IRS Tax Law (MACE Oct 16 2014)

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IRS 2014 Tax Law
Update
(as of October 16, 2014)
Richard G. Furlong, Jr.
Senior Stakeholder Liaison
Small Business Self-Employed Division
Main Line Association for Continuing Education
Penn State Great Valley Conference Center
October 16, 2014
Overview of Topics
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Expired Provisions
Alternative Minimum Tax
Capital Gains
Revised Schedule M-3
Direct Deposit
E-Signatures
Web Resources
Individual Expired Provisions
•Deductions for expenses of elementary and
secondary school teachers
•Mortgage debt relief
•Deduction for mortgage insurance premiums
•Deduction for state and local general sales
taxes
•Above-the-line deduction for higher education
expenses
Business Expired Provisions
•Research and experimentation tax credit
•New Markets Tax Credit
•Employer wage credit for activated military
reservists
•Work Opportunity Tax Credit
•Bonus depreciation
•Acceleration of AMT credits in lieu of bonus
depreciation
Energy Expired Provisions
•Plug-in electric motorcycles and highway
vehicles
•Incentives for biodiesel and renewable diesel
•Credit for construction of new energy efficient
homes
•Credit for fuel cell motor vehicles
EXPIRE ACT
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Expiring Provisions Improvement, Reform, and
Efficiency (EXPIRE) Act
– Individual extenders
– Business extenders
– Energy extenders
Alternative Minimum Tax
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Repayment of excess advance premium tax
credit (Form 8962) is regular tax for the AMT
Patch permanent
Inflation adjustments
Capital gains rates
Capital Gains
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IRC §1202 50% on Qualified Small Business
Corporation Stock
75% exclusion for qualified small business
stock acquired in 2009 and held more than 5
years
Small Business C Corp. ≤ $50 million in gross
assets
Many inflationary changes
Net Investment Income Tax
(NIIT)
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Tax of 3.8% on certain net investment income to the
extent modified AGI is above threshold:
– Married Filing Jointly
$250,000
– Married Filing Separately $125,000
– Single
$200,000
– Head of Household
$200,000
– Qualifying Widow(er)
$250,000
For estates and trusts -- threshold for tax year 2014 is
$12,150
Net Investment Income Tax
(NIIT)
Three critical terms associated with the 3.8%
Medicare Surtax:
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Net Investment Income
Threshold Amount
Modified Adjusted Gross Income (MAGI)
Net Investment Income Tax
(NIIT)
APPLICATION TO INDIVIDUALS
The Medicare Surtax is equal to:
1. “Net
Net investment
Investment Income”
Income
3.8% X
the lesser of
OR OR
2.
2. The
Theexcess
excess(if(ifany)
any)ofof–:
- “Modified
“Modified Adjusted
Adjusted Gross
Gross Income
(MAGI)
Income (MAGI)
--- “Threshold amount”
“Threshold Amount”
Net Investment Income Tax
(NIIT)
APPLICATION TO ESTATES AND TRUSTS
The NIIT is equal to:
3.8% X
the lesser of
1. “Net investment Income”
1. Undistributed “net investment
OR for such taxable year
income”
OR
2. The excess (if any) of –
“Modified
Adjusted
Gross
2. -The
excess
(if any)
of –Income
-
(MAGI)
“Adjusted Gross Income” (as defined in
“Threshold
section 67)amount”
for such taxable year, over
the dollar amount at which the highest
tax bracket in section 1(e) begins for
such a taxable year
Net Investment Income Tax
(NIIT)
“Threshold Amount:” the key factor in
determining the “lesser of” formula for purposes
of calculating the surtax.
Threshold Amounts:
• Single taxpayers - $200,000
• Married taxpayers - $250,000
• Estates/Trusts - $12,150 (i.e. top income tax
bracket in 2014)
Net Investment Income Tax
(NIIT)
“Modified adjusted gross income” (MAGI): the
amount that is compared to the “threshold
amount” to determine the “net investment
income” that is subject to the NIIT.
