual Federal Tax Return is designed so that employers with annual employment tax liabilities of $1,000 or less may file and pay annually, instead of quarterly. You will receive written notification if you qualify to file this form.

- If you have been notified of your change to 944 filing, and you incur a liability of greater than $ 1,000, we advise that you deposit the liability as though you were a monthly depositor.

14) HOUSEHOLD EMPLOYEES - 2015 SOCIAL SECURITY AND MEDICARE TAXES FOR HOUSEHOLD EMPLOYEES

- The threshold for paying Social Security and Medicare taxes on the wages of household employees is $1,900 in 2015.

- HOUSEHOLD EMPLOYEES UNDER AGE 18 - Household employment wages paid to workers under age 18 are exempt from social security and Medicare taxes unless household employment is the worker’s principal occupation.

- HOUSEHOLD EMPLOYERS - Social Security, Medicare taxes - Federal income tax withheld and the Federal unemployment tax will be reported and paid on the individual's Form 1040, Schedule H. State taxes are required to be paid quarterly.

15) NEW EMPLOYEES - REQUIRED FORMS

Employers are required to keep verification of eligibility of employment in the United States on file for each newly hired employee. Form I-9 may be obtained from our office or at the INS website at www.uscis.gov. This form along with form W-4 should be kept on file for each employee. New hires should be reported to New York State by faxing a copy of form W-4 to (518) 320-1080. NYS employers are also required to have workers complete Wage Acknowledgement forms (LS-54, LS-55, et al), as noted above.

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16) HEALTH INSURANCE CREDIT FOR SMALL BUSINESSES AND EXEMPT ORGANIZATIONS

A tax credit for the cost of health insurance premiums for small businesses and small tax- exempt organizations continues to be available. The maximum credit is 35 percent of eligible health insurance premiums for small businesses and 25 percent for nonprofits. In order to qualify, you must have fewer than 25 full time equivalent employees whose average wages are less than $50,000. There is a phase-out of the credit for wages between

$25,000 and $50,000. Since the basis for this credit is the number of “full time equivalent” employees, you could still qualify if you employ more than 25 employees, but some of them are part-time. The credit will be computed on Form 8941 and included in the general business credit. Nonprofits will also compute the credit on Form 8941 and report the amount of the credit on Form 990-T. This is a refundable credit which means that even if you have no tax you will be refunded the amount of the credit.

17) BUSINESS TAX PROVISIONS

Code Sec. 179 Small Business Expensing

Favorable business expensing of certain property acquired during the tax year was extended through December 31, 2014. For 2014, business and self-employed individuals can elect to expense up to $500,000 of certain property placed in service during the year.

The deduction is phased out on a dollar-for-dollar basis when property placed in services exceeds $2,000,000. The code sec. 179 deduction can only be claimed to the extent the taxpayer has business income. For 2015, the Code Sec. 179 expensing is currently reduced to $25,000 and the annual dollar limit is reduced when the qualifying property placed in service exceeds $200,000.

Bonus Depreciation

Bonus depreciation was extended through December 31, 2014. Some transportation and longer period production property is eligible for 50 percent bonus depreciation through 2015.

Qualified Leasehold/Retail Improvements, Restaurant Property

The provision for a 15-year recovery period for qualified leasehold improvements, qualified retail improvements and qualified restaurant property was extended through December 31, 2014.

Expensing of Film and Television Production Costs

The provision allowing the first $15,000,000 of the cost of producing a qualified film or television program to be deducted rather than capitalized was extended through December 31, 2014. A film or television production is qualified if at least 75% of the compensation is for services paid in the United States.

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18) SECTION 1202 EXCLUSION

You generally can exclude from your income up to 50% of your gain from the sale or trade of qualified small business stock held by you for more than 5 years. The exclusion can be up to 75% for stock acquired after February 17, 2009, and no later than September 27, 2010, and up to 100% for stock acquired after September 27, 2010, and before 2014.

