Overview of 2013
Income Tax Changes
Richard G. Furlong, Jr.
Senior Stakeholder Liaison
Small Business/Self-Employed Division
Main Line Association for Continuing Education
November 21, 2013
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Objectives
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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
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ATRA 2012
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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 selfemployment
P.L. 112-240 3
Permanent Extensions
and More
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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
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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
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“Pease” limit on itemized deductions
Personal exemption phase-out
IRC 68
IRC 151
6
Inflationary Adjustments
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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
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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
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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 and Modification of
Bonus Depreciation
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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
10
Extension of 15-Year Straight-Line
Cost Recovery
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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
11
Treatment of Certain Real Property
as Section 179 Property
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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
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Extension of Work Opportunity
Tax Credit
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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
13
Fringe Benefit for Mass Transit
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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
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Fringe Benefit for Mass Transit
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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
15
Extension of Temporary Exclusion of 100 Percent of
Gain on Certain Small Business Stock
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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 100percent capital gain exclusion can be claimed
is 2015
See Pub 550, Form 1040 Sch D and Form
8949 for more information
IRC 1202
16
Extension of Basis Adjustment to S Corp
Stock/Charitable Contributions of Property
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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
Extension of Reduction in S-Corp
Recognition Period for Built-In Gains Tax
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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
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Extension of Empowerment Zone
Tax Incentives
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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
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American Opportunity Credit
Extended Through 2017
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American Opportunity Tax Credit
– 100 percent of the first $2,000 of qualified
expenses
– 25 percent of the next $2,000 of qualified
expenses
– First 4 years of post secondary education
– Must reduce expense by tax free
scholarships and excludable expenses
– Form 8863
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Nonbusiness Energy Credit
Extended Through 2013
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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
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2011 Expiring Provisions Extended
Through End of 2013
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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
22
2011 Expiring Provisions Extended
Through End of 2013
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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)
23
2011 Expiring Provisions Extended
Through End of 2013
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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)
24
Limited EITC Extension
Through 2017
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Earned income credit enhancements
– Increased amounts
– Refundable credit
– Form 8867 due diligence requirement
IRC 32
25
Limited CTC Extension
Through 2017
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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
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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
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Coverdell Education Savings
Accounts Made Permanent
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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
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Child and Dependent Care Credit
Enhancements Made Permanent
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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
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Business Use of Home
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New optional simplified method
– Maximum 300 square feet
– Flat deduction of $5 per sq. ft.
Form 8829 not required
For the latest information, go to irs.gov:
Search: “Home Office FAQs”
Rev. Proc. 2013-13
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Summary
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Questions?
www.IRS.gov
Draft forms and instructions:
– www.IRS.gov/draftforms
Thomas (The Library of Congress):
– thomas.loc.gov
31
Contact Information
Richard G. Furlong Jr.
215-861-1551
Richard.G.Furlong@irs.gov