Overview of 2013
Income Tax Changes
Glenn Gizzi
Fall/Winter
2013/2014
1
Objectives
• Explain significant provisions of the
American Taxpayer Relief Act of 2012
• Discuss inflationary adjustments for
2013
• Review new IRS optional simplified
method for business use of home
deduction
2
ATRA 2012
• H.R. 8 signed by the president into law
on January 2, 2013
• What was not extended:
– No extension of the payroll tax cut
• 6.2 percent rather than 4.2 percent ($113,700
wage base)
• Applies to wages paid and self-employment
P.L. 112-240
3
Permanent Extensions
and More
• Individual tax rates retained (in percentages: 10,
15, 25, 28, 33 and 35)
• New top rate of 39.6 percent – high incomes
• Marriage penalty relief
• Increased standard deduction for MFJ
IRC 1
IRC 1(F)(8)(A)
IRC 63c(2); IRC 63 (c) (7)
Rev. Proc. 2013-15
4
Permanent Extensions
Capital Gains
• AMT capital gain rates – same using AMT
taxable income
• Zero percent rate retained for taxpayers in
10 – 15 percent brackets
• 15 percent bracket retained for middle
income taxpayers
• 20 percent rate applies to capitals gains,
dividends, gain amounts beyond the 39.6
percent bracket limitation amounts and 28
percent rate applies to collectibles
IRC1(h)(1)
5
Two Prior Provisions Reinstated
• “Pease” limit on itemized deductions
• Personal exemption phase-out
IRC 68
IRC 151
6
Inflationary Adjustments
• Business standard mileage rate 56.5 cents per
mile
• Exemption amount $3,900
• IRA deduction and phase-outs increased
• Minimum standard deduction for dependents
$1,000
• AMT exemptions increased (permanent)
IRC 55
7
Medical Deduction Limitations
• Medical expenses (Sch. A)
– Reduced by 10 percent of AGI
– If 65 or older only reduced by 7.5 percent
• Applies if either you or spouse is 65 or older
IRC 213
8
Schedule D/Form 8949
Aggregate Transaction
Reporting
• New lines 1a and 8a on Schedule D allow for
reporting without using Form 8949, for
transactions correctly reported to the IRS with
the correct basis amount
• Substitute Form 1099-B reporting guidelines
are to follow Form 8949 format
• For the latest information, go to:
IRS.gov/scheduled or IRS.gov/form8949
9
Extension of Work Opportunity
Tax Credit
• Retroactively allows taxable employers to claim
the WOTC for all of the targeted group employee
categories listed on Form 5884
– If hired on or after Jan. 1, 2011 and before
Jan. 1, 2014
• Extends expanded WOTC for hiring qualified
veterans through Dec. 31, 2013, for both taxable
and tax-exempt employers
(Note: tax exempt employers use Form 5884-C)
IRC 51
10
Fringe Benefit for Mass Transit
• Retroactively increased to Jan. 1, 2012, the
maximum monthly excludable transit benefit
exclusion to $240 per month from $125
• Now the maximum monthly excludable amount
for employer-provided transit benefits equals the
same excludable amount for qualified parking
beginning on January 1, 2012, through
December 31, 2013
IRC 132
11
Fringe Benefit for Mass Transit
• The maximum monthly excludable amount for
employer-provided commuter highway vehicle
transportation and transit pass benefits for 2013
is $245
• The exclusion applies whether the employer
provided the benefits out of its own funds or
whether they were provided through salary
reduction arrangements
• Publication 15-B, Employer's Tax Guide to
Fringe Benefits
Notice 2013-8
12
Extension and Modification of
Bonus Depreciation
• Extends 50-percent additional first year
depreciation deduction to include 2013
– through 2014 for certain longer-lived and
transportation property
• Claimed on Form 4562, Depreciation and
Amortization, Part II
• See Publication 946, How To Depreciate
Property
IRC 168
13
Extension of 15-Year StraightLine Cost Recovery
• Retroactively extends rules to include 2012 and
2013
• Allows depreciation over 15 years for leasehold
improvement property, qualified restaurant
property and qualified retail improvement
property
• See Form 4562 and Publication 946 for more
information
IRC 168
14
Treatment of Certain Real
Property as Section 179
Property
• Retroactively extends to include 2012 and 2013
• Maximum amount is $500,000 of the cost of
qualifying property placed in service for the
taxable year – with exceptions and reduced if
exceeds $2 million
• See Form 4562 and Publication 946 for more
information
IRC 179
15
IRC 1202
• Retroactively extends the 100-percent exclusion
of the gain from the sale of qualifying small
business stock that is acquired before Jan. 1,