19) RESEARCH & EXPERIMENTATION TAX CREDIT OR THE R&D TAX CREDIT The R&D tax credit, which has been extended through December 31, 2014, allows a credit to businesses spending money on research. This credit is available for up to 20 percent of the excess of an eligible taxpayer's qualified research expenses over a base amount plus 20 percent of the taxpayer's qualified basic research payments, plus 20 percent of the taxpayer's post-August 8, 2005 payments to a qualified energy consortium for energy research. The base period is generally the average of the preceding four tax years.

2015 TAX CALENDAR AND IMPORTANT DATES

By February 2, 2015

1) Form W-2 must be distributed to employees.

2) Form 940, Federal Unemployment Insurance, (FUTA), must be mailed by January 31, 2014. However, if you deposited all the FUTA tax when due, you may file Form 940 by February 10, 2015.

3) File form 941, Social Security and withheld income tax return for the 4th quarter of 2014. However, if taxes were deposited in full and on time for the quarter, you may file Form 941 by February 10, 2015.

4) Form 945, Annual Return of Withheld Federal Income Tax for nonpayroll payments including pensions, annuities etc. Again, if taxes were deposited in full and on time, return can be filed by February 10, 2015.

5) Form 1099-MISC must be mailed to persons or unincorporated entities, including LLCs or LLPs who received $600 or more in fees, or $10 or more in royalties. Forms 1099-DIV and Forms 1099-INT must be mailed to persons who received $10 or more in dividends or interest from you during 2014. Form 1099-R must be mailed to persons who received any distribution from retirement or profit-sharing plans, IRA's, SEP's, or insurance contracts.

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6) New York State Forms NYS-45 and, if applicable, NYS-4-ATT, for the fourth quarter of 2014 (Quarterly Combined Withholding and Wage Reporting Return) must be prepared and filed. For other states, please refer to specific state instructions.

By February 17, 2015

Ask for a new Form W-4, Employees Withholding Allowance Certificate, from each employee who claimed exemption from withholding last year. For those employees claiming exemption from withholding, the W-4 must be completed annually. If the employee does not give you a new Form W-4, withhold tax as if he or she is single, with zero withholding allowances. For all other employees, a new Form W-4 should be completed for any change in status. These forms may also be filed on magnetic media with transmittal Form 6466. You may apply for magnetic or electronic filing of Form W-4 on Form 4419.

By March 2, 2015

1) Form 1096 must be filed along with government Copy A of Form 1099 if filed by paper. For efile deadline, see March 31, below.

2) Copy A of Form W-2. For efile deadline, see March 31, below.

By March 17, 2015

1) Federal Form 1042-T - Annual Withholding Tax Return for U.S. Source Income of Foreign Persons must be prepared and submitted with Forms 1042-S - Foreign Person's U.S. Source Income Subject to Withholding. Form 1042 must also be completed to report the annual federal tax liability on that form, if any.

2) Form 1042-S must be mailed to recipients.

By March 31, 2015

Electronically filed forms W-2 must be submitted to SSA and Copy A of electronically filed forms 1099 must be submitted to the IRS. The forms can also be created, printed and filed online by going to www.socialsecurity.gov/employer and selecting “Business Services Online”.

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OTHER INFORMATION FOR INDIVIDUAL TAXPAYERS

ADDITIONAL MEDICARE TAX ON HIGHER-INCOME TAXPAYERS

The 3.8 percent Medicare contribution tax on certain unearned income of individuals, trusts, and estates became effective in 2013. Individuals with adjusted gross income (AGI) exceeding certain thresholds ($250,000 for married individuals filing jointly or $200,000 for unmarried individuals), will pay a tax of 3.8 percent on net investment income. For purposes of this tax, investment income generally includes royalties, interest, dividends, income from businesses involved in the trading of financial instruments or commodities and businesses that are passive activities. Net capital gains are included whether short term or long term. Investment income excludes distributions from qualified retirement plans and excludes any items that are taken into account for self-employment tax purposes. The tax will be calculated on Form 8960.

