Joshua Jenson, CPA
Managing Partner
Joshua Jenson, CPA, P.C. & Associates
What’s New for 2014?
At Least 55 Tax Breaks Expired as of
December 31, 2013!
Important Expired Individual Tax Breaks
▪ State & local sales tax deduction
▪ Private Mortgage Insurance Premiums (PMI)
Deduction
▪ Above-the-line tuition deduction
▪ $250 above-the-line teacher expenses
▪ Tax-free charitable distributions from IRA’s
Important Expired Business Tax
Breaks
▪ Research credit
▪ Work opportunity credit
▪ 15-year cost recovery for
qualified property
▪ Residential Home Energy Credits
▪ Alternative fuel credit
▪ Mortgage Debt Forgiveness
▪ Bonus depreciation
So, Now What?
Individuals
More Complex Rate
Structure
The Tax Adviser, September 2014, p. 672
•
Seven ordinary income brackets
•
Three capital gains brackets
•
With the NII tax, high-income
individuals face a combined tax rate of
43.4% on ordinary investment income
and 23.8% on long-term capital gains.
Phaseouts & Deductions Limitations
Personal Exemption Phaseout (PEP)
▪ Phaseout begins at $305,050 AGI for MFJ ($254,200 Single)
▪ Phaseout ends at $427,550 AGI for MFJ ($376,700 Single)
Itemized Deductions (Pease) Limitations
▪ Threshold is $305,050 AGI for MFJ ($254,200 Single)
▪ Reduced by lesser of 3% of excess of AGI over thresholds or 80% of total allowable
itemized deductions.
Net Investment Income Tax
Big Impact on High-Income Individuals
3.8% Additional Tax
Only applies if MAGI is over $250,000 (married) or $200,000 (single)
Form 8960
http://www.irs.gov/pub/irs-pdf/i8960.pdf
3.8% Net Investment Income Tax
What’s included?
What’s not included?
▪ Interest income
▪ Wages and SE income
▪ Dividend income
▪ Active trade or business income
▪ Capital gains
▪ Retirement plan distributions
▪ Rents
▪ Unemployment
▪ Royalty income
▪ SS benefits
▪ Passive business income
▪ Alimony
▪ Municipal bond interest
If you did not exclude any amounts from your gross income under
section 911 and you do not own a CFC or PFIC, your MAGI is your
AGI as reported on Form 1040, line 38. If you exclude amounts under
section 911 or own certain CFCs or PFICs, your MAGI is your AGI as
modified by certain rules described in Regulations section 1.141110(e)(1). Per IRS Instructions
What is MAGI?
Modified Adjusted
Gross Income
Basically your AGI
Safe Harbor for Real
Estate Professionals Not
Being Subject to NII Tax
• Pass 750 hours test to be considered a real estate
professional, but one must ALSO materially participate in
the activity.
• Over ½ of your personal services provided were
related to real estate businesses
• Must materially participate, more than 500 hours, for
specific real estate activities to be exempt from NII.
Key is documentation. You must be able to prove status to IRS.
750 hour test and a 500 hour test. The 500 hours can be included in the 70 hours
Double Whammy on
Capital Gains
Additional Medicare Tax
▪ 0.9% on wages and SE income
▪ MAGI over $250,000 (married) or $200,000 (single)
Health Care Reform Effects for 2014
Substantiating Health Coverage
Since employer reporting pushed back to
2015, taxpayer must collect information to
document coverage.
Must show:
Individual Shared Responsibility
Provision
All US citizens and legal residents
required to have qualifying minimum
essential health coverage starting January
1, 2014.