MAGI equals:
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Adjusted gross income (i.e., Form 1040, Line 37) PLUS
Net foreign earned income exclusion (i.e. gross income
excluded under the foreign earned income exclusion less
certain deductions or exclusions that were disallowed due
to the foreign earned income exclusion
Net Investment Income Tax
(NIIT)
Includes:
Does NOT Include:
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Interest
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Salary, wages, or bonuses
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Dividends
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Distributions from IRAs or qualified plans
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Annuity Distributions
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Any income taken into account for selfemployment tax purposes
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Rents
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Royalties
Gain on the sale of an active interest in a
partnership or S corporation
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Income derived from passive
activity
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Net capital gain derived from the
disposition of property
Items which are otherwise excluded or
exempt from income under the income
tax law, such as interest from tax-exempt
bonds, capital gain excluded under IRC
121, and veterans benefits
Net Investment Income Tax
(NIIT)
Income:
Exempt from NIIT:
Subject to NIIT:
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Taxable Interest
Dividends
Net Capital Gains
Annuity Income
Passive Income
Royalties
Rents
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Wages
Exempt Interest
Active Royalties
IRA Distributions
401(k) Distributions
Pension Income
RMDs
Social Security Income
Example 1:
John
• Single Taxpayer
• $100,000 of Salary
• $50,000 net investment
income
MAGI is $150,000
3.8% NIIT
would
NOT apply
MAGI is less
than threshold
Example 2:
:
Tina & Terry
• Married, filing jointly
• $300,000 combined
salary
• $0 net investment income
3.8% NIIT
would
NOT apply
Wages
Exempt from
NIIT
Example 3:
Peter & Paula
• Married, filing jointly
• $400,000 salary income
• $50,000 net investment
income
3.8% NIIT
would apply
to
$50,000
Example 4:
Sarah & Scott
• Married, filing jointly
• $200,000 salary income
• $150,000 net investment
income
Excess of
MAGI
Threshold
$350,000
- $250,000
=$100,000
3.8% NIIT
would apply
to
$100,000
Example 5:
Randy – Age 70
• Single taxpayer
• $200,000 investment
income
• $125,000 RMD from his
IRA
Excess of
MAGI
Threshold
$325,000
- $200,000
=$125,000
3.8% NIIT
would apply
to
$125,000
Example 6:
David & Veronica
• Married, filing jointly
• $100,000 pension
income
• $150,000 IRA income
• $25,000 tax-exempt
interest
• $0 net investment income
3.8% NIIT
would NOT
apply
Revised Form
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Schedule M-3 burden reduction
– For those with less than $50 million in
assets
– Complete Schedule M-1 instead of
Schedule M-3 Parts II and III
Direct Deposit Restrictions
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Only three direct deposit refunds per financial
account (subsequent refunds convert to
checks)
Direct deposit only into account(s) bearing
client’s (taxpayer’s) name(s)
No portion of refund may go into preparer’s
account
E-Signatures
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Allowed on Forms 8878 and 8879
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No specific technology required
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Identity verification required
IRS.gov
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All forms and pubs: IRS.gov/formspubs
Draft forms: IRS.gov/draftforms
IRS.gov/aca
IRS.gov/ptin
IRS.gov/efile
IRS.gov/eservices
Web Pages for Forms and Pubs
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IRS.gov/form1040
IRS.gov/form6251
IRS.gov/pub17
IRS.gov/w2
IRS.gov/ScheduleA
IRS.gov/ScheduleD
IRS Tax Map
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Find instructions, forms and publications by
topic
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IRS.gov/taxmap
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TaxMap.ntis.gov
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Make comments at [email protected]
Summary
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Expired Provisions
Alternative Minimum Tax
Capital Gains
Revised Schedule M-3
Direct Deposit
E-Signatures
Web Resources
Contact Information
Richard G. Furlong Jr.
Senior Stakeholder Liaison
215-861-1551
[email protected]
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