290 likes | 436 Views
Tax Policy Outlook for 2013. Marni J. Spence, CPA 407-802-1205 marni.spence@cliftonlarsonallen.com. The Fiscal Cliff. Federal taxes are scheduled to rise in 2013 for six reasons: Expiration of Bush-era tax cuts from 2001 and 2003 Expiration of Obama tax cuts from the 2009 and 2010 Tax Acts.
E N D
Tax Policy Outlook for 2013 Marni J. Spence, CPA 407-802-1205 marni.spence@cliftonlarsonallen.com
The Fiscal Cliff Federal taxes are scheduled to rise in 2013 for six reasons: • Expiration of Bush-era tax cuts from 2001 and 2003 • Expiration of Obama tax cuts from the 2009 and 2010 Tax Acts. • Many short-term tax breaks are set to expire if not extended by Congress. • Expiration of the payroll tax cut. • New taxes from the Affordable Care Act • Alternative Minimum Tax (AMT) more prevalent due to the above changes and the expiration of the patch in 2011.
Passed on January 1, 2013 American tax relief act of 2012
2% Payroll Tax Cut • Employee share of OASDI cut from 6.2% to 4.2% for 2011 and 2012 • SE tax rate also cut (12.4% to 10.4%) • No high income phase-out; 2012 max savings of $2,202 (2% x $110,100) • Income tax deduction of 50% of SE tax unchanged at full 6.2% (= employer share) • 2012 ATRA did not extend this for 2013
Rate Brackets • Brackets and rates continued from 2012 • No expiration date • 15% bracket of MFJ is double that of a single person • Added 39.6% bracket, effective on taxable income above • $450,000 (MFJ and Surviving Spouse) • $425,000 (H of H) • $400,000 (Single) • $225,000 (MFS)
Pease Reinstated • 3% of overall itemized deduction phase-out • Reduces itemized deductions by 3% of AGI in excess of threshold levels • $300,000 MFJ • $275,000 H of H • $250,000 Single • $150,000 MFS • Does not include itemized deductions for investment interest, medical, casualty or theft losses and gambling losses • Cannot reduce itemized deductions by more than 80% • Effective rate increase is 3% of stated tax rate • 1.188% for those in the 39.6% bracket
PEP Reinstated • Phase-out of personal exemption deductions for taxpayers with AGI above the same threshold level as the Pease reduction • Reduces personal exemption by 2% for each $2,500 (or portion thereof) by which AGI exceeds the threshold • Effective increase in tax rate varies based upon number of personal exemptions • 4.37% for four exemptions in the 35% bracket • Note that MFJ are fully phased out before being subject to the 39.6% bracket
Capital Gains and Qualified Dividends • Continued at 0% and 15% levels • Increased to 20% for taxpayers in the 39.6% bracket • Only to the extent that ordinary income would have been taxed in the 39.6% bracket • Stated capital gain rates (ignoring 3.8% NIIT): • 0% for taxpayers in 10% and 15% brackets • 15% for taxpayers in 25% to 35% brackets • 20% for taxpayers in 39.6% bracket • 25% for “unrecaptured” Section 1250 depreciation • 28% for gains on collectibles
New Marginal Tax Rates Taking into account the 3.8% net investment income tax, personal exemption and overall itemized deduction phase-outs
Alternative Minimum Tax • Rates unchanged at 26% and 28% • Exemption increased for 2012 • $78,750 MFJ • $50,600 for unmarried (i.e., Single and H of H status) • $39,375 for MFS • Phases out at 25% beginning at AMTI of $150,000 • Thus, MFJ is fully phased-out at $465,000 • Indexed for inflation after 2012 • No sunset clause
IRA to Charity Relief Extension • Had expired at end of 2011 • Allows for direct distribution of IRA to qualified charity for IRA owner over age 70½ • Avoids AGI, so that phase-outs aren’t affected • Benefit for those who don’t itemize • Extended for 2012 and 2013, important due to • Pease and PEP phase-outs • 3.8% NIIT trigger based upon MAGI
Bonus Depreciation • 2012’s 50% bonus depreciation extended to assets placed in service prior to 2014 • Calendar year provision • Extension to 2014 for certain long-production assets and aircraft • Applies to “new” (i.e., original use) property only • Cost recovery periods 20 years and shorter
Bonus Depreciation: Bouncing % Acquired & Placed in Service Bonus % 1/1/08 – 9/8/10 50% 9/9/10 – 12/31/11 100% 1/1/12 – 12/31/12 50% 1/1/13 – 12/31/13 50% 2014 and after 0% • Qualified leasehold improvement • Interior improvements, lease arrangement, >3 yrs. in service, not an enlargement, no related parties (but using 80% or more definition) • Eligible for 50%
Bonus Depreciation for Autos and Trucks • The $8,000 deduction allowed for the placing in service of a new autos is extended through December 31, 2013 • Previously was to expire December 31, 2012 • Applies to light trucks or vans, including SUVs, built on a truck chassis if rated 6,000# loaded vehicle weight or less
