Gearing Up for Filing Season: Individual Tax Planning. December 3, 2014: 11 am 12 pm EST and 1 pm

Transcription

1 Gearing Up for Filing Season: Individual Tax Planning December 3, 2014: 11 am 12 pm EST and 1 pm 2 pm EST 1

2 The following program is designed to provide accurate and authoritative information in regard to the subject matter covered. It is distributed and sold with the understanding that ADP and SmartPros Ltd. are not engaged in rendering legal, tax, accounting, investment or other expert advice. If expert assistance is required, the services of a competent professional should be sought. The views and conclusions expressed herein are those of the speaker and not necessarily those of ADP and SmartPros Ltd. 2

3 EXPERT COMMENTATOR: Barbara Weltman Big Ideas for Small Business 3

4 CPE Instructions / Polling Questions 1. SmartPros, our CPE partner, manages all CPE Administration for this event. 2. To receive CPE credit, you must validate your attendance in one of two ways: a) If you are logged in to your own individual computer, you will need to answer (4) polling questions as they are presented during the event b) If you are watching in a GROUP, and NOT logged in to your own computer, you will need to write down the (4) polling question keywords and enter them AFTER THE EVENT by going to 3. Upon meeting the CPE participation requirements above, you will receive an from SmartPros within 10 days of the event with instructions on how to login and print your online CPE certificate NOTE: You can download a copy of this presentation at : 4

5 Introduction Tax rules for 2014: What s certain and what s not: Extender provisions? COLAs and other changes General tax planning strategies ACA changes for 2014 returns 5

6 Tax certainty Tax certainty 55 provisions expired at the end of 2013 but have not yet been extended for 2014 Key provisions: Above the line deduction for tuitionand fees/educator expenses Itemized deduction for state and local sales tax Direct transfers from IRAs to public charities for those age 70 1/2 and older Exclusion of income from home mortgage cancellation 6

7 Tax certainty Standard d deduction amounts for 2014: Joint filers/surviving spouses: $12,400 Heads of households: $9,100 Singles: $6,200 Married filing separately: $6,200 Dependents: greater of $1,000 or sum of $350 + earned income Additional amounts for age/blindness Married/surviving spouse: $1,200 Unmarried: $1,550 7

8 Tax certainty Personal exemption: $3,950 Phase out (explained later) Kiddie tax: $2,000 8

9 Tax certainty Medical expenses: Itemized threshold: 10% of AGI (7.5% for those 65+) Long term care premiums increased FSAs: Salary reduction contributions limited to $2,500 Premium tax credit (discussed later) 9

10 Tax certainty AMT for 2014 Exemption amount adjusted for inflation: Joint filers: $82,100 Unmarried: $52,800 Married filing separately: $41,050 Phase out thresholds h increased Personal exemptions cannot be taken against AMT 28% rate applies to excess taxable income over: Joint filers/unmarried: $182,500 Married filing separately: $91,250 10

11 Tax certainty COLAs for tax credits: Adoption credit increased to $13,190 Lifetime learning credit s MAGI eligibility limits Earned income credit amounts Credits unchanged: Dependent care credit Child tax credit American opportunity credit 11

12 Tax certainty Estate/gift/GST rates and applicable amounts Lifetime exemption amount for 2014: $5.34 million Check state law exemptions, which may be lower Annual gifttax tax exclusion for 2014: $14,000 Transfers to 529 plans: $70,000 (5 x $14,000) 12

13 Special rules for high income Overview: taxpayers Top rate is 39.6% (and 20% on capital gains and qualified dividends) Phase out of personal exemptions and itemized deductions Additional Medicare taxes on earned income and net investment income For seniors: additional premiums for Medicare Parts B and D (based on MAGI 2 years prior) 13

14 Special rules for high income taxpayers Top tax rates apply when taxable income for 2014 exceeds: $457,600 for joint filers/surviving spouses $432,200 for heads of households $406,750 for other unmarried persons $228,800 for married persons filing separately Note: Top rate applies for estates and trusts with taxable income over $12,150 There is no 35% tax bracket for these entities 14

