February 2014: Unemployment Taxable Wage Base
The federal wage base for federal unemployment tax purposes remains at $7,000 for 2014. However, many states are increasing their wage base. The state unemployment taxable wage base ranges from $7,000 to $41,300 in the various states. The following is the 2014 taxable wage base for several states:
January 2014: Standard Mileage Rate Changes
2014 STANDARD VEHICLE MILEAGE RATE
The standard mileage rates for the use of a car (including vans, pickups, or panel trucks) for 2014 is:
• 56 cents per mile for business miles (previously 56.5 cents)
• 23.5 cents per mile for medical or moving purposes (previously 24 cents)
• 14 cents per mile for charitable work (same as last year)
December 2013: Federal Unemployment Tax Act (FUTA)
Employers in 14 states will be paying increased federal unemployment tax for 2013 due to their state not being able to pay off loans borrowed from the federal government. The following is a listing of several surrounding states and the reduction rate that employers in these states will be paying:
Effective January 1, 2014 the minimum wage in several states will be increasing. Companies who are engaged in the retail or service industry whose annual gross receipts are less than $500,000 are not required to pay the state minimum wage rate. The Federal minimum rate is $7.25 per hour. When the state minimum wage rate is higher than the federal rate, workers are paid the higher rate.
The minimum wage in Illinois for adults over the age of 18 who are no longer probationary is $8.25 per hour.
Missouri’s minimum rate is increasing to $7.50 per hour beginning January 1, 2014.
November 2013: IRS Affected By Shutdown
The IRS is delaying the start of the filing season due to the recent government shutdown. They had expected to start accepting returns on January 21, 2014. It may now be delayed as much as two weeks. The IRS will officially announce the starting date later.
The IRS is working diligently on anti-identity-theft controls. One of the steps being taken is to delay the issuance of refund checks to early filers. If you want your money sooner, you may want to file a new Form W-4 with your employer to claim more allowances, which will give you more money in your paycheck.
The shutdown also created an even bigger backlog of correspondence mail. If you sent one of the 40,000 letters to the IRS during the shutdown, do not expect a reply soon. You will probably just continue to receive more notices from the IRS.
Please call us if you have any questions.
October 2013: 2013 Year-End Tax Planning – Personal Tax Considerations
As January 1, 2014 gets closer, year-end tax planning considerations should be starting to take shape. New tax legislation has brought greater certainty to year-end planning, but has also created new challenges. The number of changes made to the Tax Code and the opportunities these changes bring may seem overwhelming. However, early planning will help you to maximize your potential tax savings and minimize your tax liability. This summary is intended to be a mile-high view of some key year-end tax planning strategies.
Changes for 2013 and beyond In 2012, year-end planning was complicated by the great uncertainty over the fate of the Bush-era tax cuts. For more than ten years, individuals had enjoyed lower income tax rates, but these rates were scheduled to expire after 2012. Moreover, many tax credits and deductions that had been made more generous were also set to expire after 2012. In January 2013, Congress passed the American Taxpayer Relief Act of 2012, which made permanent many, but not all, of the Bush-era tax cuts and also some tax benefits enacted during the Obama administration. Congress also permanently “patched” the alternative minimum tax (AMT) to prevent its encroachment on middle income taxpayers. The result is much greater certainty in year-end tax planning for 2013 because we know what the individual tax rates are in 2014, how many tax credits and deductions are structured, and much more.
Of course, there are always complexities in the Tax Code. In 2013, two new taxes kicked-in (a 3.8% net investment income (NII) surtax and a 0.9% Additional Medicare Tax). In addition, the U.S. Supreme Court ruled that the federal government’s denial of recognition of same-sex marriage was unconstitutional, opening the door to allowing married same-sex couples to file joint federal tax returns and take advantage of other tax benefits available to married couples. Beginning in 2014, some of the most far reaching provisions of the Affordable Care Act will become effective: the individual mandate, the start of Marketplaces to obtain insurance and a special tax credit to help offset the cost of insurance.