Long Term Capital Gain and Dividend Income Rates

The capital gains and dividend rate is 20 percent for taxpayers with taxable income above $413,200 ($464,850 for married taxpayers, $439,000 for head of households.) The 3.8 percent Medicare surtax applies to these gains in addition to the higher rates.

All other taxpayers will continue to enjoy capital gains and dividend tax at a maximum rate of 15 percent. A zero percent rate will also continue to apply to capital gains and dividends to the extent income is below the top of the 15 percent income tax bracket. In 2015 it is $74,900 for joint filers and $37,450 for singles.

The 28 and 25 percent tax rates for collectibles and unrecaptured Code Sec. 1250 gain, respectively, remain unchanged.

Installment Payments

Collection of installment payments received after 2014 are subject to the tax rates in effect in the year of the collection, not the year of sale. Thus, capital gains portion of installment payments received in 2015 and later could now be taxed at the 20 percent rate for higher-income taxpayers, plus the 3.8 percent Medicare surtax.

AMT Exemption

The 2015 AMT exemption amounts are $83,400 for married filing joint and qualified widow(er)s, $53,600 for single and head of household, and $41,700 for married filing separate filers. The amounts for 2014 were $82,100, $52,800 and $41,050, respectively.

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American Opportunity Tax Credit for Higher Education

The American Opportunity Tax Credit (AOTC) Act is currently extended through 2017. The AOTC rewards qualified taxpayers with a tax credit of 100 percent of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000 for a total maximum credit of $4,000 per eligible student. The AOTC applies to the first 4 years of a student’s post- secondary education. The credit begins to phase-out for married filing joint tax returns with income between $160,000 and $180,000 and for others with income between $80,000 and

$90,000. Couples with income above $180,000 and others with income above $90,000 may not claim the credit.

Deduction for Qualified Tuition and Related Expenses

The 2014 Act extended until December 31, 2014 the above-the-line deduction for qualified tuition and related expenses. Taxpayers cannot claim the higher education tuition deduction in the same tax year that they claim the AOTC or the Hope credit. The deduction phases out if your modified adjusted gross income is more than $80,000 ($160,000 if married filing joint).

Student Loan Interest Deduction

The maximum amount of deductible student loan interest is $2,500. You will not be able to take a student loan interest deduction if your modified adjusted gross income is $80,000 or more ($160,000 or more if you file a joint return.)

Kiddie Tax

The amount of a child’s unearned income not subject to the parents’ tax rate was $1,000 in 2014.

For 2015, the amount is increased to $1,050. The kiddie tax is a tax on unearned income (interest, dividends and capital gains) earned by children under the age of 19 and college students under the age of 24.

Foreign Earned Income Exclusion

The exclusion amount is increased from $99,200 in 2014 to $100,800 in 2015.

Income Tax Rate

Taxpayers with taxable income above $413,200 ($464,850 for married taxpayers, $439,000 for heads of household) will be taxed at the 39.6 percent rate, after going through the other tax brackets.

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Pease Limitation

The Pease limitation reduces the total amount of higher-income taxpayer’s otherwise allowable itemized deductions by 3 percent of the amount by which the taxpayer’s adjusted gross income exceeds an applicable threshold. The applicable threshold levels for 2015 are $309,900 for married couples and surviving spouses ($284,050 for head of households, $258,250 for unmarried taxpayers and $154,950 for married taxpayers filing separately.)

Personal Exemption Phase-out

Under the phase-out, the total amount of exemptions that may be claimed by a taxpayer is reduced by 2 percent for each $2,500 or portion thereof (2 percent for each $1,250 for married couples filing separate returns) by which the taxpayer’s adjusted gross income exceeds the applicable threshold level (same threshold as the Pease Limitation applicable threshold listed above.) The personal exemption amount is $4,000 for the year 2015.

Medical and Dental Expense Deductions

The threshold for claiming the itemized medical and dental expense deduction remains at 10 percent of AGI. A 7.5 percent threshold will continue to apply through 2016 for taxpayers (or spouses) who are 65 and older.

Increase in standard deduction for married taxpayers filing jointly

Standard deduction for joint filers is projected to increase from $12,400 in 2014 to $12,600 for 2015. For single filers, the standard deduction increased from $6,100 in 2014 to $6,300 in 2015.

