Federal Income Tax Update

Transcription

1 Federal Income Tax Update

2 51A Middle Street Newburyport, MA Phone: Fax: Course Information Course Title: Federal Income Tax Update # Recommended CPE credit hours for this course In accordance with the standards of the CFP Board, the National Registry of CPE Sponsors and the IRS, CPE credits have been granted based on a 50-minute hour. CFP 2 (All states) CFP Board Course ID# , Sponsor # 1008 CPA EA/OTRP 4 (All states) National Registry of CPE Sponsors ID Number: Sponsor numbers for states requiring sponsor registration: Florida Division of Certified Public Accountancy: 4761 (Ethics #11467) Hawaii Board of Public Accountancy: New York State Board of Accountancy: Ohio State Board of Accountancy: M0021 Texas State Board of Accountancy: (All States) IRS: Qualified Sponsor number: FWKKO. CLU, ChFC Professional Recertification 2 Course Description This mini-course examines key individual, business, retirement, and estate tax provisions recently enacted or indexed for inflation in an overview format that is easy to reference. The emphasis is on quick access to major tax changes having special meaning to the tax practitioner and return preparer. The course is a great resource and way for professionals and staff alike to easily get the big chunks and bring their professional knowledge up to speed. ii

3 Program Delivery Method: Self-Study (NASBA QAS Self-Study/interactive) Subject Codes/Field of Study NASBA (CPA), CFP Board of Standards, Inc.: Taxes. IRS (EA, OTRP): Federal Tax Law. NAPFA: Taxes Course Level, Prerequisites, and Advance Preparation Requirements Program Level: CFP Board: Intermediate; NASBA/CPA, IRS: Overview. This program is appropriate for professionals at all organizational levels. Prerequisites: Basic familiarity with federal taxation Advance Preparation: None Course Content Publication/Revision Date: 1/11/2017. Author: Danny Santuccci, J.D. Final exam (online): Twenty questions (multiple-choice). Instructions for taking this course You must complete this course within one year of the date of purchase (if you do not complete the course within one year, contact us to determine whether an updated edition of the course is available, in which case we will provide you with a PDF of the updated course and the online exam at no charge). A passing grade of at least 70% is required on the final exam for this course. You may retake the exam if you do not pass it on the first attempt (no charge). Complete the course by following the learning objectives listed on the following page, studying the text, and studying the review questions at the end of each major section (or at the end of the course). Once you have completed studying the course and you are confident that the learning objectives have been met, answer the final exam questions (online). Instructions for Taking the Final Exam Online Login to your account online at Go to My Account and view your course. Select Take Exam for this course and follow instructions. Additional Information The exam may be started, stopped, then resumed at a later date. The exam is "open book," it is not timed, and it may be retaken if not passed on the first attempt (no charge). Results (correct, incorrect answers) and certificate appear immediately upon passing the exam. CFP and EA credits are reported weekly. Have a question? Call us at or us at contact@bhfe.com. iii

4 Learning Objectives As a result of studying the assigned materials, you should be able to meet the objectives listed below. ASSIGNMENT At the start of the materials, participants should identify the following topics for study: * Tax brackets * Tax credits * Deductions * Education credits * Energy credits * Retirement plan contribution and phaseout limits * Gift and estate taxes Learning Objectives After reading the materials, participants will be able to: 1. Recognize the various issues affected by inflation and recent tax law changes especially as they relate to individual income taxes noting the various income tax brackets, the kiddie tax, the AMT phaseout limits and contribution limits to HSAs, and identify the mechanics of selected income tax credits, including education and energy credits. 2. Determine the key business tax issues affected by inflation adjustments and recent legislative changes, including bonus depreciation, expensing, standard mileage rates, work opportunity credit, and S corporation developments. 3. Specify differences between various retirement plans, including inflation adjusted contribution limits and phaseout limits, and determine estate taxes by identifying trust income tax rates and determining interest on estate tax installments. Notice This course and test have been adapted from materials and information contained in the above text and any supplemental material provided. This course is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional advice and assumes no liability whatsoever in connection with its use. Since laws are constantly changing, and are subject to differing interpretations, we urge you to do additional research and consult appropriate experts before relying on the information contained in this course to render professional advice. iv

