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 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 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 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 either 1.Not eligible for other qualifying coverage OR 2.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!