Planning for expiring tax incentives
First, do not lose the benefit of some generous, but temporary tax incentives, that are available in 2013 but may not be in 2014. Are you planning to purchase a big-ticket item such as a new car or boat? The state and local sales tax deduction (available in lieu of the deduction for state and local income taxes) is scheduled to expire after 2013, and you may want to accelerate that purchase to take advantage of the tax break. A valuable tax credit for making certain energy efficient home improvements, including windows and heating and cooling systems, and a deduction for teachers’ classroom expenses are also scheduled to expire after 2013. These are just some of many incentives that will sunset after 2013 unless extended by Congress. The window for maximizing your tax savings for 2013 is closing.
Planning for new taxes and rates
Some individuals may be surprised that they owe additional taxes in 2013, even with the extension of the Bush-era tax cuts. Three new taxes are in effect for 2013: the NII surtax, the Additional Medicare Tax, and a revived 39.6% tax bracket for higher income individuals. The 3.8% NII surtax very broadly applies to individuals, estates, and trusts that have certain investment income above set threshold amounts. These amounts include a $250,000 threshold for married couples filing jointly; $200,000 for single filers. One strategy to consider is to keep, if possible, income below the threshold levels for the NII surtax by spreading income out over a number of years or finding offsetting above-the-line deductions. If you are considering the sale of your home, and the profit will exceed the home sale exclusion you may be subject to the tax.
The Additional Medicare Tax applies to wages and self-employment income above threshold amounts including $250,000 for married couples filing jointly and $200,000 for single filers. If you have not already reviewed your income tax withholding for 2013, now is the time to do it. One way to reduce the sting of any Additional Medicare Tax liability is to withhold an additional amount of income tax.
As discussed, ATRA extended the Bush-era tax rates for middle and lower income individuals. ATRA also revived the 39.6% top tax rate. For 2013, the starting points for the 39.6% bracket are $450,000 for married couples filing jointly and surviving spouses, $425,000 for heads of households, $400,000 for single filers, and $225,000 for married couples filing separately. ATRA also revived the personal exemption phase-out and the limitation on itemized deductions for higher income individuals.
Starting in 2013, ATRA also sets the top rate for capital gains and dividends to 20%. This top rate aligns itself with the levels at which the new 39.6% income tax rate bracket starts: capital gains and dividends to the extent they would be otherwise taxed at the 39.6% rate as marginal ordinary income will be taxed at the 20% rate. ATRA did not change the application of ordinary income rates to short-term capital gains. However, individuals should plan for the possibility of being subject to a higher top rate (39.6%).
Planning for health care changes
Before year-end, individuals need to review how the Affordable Care Act will impact them. The Affordable Care Act brings a sea-change to our traditional image of health insurance. The law requires individuals, unless exempt, to either carry minimum essential health care coverage or make a shared responsibility payment (also known as a penalty). Most employer-sponsored health insurance is deemed to be minimum essential coverage, as is coverage provided by Medicare, Medicaid, and other government programs. Self-employed individuals and small business owners should revisit their health insurance coverage, if they have coverage, before year-end and weigh the benefits and costs of obtaining coverage through the public exchanges (or a private insurance exchange) for themselves and their employees. Small businesses may be eligible for a tax credit to help pay for health insurance purchased through the exchange with fewer than 25 full-time equivalent employees. Individuals may qualify for a premium assistance tax credit, which is refundable and payable in advance, to offset the cost of coverage.
Individuals with health flexible spending accounts (FSAs) and similar arrangements should take a look at their spending habits for 2013 and predict how they will use these tax-favored funds in the future. In 2013, the maximum salary-reduction contribution to a health FSA is $2,500. Remember that health FSAs have strict “use it or lose it” rules, and the cost of over- the-counter drugs cannot be reimbursed with health FSA dollars unless you obtain a prescription (there are some exceptions).
