At Least 55 Tax Breaks Expired as of December 31, 2013!
Important Expired Business Tax Breaks Research credit Work
opportunity credit 15-year cost recovery for qualified property
Alternative fuel credit Bonus depreciation 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 IRAs Residential Home Energy Credits Mortgage
Debt Forgiveness
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So, Now What?
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Individuals
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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. More Complex Rate Structure Seven ordinary income
brackets Three capital gains brackets The Tax Adviser, September
2014, p. 672
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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 Reduced by lesser of 3% of
excess of AGI over thresholds or 80% of total allowable itemized
deductions. Threshold is $305,050 AGI for MFJ ($254,200
Single)
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Net Investment Income Tax Big Impact on High-Income
Individuals
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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
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3.8% Net Investment Income Tax Whats included? Interest income
Dividend income Capital gains Rents Royalty income Passive business
income Whats not included? Wages and SE income Active trade or
business income Retirement plan distributions Unemployment SS
benefits Alimony Municipal bond interest
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What is MAGI? Modified Adjusted Gross Income 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 1.1411- 10(e)(1). Per IRS
Instructions Basically your AGI
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Safe Harbor for Real Estate Professionals Not Being Subject to
NII Tax Must materially participate, more than 500 hours, for
specific real estate activities to be exempt from NII. Pass 750
hours test to be considered a real estate professional, but one
must ALSO materially participate in the activity. Over of your
personal services provided were related to real estate businesses
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
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Double Whammy on Capital Gains
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Additional Medicare Tax 0.9% on wages and SE income MAGI over
$250,000 (married) or $200,000 (single)
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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: Policy
terms Who is covered Period of time covered Individual Shared
Responsibility Provision All US citizens and legal residents
required to have qualifying minimum essential health coverage
starting January 1, 2014. 2014 Penalty: Greater of $95 or 1% of
household income Max Penalty per family = $285 Dependent under 18 =
$47.50 penalty/each
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Some Individual Tax Planning Strategies
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Charitable Contributions Get Proper Documentation MUST STATE NO
GOODS OR SERVICES PROVIDED Dont forget out-of-pocket volunteer
expenses & mileage Gifts made by credit card count too
DonationDocumentation Required $249 or lessReceipt/Letter from
Organization $250 - $500Written Acknowledgement $501 -
$5,000Written Acknowledgment & Acquisition/Basis Information
More than $5,000Appraisal by Qualified Appraiser More than
$500,000Attach Appraisal by Qualified Appraiser to Tax Return
Strategically time large donations for best tax year
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Retirement Planning is Essential Moss-Adams 2014 Year-End Tax
Planning Guide for Individuals, www.mossadams.com
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Retirement Planning Strategies Pick the Best Plan Larger
deductions for 401(k) and Keogh plansmust have in place by year-end
Roth IRA Conversions Traditional IRAs can be converted to Roth IRAs
when beneficial Dont Forget the Kids Earned Income = Contribute to
IRA New IRA Rollover Rules For 2015 New once-a-year limit on IRA
rollovers
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Flexible Spending Accounts & HSAs 2014Limit = $2,500 No
More Use-or-Lose HSAs 2014 Single $3,330 Family $6,550
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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
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Business Developments
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Changes to Section 179 Deduction 2014 Limit = $25,000 SUV &
Trucks over 6,000 GVWR qualify for up to $25,000 immediate
deduction. Watch Out for the Phase-Out If purchases exceed
$200,000, the deduction is decreased dollar-for- dollar above the
threshold.
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Bonus Depreciation & 15-Year Depreciation Life for
Qualified Property are GONE Bonus Depreciation is only available
for long-production- period property and certain aircraft.
Qualified Leasehold Improvements now have a depreciation recovery
life of 39 years.
http://www.irs.gov/publications/p946/ar01.html
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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.
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Business Tax Planning Strategies
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Push Income, Pull Expenses
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Reimburse Mileage
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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 phase- outs on that!
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New Tangible Property Regulations Effective 1/1/14 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 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
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Estates, Trusts, & Gift Tax
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2014 Limits Estate Exclusion Amount $5,340,000 Gift Tax Limit
$14,000
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Net Investment Income Tax Impact on Estates & Trusts 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.
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Estate, Trust, & Gift Tax Planning Strategies
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Gift-Splitting with Spouse Each spouse can give $14,000 to an
individual per year Thats $28,000 that can be given and received
tax-free. Or $56,000 from parents to kid & kid-in-law
(couple)
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Recent Developments to Consider 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. 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-remainder-
trust-early-termination-capital-gain-avoidance-plan- quashed Trusts
can qualify as real estate professionals. Frank Aragona Trust, 142
T.C. No. 9 (2014) 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.
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.noticeBSA E-Filing System
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)
