Federal Income Tax Update
Denise Leggett
CPE Day - December 5, 2013
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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.
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Outline
• New 2013 tax rules
• Tax rules expiring in 2013
• New 2014 tax rules
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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
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New 2013 Tax Rules – Filing Status
• Filing status of married filing jointly
(separately) mandatory for same-sex couples
regardless of their domicile state
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Legally married in a state that recognizes samesex 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
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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
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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
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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
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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
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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
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New 2013 Tax Rules – Other Taxes
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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
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New 2013 Tax Rules – Other Taxes
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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
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New 2013 Tax Rules – Other Taxes
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Included:
• Interest, dividends, annuities, royalties, rents (?), capital
gains of individuals, business income from passive
activities, and financial instrument trading businesses
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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
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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
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New 2013 Tax Rules – Miscellaneous
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Home Office Deduction - optional safe harbor
method
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All other restrictions apply
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Deduction = square footage x prescribed rate
• 300 square foot maximum
• Prescribed rate is currently $5
Exception: No depreciation recapture
Method can vary from year to year without IRS
consent
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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
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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
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Tax rules expiring in 2013
• Tax credit for qualifying research expenses
• Tax credits for energy-efficient new homes,
energy-efficient appliances, and energysaving home improvements
• Work Opportunity Tax Credit
• Employers will not be able to claim this
credit for otherwise qualified employees
hired after 12/31/2013
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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
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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
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New 2014 Tax Rules - ACA
• Employer health care reporting postponed
until 2015
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Hence, “shared responsibility” payments
assessed to employers will also postponed
• Most employers must provide written notice to
employees within 14 days of hire
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New 2014 Tax Rules - ACA
• Health care premium tax credit
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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 employersponsored 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
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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
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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
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Questions?
• Thank you for your kind attention!
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Questions?
• Thank you for your kind attention!