Home Office Deduction

Since the 2013 tax year, the IRS has allowed a new simplified, optional method of claiming a home office deduction. The optional deduction is limited to $1,500 per year based on $5 per square foot for up to 300 square feet.

Child and Dependent Care Credit

The maximum credit is 35 percent of qualified child care expenses with a $3,000 cap for one qualifying child and a $6,000 cap on expenses for two or more qualifying children. The credit is reduced to 20% for those with higher income.

Adoption Credit

For 2015, the adoption credit phases out for modified adjusted gross income between $201,010 and $241,010 and the limit on the credit is $13,400. Employer provided adoption assistance is equivalent to the credit amount.

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State & Local Sales Tax Deduction

The election to claim an itemized deduction for state and local general sales tax in lieu of state and local income taxes was extended for 2014.

Teachers' Classroom Expense Deduction

The teacher's classroom expense deduction was extended for 2014. The deduction allows primary and secondary education professionals to deduct (above-the-line) qualified expenses up to $250 paid out-of-pocket during the year.

Exclusion of Cancellation of Indebtedness on Principal Residence

Cancellation of indebtedness income is includible in income, unless a particular exclusion applies. This provision excludes from income cancellation of mortgage debt on a principal residence of up to $2 million. The Tax Extenders extended the provision through 2014.

Mortgage Insurance Premiums

This provision treats mortgage insurance premiums as deductible interest that is qualified residence interest. The Tax Extenders extended this provision through December 31, 2014.

Contribution of Capital Gains Real Property for Conservation

The Tax Extenders extended through December 31, 2014, the special rule for contributions of capital gain real property for conservation purposes. The special rule allows the contribution to be taken against 50 percent of adjusted gross income.

Rollovers

As in 2014, during 2015 a taxpayer can convert a traditional IRA to a Roth IRA without regard to the taxpayer's income and without regard to whether the taxpayer is a married individual filing a separate return. However, while the 10-percent additional tax on early distributions does not apply, the amount converted is taxable in the year of conversion.

Residential Energy Efficient Property Credit

For property placed in service after 2005 and before 2017, a nonrefundable personal tax credit is available to individuals for qualified residential alternative energy expenditures. The residential alternative energy credit is equal to 30 percent of the cost of eligible solar water heaters, solar electricity equipment and fuel cell plants. The maximum amount of credit for the installation of qualified fuel cell property for any tax year is $500 per half kilowatt hour. There are limitations to these credits based on your tax liability. However, unused amounts may be carried forward.

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SELECTED UPDATES - ESTATE & GIFT TAX Federal Estate Tax

The maximum Federal estate tax rate is 40 percent with an annual inflation-adjusted exemption of $5,430,000 for estates of decedents dying after December 31, 2014. This is an increase of

$90,000 over the 2014 exemption.

New York State Estate Tax

For deaths as of April 1, 2014, New York taxes estates of more than $2,062,500. The exempt amount will keep going up each year until 2019, when it should match the exemption from federal estate tax, which by then is likely to be almost $6 million. The New York exemption will increase by $1.0625 million on April 1 of every year until 2017, when it will reach $5.25 million.

Then, on January 1, 2019, it will jump to whatever the federal estate tax exemption is at the time.

The New York exemption amount will continue to go up with the federal exemption amount.

Portability

The American Taxpayer Relief Act made permanent “portability” between spouses. Portability allows the estate of a decedent who is survived by a spouse to make a portability election to permit the surviving spouse to apply the decedent’s unused exemption to the surviving spouse’s own transfers during life and at death.

Annual Exclusion Gifts

The annual exclusion from the determination of taxable gifts is $14,000 in 2015. The annual exclusion of gifts to a spouse who is not a U.S. citizen is $147,000 in 2015.