Individuals who itemize their deductions also need to keep in mind the 10% floor for qualified medical expenses. This change took effect at the beginning of 2013. It means that you can only claim deductions for medical expenses when they reach 10% of adjusted gross income (for regular tax purposes and for alternative minimum tax purposes). There is a temporary exception for individuals over age 65 for regular tax purposes.
Planning for gifts
Gift-giving is often overlooked as a year-end planning strategy. For 2013, individuals can make tax-free gifts (no tax consequences for the giver or the recipient) of up to $14,000 to any individual. Married couples may “split” their gifts to each recipient, which effectively raises the tax-free gift to $28,000. Gifts between spouses are always tax-free unless one spouse is not a U.S. citizen. In that case, the first $143,000 in gifts made in 2013 is tax free.
There are special rules for gifts made for medical care and education that can be a valuable component of a year-end tax strategy, especially for individuals who want to help a family member or a friend. Monetary gifts given directly to a college to pay tuition or to a medical service provider are tax-free to the person making the gift and the person benefitting from education or medical care.
Gifts to charity also are frequently made at year-end. Through the end of 2013, taxpayers age 70 ½ and older can make a tax-free distribution from individual retirement accounts to a charity. The maximum distribution is $100,000. Individuals taking this option cannot claim a deduction for the charitable gift.
Planning for retirement savings
Year-end is a good time to review if your retirement savings plans and tax strategies complement each other. For 2013, the maximum amount of contributions that can be made to an IRA is $5,500, with a $1,000 catch-up amount allowed for individuals over age 50. Keep in mind that the maximum amount that can be contributed to a Roth IRA begins to decrease once a taxpayer’s adjusted gross income crosses a certain threshold. For example, married couples filing jointly will begin to see their contributions begin to phase out when their AGI is $178,000. Once their AGI reaches $188,000 or more, they can no longer contribute to a Roth IRA. For single filers the corresponding income thresholds for 2013 are $112,000 and $127,000. Please note that 2013 contributions, for tax purposes, may be made until April 15, 2014.
Traditional IRAs and Roth IRAs are very different savings vehicles. A traditional IRA or Roth IRA set up years ago may not be the best savings vehicle today or for the immediate future if employment and other personal circumstances have changed. Some individuals may be contemplating rolling over a workplace retirement plan into an IRA. Very complex rules apply in these situations and rollovers should be carefully planned. The same is true in converting a traditional IRA to a Roth IRA. Every individual has unique goals for retirement savings and no one size fits all.
We have reviewed only some of the many year-end tax planning strategies that could help you minimize your 2013 tax bill and maximize savings. Please contact our office to discuss in detail any of the above issues.
For more information or any other questions concerning this tip, please contact us.
September 2013: Tax Benefits From Acquiring New Equipment
For tax years beginning in calendar year 2014, one major tax break for assets used in business is scheduled to be drastically reduced and another tax break is scheduled to be completely eliminated. Specifically, “expensing” of asset purchases under Code Sec. 179 (a 100% first-year write-off) is scheduled to be drastically reduced from 2013 levels, and additional enhanced first-year depreciation (bonus depreciation) is scheduled to be, for most assets, completely eliminated.
Reduction in Code Sec. 179 expensing.Code Sec. 179 expensing (the deduction of the entire purchase price in the year placed in service) is available, on an elective, asset-by-asset basis, for the following types of property, whether new or used (“Section 179 property”): machinery, equipment, and other tangible personal property; most publicly sold computer software; some non-building land improvements; and some limited types of building improvements and buildings (certain leasehold, retail and restaurant improvements, and restaurant buildings). For 2013 the election is available for up to $500,000 of Section 179 property per year (the dollar limit). The dollar limit is reduced, dollar for dollar, to the extent that the taxpayer’s total Section 179 property placed in service during the year is more than $2 million (the phase-out rule). Expensing of the limited types of building improvements and buildings described above is subject to a $250,000 limit (in addition to counting against the $500,000 per year limit).
