Financial Planning Association of Ventura County Tax Update 2014 New Tax Laws and Developments January 17, 2014 By Boyd D. Hudson Attorney at Law and Charles G. Stanislawski, M.B.T., C.P.A.
Be sure and talk with your tax attorney, CPA or tax preparer. There is so much interplay between the numerous tax planning alternatives that it is critical that you discuss it with your tax professional. This is a very complicated area. This handout is provided for informational purposes only, and should not be conveyed as specific tax or legal advice on any subject matter. You should contact your attorney or C.P.A. to obtain advice with respect to any particular issue or problem. Use of this handout does not create an attorney-client relationship, nor will any information you submit to us via e-mail be considered an attorney-client communication or otherwise be treated as confidential or privileged in the absence of a pre-existing express agreement by us to the contrary. The content of this handout contains general information and may not reflect current tax or legal developments, verdicts or negotiated settlements. The content of this handout may be considered advertising for tax and legal services under the laws and rules of professional conduct in the jurisdiction in which we practice. Prior results do not guarantee a similar outcome. If you have questions regarding the above tax rules, regulations, recommendations and advice please contact us. Contact information is located on the last page of this handout.
TABLE OF CONTENTS I. Highlights of 2013 and 2014 II. The American Tax Relief Act of 2012 III. Bonus Depreciation (Special Depreciation) and IRC §179 IV. IRA’s - Contributions to Charities and Roth Conversions V. Estate and Gift Tax Developments VI. Form 1099 – Miscellaneous Income Rules VII. Income Planning VIII. Adjustments to Income IX. Investment Planning X. Wash Sales XI. Investment Interest & Expenses XII. Mutual Fund Investments XIII. Investment Income XIV. Planning for Itemized Deductions XV. Family Strategies XVI. Retirement Strategies XVII. Year-End Planning for Business Owners XVIII. Estimated Tax Payments XIX. Other Tax Credits XX. Other Items
I. Highlights for 2013 and 2014 Albert Einstein once said, “The hardest thing in the world to understand is the income tax” and how right he was as 2013 and 2014 are full of changes as usual with plenty of new provisions and expiring provisions alike. Below is a list of some of these changes with many being covered in more detail throughout the handout. 1. 2013 federal income tax rate brackets for individuals, estates and trusts were adjusted for inflation; however, the top federal tax rate for 2013 increased from 35% to 39.6% for single filers with taxable incomes over $400,000, $425,000 for Head of Household, $450,000 for Married Filing Joint and Surviving Spouse, and $225,000 for Married filing Separate filers. The 2014 federal tax rates are expected to remain the same with the tax brackets being adjusted for inflation. Furthermore, due to California voter approval of Proposition 30, California personal income tax rates for high income earners will be 10.3%, 11.3% and 12.3% effective for tax years 2012 through 2018. For California taxpayers with taxable income above $1 million, an additional 1% tax is assessed (referred to as the Mental Health Services Tax), making the top California tax rate 13.3%. 2. The AMT exemption patch was made permanent and is now annually adjusted for inflation beginning in 2012; phase outs apply. 3. Beginning in 2013 and continuing through 2014, long term capital gains and qualified dividends are taxed at a maximum tax rate of 20% for high income taxpayers (those subject to the 39.6% tax rate). In addition, the new 3.8% surtax on net investment income and gains will increase the maximum capital gains rate to 23.8% for higher–income taxpayers with modified adjusted gross income exceeding $200,000 for single filers, $250,000 for joint filers and $125,000 for married filing separately. For taxpayers in the 25% to 35% tax bracket the capital gains rate will be 15% and an additional 3.8% surtax, if applicable, brings the maximum rate to 18.8%. The 0% capital gains tax rate will continue for taxpayers in the 10% and 15% tax brackets. 4. Beginning in 2013 – 0.9% additional Medicare Tax on employee’s earned income meeting income thresholds. 5. The 2013 standard mileage rate for business travel was 56.5¢ per mile. For 2014, the standard mileage rate for business is 56¢ per mile. Charitable miles remains 14¢ per mile for 2013 & 2014 whereas the standard mileage rate for medical and moving mileage goes from 24¢ per mile in 2013 down to 23.5¢ per mile for 2014. 6. Beginning in 2013, personal exemptions can be phased out. The exemption amounts phase out by 2% for each $2,500 (or fraction thereof) by which the taxpayer(s) AGI exceeds the threshold amount. The 2013 AGI threshold is $250,000 [$254,200 in 2014] for a single filer, $275,000 [$279,650 in 2014] for Head of Household, $300,000 [$305,050 in 2014] for married filing joint and surviving spouse, and $150,000 [$152,525 in 2014] for married filing separate filers. The threshold amounts are inflation adjusted annually. 7. The enhanced version of the student loan interest deduction has been made permanent. The 60- month limitation has been eliminated and the maximum above the line deduction is $2,500 but, AGI limitations apply. 1
8. Itemized deduction phase out returns in 2013. A taxpayer’s itemized deductions are reduced by 3% of the excess AGI over the threshold amount not to exceed 80% of the total itemized deductions (yes, itemized deductions can be reduced and limited to only 20% of the actual amount!). The 2013 AGI threshold is $250,000 [$254,200 in 2014] for a single filer, $275,000 [$279,650 in 2014] for Head of Household, $300,000 [$305,050 in 2014] for married filing joint and surviving spouse, and $150,000 [$152,525 in 2014] for married filing separate filers. The threshold amounts are inflation adjusted annually. 9. Beginning in 2013 – The threshold for deducting medical expenses as an itemized deduction will increase from 7.5% to 10% of adjusted gross income. For tax years 2013 through 2016, the 7.5% floor continues to apply for individuals who reach age 65 before the close of the tax year. For California, the threshold will continue to be 7.5% of adjusted gross income. 10. Debt resolution fees may be allowed as an itemized deduction (subject to 2% floor). 11. $1,000 per-child tax credit has been extended permanently. Income phase out applies. 12. Dependent and child care credit is permanently extended. Income phase out applies. 13. American Opportunity Tax Credit (for education) is extended through 2017. Income phase out applies. 14. The annual gift tax exclusion was increased to $14,000 for 2013 with the exclusion remaining the same for 2014. Beginning 2013, the gift tax rate will be 40% and the gift tax exemption will be $5 million adjusted annually for inflation. 15. For decedents dying in 2013 the estate tax exclusion amount was $5,250,000 with a top estate tax rate of 40%. The annual exclusion amount is adjusted annually for inflation. The exclusion amount for 2014 will be $5,340,000 and the estate tax rate will be 40% as this amount was made permanent by the American Taxpayer Relief Act of 2012. The surviving spouse may be able to use the “spousal portability” election; this election was made permanent after December 31, 2012. 16. The 30% residential energy efficient property credit (IRC25D) for installation of qualified solar, geothermal and small wind energy property applies to property placed in service through December 31, 2016 and there are NO AGI limitations. 17. Beginning in 2014, the California Franchise Tax Board (FTB) will begin accepting e-filed Form 541, California Fiduciary Income Tax Return, for the 2013 tax year (not for any pre-2013 tax years). 18. There are items, that were extended through or set to expire at the end of 2013, that as of January 10, 2014 have not been extended. There is the possibility of these and other items being retroactively extended through and possibly beyond 2014….stay tuned! (a) The election to deduct state and local general sales and use taxes, instead of state and local taxes is set to expire at the end of 2013. (b) 50% first-year bonus depreciation for “original use qualified property” is set to expire at the end of 2013. 2
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