▪ Policy terms
2014 Penalty:
▪ Who is covered
Greater of $95 or 1% of household income
▪ Period of time covered
▪ Max Penalty per family = $285
▪ Dependent under 18 = $47.50
penalty/each
Some
Individual Tax Planning
Strategies
Charitable Contributions
▪ Get Proper
Documentation
MUST STATE NO
GOODS OR
SERVICES
PROVIDED
Donation
Documentation Required
$249 or less
Receipt/Letter from Organization
$250 - $500
Written Acknowledgement
$501 - $5,000
Written Acknowledgment & Acquisition/Basis Information
More than $5,000
Appraisal by Qualified Appraiser
More than $500,000
Attach Appraisal by Qualified Appraiser to Tax Return
▪ Don’t forget out-of-pocket volunteer expenses & mileage
▪ Gifts made by credit card count too
▪ Strategically time large donations for best tax year
Retirement
Planning
is
Essential
Moss-Adams 2014 Year-End Tax Planning Guide for Individuals, www.mossadams.com
Retirement Planning
Strategies
Pick the Best Plan
Don’t Forget the Kids
Larger deductions for 401(k) and
Keogh plans…must have in place
by year-end
Earned Income = Contribute to
IRA
Roth IRA Conversions
Traditional IRA’s can be converted
to Roth IRA’s when beneficial
New IRA Rollover Rules
For 2015
New once-a-year limit
on IRA rollovers
Flexible Spending Accounts & HSAs
2014Limit = $2,500
HSAs 2014
No More
Single $3,330
Family $6,550
Use-or-Lose
Home Office Deduction Safe Harbor
▪ For small business owners & self-employed
individuals
▪ No more tracking actual expenses
▪ $5/square foot of home office space
▪ Maximum deduction = $1,500/year
▪ Form 8829
Business Developments
Changes to Section 179 Deduction
2014 Limit = $25,000
Watch Out for the Phase-Out
SUV & Trucks over 6,000 GVWR
qualify for up to $25,000
immediate deduction.
If purchases exceed $200,000, the
deduction is decreased dollar-fordollar above the threshold.
Bonus Depreciation & 15-Year Depreciation
Life for Qualified Property are GONE
Bonus Depreciation is only
available for long-productionperiod property and certain aircraft.
Qualified Leasehold Improvements
now have a depreciation recovery
life of 39 years.
http://www.irs.gov/publications/p946/ar01.html
Health Care Reform Developments
▪ Required employer reporting mandate postponed to 2015.
▪ Excise taxes postponed:
▪ 50-99 FTE = effective for 2016
▪ 100 or more FTE = effective for 2015
▪ Avoid the excise taxes by offering coverage to 70% of employees.
▪ Coverage must still meet requirements for affordability & minimum
value.
Business Tax Planning
Strategies
Push Income,
Pull Expenses
Reimburse
Mileage
Charitable Contributions
Because charitable
contributions are
itemized deductions,
they may be limited or
phased out due to
Pease limitations.
Sponsor projects or
programs through a
business instead.
There are no phaseouts on that!
New Tangible Property Regulations
Effective 1/1/14
Key Provisions:
▪ Building & structural components
considered 1 unit
▪ Safe harbor provision for small
business taxpayers for qualified
real property
▪ De minimis rules added
▪ $5,000 with Audited Financials
▪ $500 without Audited Financials
▪ Safe harbor for routine building
maintenance
Strategies:
▪ Use safe harbors
▪ Elect to recognize loss on partial
disposition of asset annually
▪ Follow your financial statement
capitalization policy for purchases
set in the policy implemented
▪ Re-evaluate issue each year to
determine policy limits and
elections
Estates, Trusts, & Gift Tax
2014 Limits
Estate Exclusion Amount
Gift Tax Limit
$5,340,000
$14,000
▪ For 2014, the 3.8% tax is imposed on the lesser of
the undistributed net investment income for the tax
year or the excess of the AGI over $12,150.
▪ Net investment income includes interest, dividends,
annuities, royalties, rents not derived in the ordinary
course of trade or business, net income from passive
activities, net gain on disposition of passive activity
property.
▪ Final regulations exclude certain estates & trusts.
▪ Business trusts are business entities and are not
subject to the NII at the entity level.
▪ Charitable remainder trusts are not subject at the
entity level, but distributions from a CRT to the
annuity or unitrust recipient are subject to the tax.