5 2017/2016 Easy Update & Inflation Adjustments (Plus Reminders on Select Provisions) Edited By Danny C. Santucci The author is not engaged by this text, any accompanying electronic media, or lecture in the rendering of legal, tax, accounting, or similar professional services. While the legal, tax, and accounting issues discussed in this material have been reviewed with sources believed to be reliable, concepts discussed can be affected by changes in the law or in the interpretation of such laws since this text was printed. For that reason the accuracy and completeness of this information and the author's opinions based thereon cannot be guaranteed. In addition, state or local tax laws and procedural rules may have a material impact on the general discussion. As a result, the strategies suggested may not be suitable for every individual. Before taking any action, all references and citations should be checked and updated accordingly. This publication is designed to provide accurate and authoritative information in regard to the subject matter covered. It is sold with the understanding that the publisher is not engaged in rendering legal, accounting, or other professional service. If legal advice or other expert advice is required, the services of a competent professional person should be sought. -From a Declaration of Principles jointly adopted by a committee of the American Bar Association and a Committee of Publishers and Associations. No copyright is asserted on government materials. Copyright January 2017 Danny Santucci v

6 Preamble A Snapshot in Time These materials reflect selected tax law anticipated for 2017 before the election of Donald Trump as President. However, big tax changes appear likely in 2017 with the Republicans controlling both houses of Congress and the presidency. A review of Mr. Trump's website reveals some of his major tax proposals. Individual Rates & Capital Gains. Individual tax brackets would be reduced to three - e.g., for married filing jointly 12% (if less than $75,000 taxable income), 25% (when more than $75,000 but less than $225,000) and 33% (when more than $225,000). Head of household filing status and the alternative minimum tax (AMT) would be eliminated. Long-term capital gains rates would remain at 0%, 15% and 20% but, the 3.8% net investment income tax (imposed on passive income, including capital gains) would be repealed. Deductions & Exemptions. Itemized deductions would be capped at $200,000 for married filing jointly couples and $100,000 dollars for unmarried individuals. Further, his proposals eliminate personal and dependent exemptions. However, the standard deduction would be increased to $30,000 for joint filers and $15,000 for unmarried individuals. Child & Dependent Care. A new "above the line" deduction would be created for expenses (when income is below $500,000 for married filing jointly or $250,000 for single taxpayers) on up to four children under age 13 and elder care expenses (capped at $5000 per year) for dependents. The Trump tax plan also offers new rebates for child care expenses to low-income taxpayers through the earned income tax credit. In addition, new tax exempt dependent care savings accounts (limited to $2000 per year) would be established. Business. Business income from sole proprietorships or passed through to individuals from S corporations, LLCs, and partnerships, would be taxed at 15%. The corporate tax rate would also be cut from the current 35% to 15% but, many corporate "tax breaks", including the tax deferral on overseas profits, would be eliminated. However, the annual cap on 179 expensing would be increased from $500,000 to $1 million. Estate Taxes. The federal estate tax would be abolished. However, accrued capital gains outstanding at death would be subject to capital gains tax after a $10 million exemption i.e., no stepped up basis on death. Obamacare. Trump proposes to repeal Obamacare and, if successful, the tax increases and employer penalties associated with it will also be affected. This is not a complete list of Trump plan proposals and they will certainly be modified by the legislative process and competing plans (e.g. Paul Ryan s House Tax Plan). Yet, it is still possible that many of his proposals may pass in the first 100 days of his administration. As a result, please check for periodic anticipated changes and revisions during 2017 to all my texts. vi