For tax years beginning in 2014, the above benefits are scheduled to be drastically reduced. Thus, the dollar limit would be $25,000 and the beginning-of-phase-out level would be $200,000. Additionally, the computer software and limited types of building improvements and buildings described above would no longer qualify as section 179 property.
Bonus depreciation.50% bonus depreciation applies, subject to an election-out on a class-by-class basis, to the following types of new (not used) property (“qualified property”): tangible property with a depreciation period of not more than 20 years (machinery, equipment, other tangible personal property, and non-building land improvements); most computer software; and certain leasehold building improvements. Bonus depreciation results in a deduction of 50% of the cost of an item of qualified property in the year placed in service and depreciation, under the regular depreciation rules, for the remaining cost of the item over the item’s assigned depreciation period. However, 50% bonus depreciation is scheduled to end for most property placed in service after December 31, 2013.
The opportunity to claim bonus depreciation should be of most interest to taxpayers who are placing into service Section 179 property in excess of the Section 179 dollar limits (determined after application of the phase-out rule). Note that even if yours is a smaller business, there are certain situations in which you might claim bonus depreciation. For example, certain land improvements (most parking lots, walkways, fencing, etc.) are eligible for bonus depreciation, but not Code Sec. 179 expensing.
If you are currently planning to invest in Section 179 property or bonus depreciation property at levels that do not maximize the pre-2014 tax year benefits discussed above, you might consider accelerating your planned investments. You might anticipate that Section 179 deductions from the investments will offset post-2013 income that might otherwise be taxed at rates higher than the income that would be offset 2013. Or there might be non-tax reasons for not accelerating purchases. Planning for taxes should start now because December may be too late.
August 2013: Employer Health Care Mandate Postponed
It was announced that the government has postponed the Patient Protection and Affordable Care Act’s (PPAC) mandatory employer and insurer reporting requirements for one year. As a result, the administration also announced that it will waive the imposition of any employer-shared responsibility penalty payments for 2014. This effectively means that employers with more than 50 employees will not be required to provide health insurance to their employees or face a penalty until 2015. The Treasury Department announcement recognized that, for many employers and insurers otherwise subject to these “employer and insurer mandates,” the rules for compliance are just too complex for implementation by 2014.
In its announcement, the administration promised to publish formal guidance shortly that will describe the transition that will be taking place from mandatory 2014 reporting to a voluntary system for 2014. It also expects to publish revised information reporting rules for insurers, self-insuring employers, and other parties that provide health care coverage some time during the summer. The administration is encouraging employers that now provide health insurance to voluntarily implement information reporting under these revised rules in order to test their systems before mandatory reporting comes into force in 2015.
The announcement did not address the individual mandate that goes into effect in 2014 and requires most individuals to obtain health insurance or pay a penalty. Nor does it apparently delay implementation of marketplace exchanges. We will share any additional information with you as we receive it. In the meantime, if you have any questions regarding this extension or health care reform in general, please call one of our offices.
If you need to discuss these issues with one of our professionals, please contact us.
July 2013: Health Care Excise Tax
The Patient Protection and Affordable Care Act imposes a new fee on all health care providers. Providers include not only insurance companies but also sponsors of self-insured accident and health insurance plans, and some companies that offer health reimbursement arrangements (HRA) and/or flexible spending accounts (FSA). The initial fee for plan years ending on or after October 1, 2012 and before October 1, 2013 is $1 times the average number of lives covered under the plan. The fee will increase to $2 per person for the next plan year.
Most HRA sponsors are required to pay the tax, except for arrangements that only cover dental and vision benefits. FSAs are only covered by the law if the employer’s contribution exceeds the employee’s contribution and the employer offers health insurance coverage, whether through an insurance company or self-insured plan.