2014 and held for more than five years
• The earliest tax year for which this 100-percent
capital gain exclusion can be claimed is 2015
• See Pub 550, Form 1040 Sch D and Form 8949
for more information
IRC 1202
16
IRC 1367
• Extends to include 2012 and 2013
• Provides that if an S corporation contributes
money or other property to a charity, each
shareholder takes into account the shareholder’s
pro rata share of the contribution in determining
its own income tax liability
– Reduce the basis by the amount that flows
through to the shareholder
IRC 1367
17
IRC 1374
• Retroactively extends to include 2012 and 2013
• Built-in gains are reported on Form 1120S
Schedule D, Part III
• See Pubs 544 and 550 for more information
IRC 1374
18
Extension of Empowerment
Zone Tax Incentives
• Retroactively extends period for which the
designation of an empowerment zone is in effect
to include 2012 and 2013
• ATRA extension did not automatically extend
existing EZ termination dates had as part of its
original nomination for designation by a state
• Notice 2013-38, deems the termination date to
be extended to December 31, 2013, unless the
nominating entity informs the Service that it
affirmatively declines the extension
IRC 1391
19
2011 Expiring Provisions
Extended To End of 2013
• Optional sales tax (Sch. A)
• Conservation easement donations
• Tuition deduction above the line
– 1040 adjustment to income
– Retroactively reinstated for 2012
– Form 8917
IRC 164 (b)
IRC 170(b)
IRC 222
20
2011 Expiring Provisions
Extended To End of 2013
• Tax free distributions from individual retirement
accounts plans for charitable purposes (Sec.
408(d))
– Maximum $100,000 annually
– Must be a direct transfer
– No income/no charitable deduction
– Must be over age 70 ½
– Must be made to a qualified charitable
organization (Sec. 170)
– Required minimum distribution will qualify
IRC 408(d)(8)
21
American Opportunity Tax
Credit Extended Through 2017
• American Opportunity Tax Credit
– One hundred percent of the first $2,000 of
qualified expenses
– Twenty-five percent of the next $2,000 of
qualified expenses
– First four years of post secondary education
– Must reduce expense by tax free scholarships
and excludable expenses
– Form 8863
IRC 25(A)(i)
22
2011 Expiring Provisions
Extended To End of 2013
• Teacher deduction
– Restored for 2012 and extended
• Discharge of residence debt excluded from
income (Form 982)
• Treatment of mortgage insurance premiums as
home mortgage interest (Sch. A)
IRC 62
IRC 108(h)(2)
IRC 163(h)
23
Nonbusiness Energy Credit
Extended Through 2013
•
•
•
•
•
•
One year extension
Maximum $500 lifetime
Must disclose prior energy credits taken
Limit of $200 for windows and skylights
Other limitations are certain property
Form 5695 and instructions
IRC 25C
24
Limited EITC Extension
Through 2017
• Earned income credit enhancements
– Increased amounts
– Refundable credit
– Form 8867 due diligence requirement
IRC 32
25
Limited CTC Extension
Through 2017
• Child tax credit enhancements
– Increased amount
– Refundable portion
– New questions to address on Form 8812
– More than four children special procedure
IRC 24
26
Permanent Extensions
• Student loan deduction enhancements
– Maximum $2,500 a year
– Phased out for high income taxpayers
– Must meet requirements
• The exclusion of employer-provided
educational assistance
– Maximum $5,250 per year
– Sometimes noted on the W-2
• The employer provided child care credit
IRC 221, 127 and 45F
27
Coverdell Education Savings
Accounts Made Permanent
• The higher contribution amount and other
Economic Growth Tax Relief Reconciliation Act
changes to Coverdell Education Savings
Accounts
– Max per year $2,000 (total for all accounts)
– Not deductible on Form 1040
– Earnings grow tax free
– Distribution must be used for educational
purpose
IRC 530
28
Child and Dependent Care
Credit Enhancements
Made Permanent
• Child and Dependent Care Credit
– Credit between 20 percent and 35 percent
– Maximum $3,000/$6,000
– $15,000 through $43,000 AGI phase out
IRC 21
29
Business Use of Home
• New optional simplified method
– Maximum 300 square feet
– Flat deduction of $5 per sq. ft.
• Form 8829 not required
• For the latest information, you can go to
www.irs.gov : Search: “Home Office
FAQs”
Rev. Proc. 2013-13
30
Summary
• Questions?
• www.IRS.gov
• Draft forms and instructions
– www.IRS.gov/draftforms
• Thomas (The Library of Congress)
– www.thomas.loc.gov
31