7 Table of Contents Course Information...ii Learning Objectives...iv Table of Contents...vii Individual...1 Income Tax Rates Marriage Penalty... 2 Same-Sex Marriage... 3 Innocent Spouse Relief (f)... 3 Standard Deduction Dependent Limit - 63(c)(5)... 4 Personal Exemptions & Phaseout (Expired & Reinstated) Limitation on Itemized Deductions Kiddie Tax - 1(g)...5 AMT Exemption for Children - 59(j)... 6 Election to Report Child s Income on Parent s Return - 1(g)(7)...6 AMT Exemption Amounts & Permanent Patch - 55(d)(1)... 7 AMT Exemption Phaseout - 55(d) & 59(j)... 7 AMT & Personal Credits... 8 Sales Tax Deduction for Qualified Vehicles (Expired) Wage Base for Social Security & Medicare Taxes...9 Making Work Pay Credit (Expired) - 36A...9 Earned Income Tax Credit Disqualified Income - 32(i) Means-Tested Programs Child Tax Credit Earned Income AGI Phaseout Child & Dependent Care Expenses Tax Credit State & Local General Sales Taxes Educator Expenses Higher Education Tuition Deduction (Expired) Dollar Limitation & Phase Out Tuition Deduction Or Education Credit Allowed Hope/Lifetime Election If Lower Tax Long-Term Capital Gains & Dividends - 1(h)...14 Tax on Net Investment Income Final Regulations TD Reduced Home Sale Exclusion For Nonqualified Use Computation Nonqualified Use vii

8 Post-May 6, 1997 Depreciation Surviving Spouse Home Sale Exclusion Residential Mortgage Debt Relief (Expired) Deductible Mortgage Insurance Premiums (Expired) Phaseout Insubstantial Benefit Charitable Contribution Limitation Household Employees Adoption Credit - 23 & Coverdell Education Savings Accounts Hope & Lifetime Learning Credits - 25A...21 Lifetime Learning Credit - 25A(a)(1) Hope (with American Opportunity modifications) Credit - 25A(b)(1) Educational Savings Bonds Student Loan Interest Deduction Phase Out Scholarships with Service Requirements Qualified Tuition Programs Higher Education Expenses Contributions To Qualified Tuition Programs PATH Act Modifications Foreign Earned Income Exclusion Conservation Base Expansion - 170(b)...24 Definitions Grandfathered Archer Medical Savings Accounts Medical Expense Deduction Health Savings Accounts (HSAs) High Deductible Health Plan (HDHP) Annual Limit On Contributions Interaction with Obamacare Health Coverage Tax Credit (Expired) - 35(a)...27 Long-Term Care Premiums - 213(d)(10)...27 Long-Term Care Payments B(d)(4)...27 ABLE Accounts - 529A...28 Qualified ABLE Program Contributions Distributions Rollover PATH Act Modification Affordable Care Act ( Obamacare )...29 Mandates Marketplaces & The Protecting Affordable Coverage for Employees Act Suspension Of Medical Device Excise Tax Failure to File Tax Return Penalties Regarding Preparing Other s Tax Returns Energy...34 Credit for Energy New Efficient Home (Expired) - 45L...34 viii

9 Energy Efficient Appliance Credit (Expired) - 45M...35 Residential Energy-Efficient Improvements & Property (Expired) - 25C...35 Qualified Energy Efficiency Improvements Qualified Energy Efficient Property PATH Act Extension Personal Solar Property Credit - 25D...36 Energy-efficient Commercial Property Expenditures (Expired) - 179D...36 Renewable Energy Production Tax Credit - 45 & Investment Credit in lieu of Production Credit (Expired) - 45 & PATH Act Temporary Extension Credit For Fuel Cell Vehicles (Expired) - 30B...38 Alternative Fuel Vehicle Refueling Property (Expired) - 30C...38 Plug-In Electric Drive Motor Vehicle Credit Plug-in Electric Motorcycles & 3-Wheeled Electric Vehicles (Expired) - 30D(g) Advanced Energy Investment Credit - 48C...40 Business...40 Expenses for Child Care Facilities & Services - 45F...40 Uniformed Services Wage Credit - 45P...40 Health Care Coverage...41 Credit - 45R Reporting (a)(14) Bonus (or Additional First-year) Depreciation - 168(k)...42 Initial 50% Additional First-year Depreciation Temporary 100% Additional First-year Depreciation Back to 50% Additional First-year Depreciation PATH Act Extensions & Modifications Qualified Property - 168(k)(2) Nonqualified Property - 168(k)(2) Home Office Square Footage Safe Harbor - 280A...44 Vehicle Depreciation Caps - 280F(a)...45 Expensing General Business Credit Special Film & TV Production Expensing Live Theatrical Productions Reporting Rental Property Expenses (Repealed) Reporting Business Expense Payments (Repealed) Estimated Tax Payments Temporary 90% Limit (Expired) Standard Mileage Rates...51 Self-Employment Tax & CRP Payments Final Repair Regulations Health Insurance Deduction in Computing SE General Business Credit Five-Year Carryback of Business Credits (Expired) - 38(b) AMT Exemption for Business Credit - 38(c)(4) Social Security, Medicare & FUTA (or Payroll) Taxes...53 ix