This fee is paid with the second quarter Form 720 excise tax return, which is due July 31st. If you are required to file Form 720 for other reasons, just include the fee on page two of the return for the quarter. If this is the only reason you are filing the return, you will not need to file the form for the 1st, 3rd, or 4th quarters. The fee is due July 31 of the calendar year following the last day of the policy year (plan year). Therefore, plan years ending October 31, November 30, or December 31, 2012 will be due July 31, 2013. Plans ending after December 31, 2012 will be due on July 31, 2014.
IRS regulations offer a number of different ways to count the number of lives covered by your plan such as the actual method, the snapshot method, and the Form 5500 method. There is also a difference in the methods for self-insured plans and HRAs and FSAs. Unfortunately, there is no de minimis exception for small employers.
For more information on how to calculate the number of lives covered or for any other questions concerning this fee, please contact us.
June 2013: Residential Energy Credits
The American Taxpayer Relief Act of 2012 extended the credit for non-business energy property through 2013. The general requirements to qualify for the credit were not modified.
The credits can be taken when qualified energy efficient improvements or expenditures are made for your principal residence, including new insulation; replacement windows, skylights, and doors; qualified central air conditioners; certain water heaters, furnaces, or boilers; and a new metal or asphalt roof specifically treated to reduce heat loss. The credit is extended for eligible property placed in service before January 1, 2014. In order to qualify there must be a reasonable expectation that the qualified energy efficient improvements will remain in use for at least five years.
The non-business energy credit is equal to 10% of the cost of qualified energy efficient property or improvements. The maximum credit is equal to $500 after reduction for non-business energy property credits previously allowed after 2005.
There is also the Residential Energy Efficient Property (REEP) credit, which was previously extended through 2016. Both are energy credits available to homeowners; however, the REEP credit involves expenditures for solar electric property; solar water heating property; fuel cell power plants; small wind energy property; and geothermal heat pump property and is equal to 30% of the cost.
May 2013: 2013 Tax Changes
Now that you have filed your 2012 individual income tax returns, you need to be thinking about the changes that will be affecting your 2013 returns.
- Individuals who have earned income of more than $200,000 ($250,000 for joint filers) during 2013, will pay an additional 0.9% in Hospital Insurance (Medicare) tax.
- Individuals whose adjusted gross income exceeds $200,000 ($250,000 for joint filers) during 2013, whether from wages or otherwise, will also pay an additional 3.8% Medicare tax on net investment income (such as interest, dividends, rent, and passive income).
- Limits on medical deductions will be imposed in 2013 by raising the itemized medical expense floor for regular tax purposes from 7.5% to 10% for taxpayers under age 65. Taxpayers 65 and over will be subject to the 10% threshold in 2017.
- For individuals with taxable income over $400,000 ($450,000 for joint filers) during 2013, there is a new 39.6% tax rate.
- Personal exemptions and itemized deductions will start being phased out for singles with adjusted gross income over $250,000 ($300,000 for joint filers) during 2013.
- For individuals long-term capital gains and qualified dividends will be taxed at 20% to the extent 2013 taxable income exceeds $400,000 ($450,000 for joint filers). The 15% tax rate will continue for all others.
April 2013: Revised Form I-9
On March 8, 2013 the USCIS (U.S. Citizenship and Immigration Services) released a new Employment Eligibility Verification (Form I-9). Employers should begin using the new forms immediately for all new hires. There is a 60 day grace period until May 7, 2013. After that date you MUST start using the new form.
Some of the changes to the Form I-9 include:
- Expanded instructions
- The form is now 2 pages
- New data fields for foreign passport information and optional telephone number and email address boxes
All employers are required to verify their new employee’s identity and authorization to work in the U.S. by completing the Form I-9. Failure to properly complete and retain the form will result in civil penalties and possibly criminal penalties. For details on document retention, accepted documents, penalties, and employee’s rights, go to www.uscis.gov and click on I-9 Central.
March 2013: Individual Income Tax Refund
The following are the Federal and State websites to check on the status of your individual income tax refund:
Then click on “Where’s My Refund” or “Check my income tax return or refund” and answer the appropriate questions.