Section 179 for 2012 and 2013 • Retroactively increased for tax years beginning in 2012 and 2013 to $500,000 • Maximum applies unless taxpayer places in service more than $2 million of qualifying Section 179 property • No provision for tax years beginning after 2013 • “Permanent” law lowers Section 179 deduction to $25,000 • Extends off-the-shelf computer software as eligible • Extends ability to amend or change specification of property to be expensed • Extends “qualified real property” provision
Section 179 and Qualified Real Property • Up to $250,000 of qualified real property may be expensed • Qualified leasehold improvement • Qualified restaurant • Qualified retail improvement • SL 15 year writeoff continues for assets placed in service before January 1, 2014
Research Credit Extended • Credit had expired for amounts paid or accrued after December 31, 2011 • Credit extended for amounts paid or accrued through 2013
Work Opportunity Tax Credit • Was to expire at end of 2012 for the hiring of qualified veterans • Requires submitting Form 8850 to the appropriate state agency within 28 days of hire • Had expired for all other categories at end of 2011 • WOTC extended through 2013 for all categories retroactive to January 1, 2012 • No guidance on certification issue
S Corporation Built-In Gain • C corporations electing S status are subject to 35% tax on built-in gains recognized during the “recognition period” • Recognition period is normally 10-years • For years beginning in 2012 and 2013, the recognition period is 5-years (i.e., 60 months) beginning with the first day of S status • For 2012, if the S election was effective January 1, 2007 or earlier, gains recognized are not subject to the BIG tax
Planning Opportunities • Increasing qualified dividends in 2012 • Applies to S corporations which have C corporation accumulated earnings and profits • Elect a deemed dividend of a specific amount for 2012 • Changes all 2012 distributions from AAA to be qualified dividends • Especially useful if shareholders plan to sell soon • Requires consent of all shareholders • Elect out of 2012 installment sales • IRA to charity for January 2013, to be treated as a 2012 IRA distribution
Estate and Gifts 20122013 • Estate exemption $5.12M $5.25M • Top rate 35% 40% • Gift exemption $5.12M $5.25M [All made permanent] • Gift annual exclusion $13,000 $14,000
Portability • Portability provisions no longer expire • Decedent spouse’s unused exemption amount may be transferred to surviving spouse • Requires Form 706 to be filed, even though not otherwise required • Applies only to unused exemption of the last decedent spouse of the surviving spouse
Other Extenders Temporarily Extended • Retroactive for 2012, and through 2013 • State and local sales tax deduction • Teacher’s classroom expense deduction ($250 of supplies) • Qualified tuition and related expenses • Deductibility of mortgage insurance premiums • Contribution of capital gain real property for conservation allowed against 50% of AGI • Parity in transit fringe benefits • One year extension through 2013 • Exclusion of cancellation of indebtedness on principal residence
Five-Year Extenders, Through 2017 • American Opportunity Tax Credit (enhancement to the Hope Credit) • First $2,000 of qualified tuition and related expenses plus • 25% of the next $2,000 • Enhancements to Earned Income Tax Credit • Other aspects have been extended permanently
Permanent Changes of Extender Items • $1,000 child tax credit (will not drop to $500) • Adoption credit and income exclusion for employer-paid or reimbursed adoption expenses up to $10,000 (indexed) • Child and dependent care credit ($3,000/$6,000 cap) • Deductibility of student loan interest no longer stops after 60 months • Coverdell Education Savings Accounts fixed at $2,000 • Employer-provided education assistance < $5,250
Section 1411 Net Investment income tax
Net Investment Income Tax • Starting January 1, 2013 • 3.8% tax rate on net investment income • Modified AGI exceeds a threshold amount • Marginal tax rate • Thus, a taxpayer in the 39.6% tax bracket (i.e. the highest marginal income tax rate in 2013) will have a federal marginal rate of 43.4% on NII
Net Investment Income--Buckets • Investment • Trade or business • Net gain on disposition of property
Applicable Threshold Amounts • Individuals, Modified AGI • Married taxpayers filing jointly - $250,000 • Married taxpayers filing separately - $125,000 • All other individual taxpayers - $200,000 • Nonresident aliens are not subject to the tax • Special rules if married to US citizen and election is made to be treated as a resident alien