▪ Foreign estates and nongrantor trusts are also
exempt.
Net Investment
Income Tax Impact
on Estates &
Trusts
Estate, Trust, & Gift Tax
Planning Strategies
Gift-Splitting with Spouse
Each spouse can give $14,000 to an individual per year
That’s $28,000 that can be given and received tax-free.
Or $56,000 from parents to kid & kid-in-law (couple)
▪ Final regs change method of deducting costs of trust or
estates. Trustees must now split costs between those that
are subject to 2% floor from costs that are not subject to
the floor.
▪ Trusts can qualify as real estate professionals. Frank
Aragona Trust, 142 T.C. No. 9 (2014)
Recent Developments
to Consider
▪ IRS issued PLR on incomplete grantor trusts approving
the use of this strategy, which has been used to lower
state/local taxes, but now may be a good strategy to
reduce NII tax exposure.
▪ New proposed regs will affect transactions of holders of
appreciated property that attempt to use charitable
remainder trusts to minimize gains on the sale of those
assets. Great article with the details of this.
http://wealthmanagement.com/blog/charitable-remaindertrust-early-termination-capital-gain-avoidance-planquashed
Tax Planning is More
Important Than Ever
49.55%!!!
www.irs.gov/uac/Newsroom/IRS-To-Realign-Compliance-Operations
www.irs.gov/uac/Newsroom/Plan-Now-to-Get-Full-Benefit-of-Saver%E2%80%99s-Credit-Tax-CreditHelps-Low-and-Moderate-Income-Workers-Save-for-Retirement
http://www.irs.gov/uac/Newsroom/Scam-Phone-Calls-Continue-IRS-Unveils-New-Video-to-Warn-Taxpayers
www.irs.gov/uac/Newsroom/In-2015,-Various-Tax-Benefits-IncreaseDue-to-Inflation-Adjustments
www.irs.gov/uac/Newsroom/IRS-Announces-TaxGuidance-Related-to-Ebola-Outbreak-in-Guinea,-Liberiaand-Sierra-Leone
www.irs.gov/uac/Newsroom/2015-PTIN-Renewal-Period-Underway-for-Tax-Professionals
www.irs.gov/uac/Newsroom/IRS-Announces-2015Pension-Plan-Limitations;-Taxpayers-May-Contribute-upto-$18,000-to-their-401(k)-plans-in-2015
www.irs.gov/pub/irs-pdf/f1040sb.pdf
Report of Foreign Bank and Financial Accounts (FBAR)
If you have a financial interest in or signature authority over a foreign financial account,
including a bank account, brokerage account, mutual fund, trust, or other type of foreign
financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to
report the account yearly to the Department of Treasury by electronically filing a Financial
Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial
Accounts (FBAR).
FinCEN introduces new forms
On September 30, 2013, FinCEN posted a notice on their website announcing the current
FBAR form, FinCEN Report 114, Report of Foreign Bank and Financial Accounts. FinCEN Report
114 supersedes the previous years’ form TD F 90-22.1 and is only available online through
the BSA E-Filing System website.
http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html
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Same-sex marriage now is legal in Oklahoma. Oklahoma couples began to marry after a surprise move by
the U.S. Supreme Court not to take on the issue of whether states can ban same-sex marriage. (October 2014)
www.irs.gov/Individuals/Online-PaymentAgreement-Application
www.irs.gov/pub/irs-prior/i1099msc--2014.pdf
http://www.aicpa.org/Publications/TaxAdviser/2014/september/Pages/Horn_Sept2014.aspx
http://www.aicpa.org/Publications/TaxAdviser/2014/september/Pages/Horn_Sept2014.aspx
Joshua Jenson, CPA
▪ Website: www.joshuajensoncpa.com
▪ Twitter: @TheCPAFirm
▪ Facebook: TheCPAFirm
▪ Linkedin: TheCPAFirm
Special Thanks to Megan Fredrickson, CPA
Director of Tax & Senior Tax Manager at Joshua Jenson, CPA, P.C. & Associates