10 FICA & SECA Wage Base Additional Hospital Insurance Tax On Certain High-Income Individuals FUTA & Credit for Retention of Newly Hired (Expired) - 38(b)...55 Research Tax Credit Incremental Qualified Expenses Low-Income Housing Tax Credit Rate Freeze Basis Amount Military Allowances & Low-Income Housing - 42(h) & 142(d) Employer-Provided Educational Assistance Parking Exclusion & Passes Bicycle Commuters Fringe Benefit - 132(f)...58 Cents-per-Mile Valuation Method Travel Per Diem Rates...59 Work Opportunity Tax Credit (WOTC) Targeted Groups Credit Amount Leasehold Improvement, Retail Improvement & Restaurant Property Qualified 15-Year Leasehold Improvement Property - 168(e)(3)(E)(iv) Qualified 15-Year Retail Improvement Property - 168(e)(E)(ix) Year Restaurant Improvement Property - 168(e)(3)(E)(v) Expensing & Bonus Depreciation Permitted Enhanced Charitable Deduction for Food Enhanced Charitable Deduction for Books (Expired) Corporate Donation of Computer Equipment (Expired) Delay of Certain Cancellation of Debt Income (Expired) Qualified Small Business Capital Gains % Exclusion - February 17, 2009 to September 27, % Exclusion - September 27, 2010, to Present Domestic Production Activities Deduction New Markets Tax Credit - 45D...68 Qualified Equity Investment Qualified CDE Credit Amount Motorsports Entertainment Complexes (Expired) Imputed Interest Small Transaction Exception S Corporation Built-In Gain Period S Corporation Charitable Contributions Payments To Controlling Exempt Organizations - 512(b)...71 Dividends Of Regulated Investment Companies (RIC's) Failure to File Partnership Return Failure to File S Corporation Return Failure to File Correct Information Returns & Payee Statements & x

11 Retirement Plans...72 Defined Benefit Plans - 415(b)(1)(A)...72 Defined Contribution Plans - 415(c)(1)(A)...73 Compensation Limit - 401, 404 & IRA Contribution Limit IRA AGI Phaseout Limits Individual Taxpayer is an Active Plan Participant Spouse is an Active Plan Participant Charitable Distributions from IRAs Roth Contribution Limit - 408A(c)(2) & Roth AGI Phaseout Limits - 408A(c)(3)...75 Rollovers to Roth IRAs...76 In-Plan Rollovers to Roth Accounts Roth IRA Conversions for Retirement Plans...76 Designated Roth Accounts for 457 Plans...76 my Retirement Account (myra) - 408A (k), 403(b) & 457 Elective Deferral & Catch-up Limits...77 SIMPLE Plans...77 Simplified Employee Pensions (SEPs)...77 Contribution Limit Compensation Limit Retirement Savings (Saver s) Credit - 25B(b)...78 Nonspouse Rollovers Estate, GST & Gift Taxes , 2601 & Estate Tax Repeal & Reinstatement of Estate & GST Taxes Applicable Exemption Amount Basis of Inherited Property Portability (c)) State Death Tax Credit Replaced with Deduction Real Property Valuation A...80 Interest on Estate Tax Installments & Estate & Trust Income Tax Rates - 1(e)...80 Consistent Basis Reporting Between Estate & Heirs...81 GST Tax Rates Applicable Exemption Amount for GST Gift Tax Reunification of Estate & Gift Taxes l Applicable Exemption Amount for Gift Tax Annual Exclusion for Gifts Glossary...91 Index of Keywords & Phrases...92 xi