REPORTING REQUIREMENTS FOR INDIVIDUALS WHO OWN FOREIGN ASSETS Individuals owning foreign assets totaling more than $50,000 on the last day of the tax year or more than $75,000 at any time during the tax year ($100,000 and $150,000 respectively for married taxpayers), must report those assets on Form 8938. If you are residing abroad, you are required to file only if your foreign assets are more than $200,000 on the last day of the tax year or more than

$300,000 at any time during the year ($400,000 and $600,000 respectively for married filing jointly.) Failure to report foreign assets will result in an initial penalty of $10,000. This requirement is in addition to FBAR reporting on Form FinCen Report 114 when total aggregate foreign bank balances exceed $10,000. Form 8938 is filed with Form 1040.

The FinCen Report 114 must be electronically filed using FinCen’s BSA E-filing system. We will transmit these forms electronically for our clients.

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CREDIT CARD PAYMENTS FOR ESTIMATED TAXES

You may continue to pay individual taxes using American Express, MasterCard, or Discover Card, online at www.officialpayments.com or by calling 1-800-2PAY-TAX. The service is also available for paying New York and several other states' taxes as well. Your credit card company may charge a fee for this service.

NEW YORK STATE TAX RATES

As with 2014, the 2015 tax brackets for individual taxpayers with NY taxable income of $21,000 to

$77,000 will be taxed at 6.45 percent; $78,000 to $205,000 will be taxed at 6.65 percent; $206,000 to $1 million will be taxed at 6.85 percent; and the highest income NY taxpayers, those with taxable income over $1.1 million, will be taxed at 8.82 percent.

METROPOLITAN COMMUTER TAX: SMALL BUSINESSES AND EDUCATIONAL INSTITUTIONS EXEMPTED

Employers with payroll expense under $312,500 in any calendar quarter are not required to pay the Metropolitan Commuter Transportation Mobility tax, and no reporting is required unless an employer meets that threshold. Self-employed individuals with income less than $50,000 are also exempt from the tax. Businesses with quarterly payrolls between $312,500 and $437,500 will have decreased rates. All educational institutions are exempt from the Metropolitan Commuter Transportation Mobility Tax. Legislation was passed to simplify the MCTMT filing requirements for self-employed individuals (including partners). Effective January 1, 2015 the law requires all individual MCTMT payments and return information to be made with personal income tax estimates. Group returns for NY resident partners will no longer be accepted. The payment and filing due dates for employers have not changed. In addition, for tax years beginning on or after January 1, 2015, self-employed individuals must remit a single payment of combined MCTMT and personal income tax with Form IT-2105 or with personal income tax returns, where applicable. In addition, partnerships doing business within the MCTD must make estimated MCTMT payments on behalf of partners who are nonresident individuals of NYS except for tax less than $300, the partnership files a group return and the partner files an exemption certificate.

AFFORDABLE CARE ACT

Since 2014, under the Patient Protection and Affordable Care Act, qualified individuals and small employers have been able to purchase private health insurance through Exchanges. Certain individuals who choose to obtain coverage through an Exchange will be eligible to qualify for a new premium tax credit and/or cost sharing reductions established to help make the purchase of insurance more affordable. Individuals who do not have health insurance may be subject to a penalty to be paid with their tax return.

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FATCA

Major provisions of the Foreign Account Tax Compliance Act, commonly referred to as “FATCA”

came into effect on July 1, 2014. In general, these provisions require foreign financial institutions to report information to the IRS and withhold U.S. income tax in some situations. The new provisions also changed the rules covering U.S. source income earned by non-U.S. individuals and entities. If you are a U.S. resident with foreign accounts, a U.S. resident doing business with non-U.S.

residents, or a foreign resident doing business in the U.S., please contact us for more information on how FATCA applies to your situation.

ACHIEVING A BETTER LIFE EXPERIENCE (ABLE) ACT

The President signed The ABLE Act on December 19, 2014 which is a tax-advantages savings account for individuals with disabilities. Income earned by the accounts is not taxed and contributions to the account made by any person (the account beneficiary, family and friends) would not be tax deductible.

Please note that in the interest of the environment, our January 2016 annual memorandum will be posted on our web site at www.lutzandcarr.com.

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