15 Special rules for high income taxpayers Limit on itemized deduction ( Pease limitation ) Starts at AGI in 2014 over certain limits: Joint filers: $305,050 Heads of households: $279,650 Other singles: $254,200 Married filing separately: $152,525 Can lose up to 80% of itemized deductions Medical expenses, casualty losses, investment interest, and gambling glosses exempt 15

16 Special rules for high income taxpayers Limitation on personal exemptions ( PEP limitation ) Starts at AGI over same limits as PEASE Can lose 100% of exemptions 16

17 Special rules for high income taxpayers 09%additional 0.9% Medicare tax on earned income Applies to taxable compensation and net earnings from self employment over: $250,000 for joint filers $200,000 for singles $125,000 for married filing separately Form 8959, Additional Medicare Tax 17

18 Special rules for high income taxpayers 38%additional 3.8% Medicare tax on net investment income (NII tax) Applies to the lesser of: Net investment income, or MAGI over the applicable threshold amount Form 8960, Net Investment Income Tax Individuals, Estates, and Trusts 18

19 Special rules for high income taxpayers Investment income for NII tax includes: Dividends, interest, annuities, capital gains, rents, and royalties Gain from the sale of a principal p residence in excess of the home sale exclusion Income from a business in which the taxpayer does not materially participate p Investment income does not include: Tax exempt/excluded income Distributions from qualified retirement plans and IRAs Income from businesses in which the taxpayer materially participates (see PAL definition under Code Sec. 469) 19

20 Planning Income tax strategies: deferral or acceleration? Usual strategy: defer income when possible. Defer bonuses before year end if expected to be in a lower bracket when they are received in the future. Note: This won t save the 0.9% additional Medicare tax for high earners. 20

21 Planning Roth IRA conversions Build tax free income for the future Factor in the impact of increasing MAGI for purposes of the 3.8% additional Medicare tax. Conversion incomeisnot is not treated asinvestment income but it does boost MAGI. 21

22 Planning Capital gains and losses Harvest gains and losses before year end? Take advantage of current low/no tax rates on capital gains. Re set basis for appreciated assets (no wash sale rule for gains). Determine capital gain distributions. Remember unlimited capital loss carryforward (watch wash sale rule for losses). Important: Keep financial considerations paramount. 22

23 Planning Other income planning Stock options: Exercise stock options Consider making Sec. 83(b) elections IRA rollovers Watch one rollover per year rule in light of Bobrow and Ann and Ann

24 Planning Deductions planning General strategy: Accelerate deductions. Charitable giving: Donations of appreciated property. Substantiation requirements. Last minute gifting g( (charging gby credit card; mailing by Dec. 31) Make discretionary medical costs where appropriate Prepaymortgageinterest/state andlocalproperty and estimated tax Don t prepay if such to the AMT 24

25 Planning Deductions planning (cont.) Bunching deductions still important. General bunching: itemize one year/take standard deduction the next (or vice versa) Apply bunching strategy to medical costs in light of the 10% of AGI floor for those under age 65 25

26 Planning Above the line deductions for 2014 Max out on HSAs (only need coverage in an HDHP for December to make a full year s contribution). Note: HDHP is typically the bronze plan, but check. MakeIRA/Roth IRAcontributions if eligible. 26

27 Planning Education planning Pre pay tuition for 2015 to use the American Opportunity credit in 2014 Take withdrawals for elementary and secondary school fromcoverdell ESAs 27

28 Planning Make last minute changes to wage withholding Adjust fourth quarter estimated taxes Factor in year end tax moves 28

29 Planning AGI/MAGI planning Why it s important: MAGI impacts additional Medicare taxes in 2014 on earnings and NII. MAGI in 2014 impacts Part B Medicare premiums in Affects eligibility for various tax breaks/opportunities. What to do: Optimize salary reduction contributions in 401(k)s and similar plans in in medical/dependent care FSAs higher contribution limit for medical FSAs in

30 Planning Review estate plans Look over beneficiary designations Gifting property before the end of the year Obtain appraisals where required 30

31 Planning for ACA Individual mandateunder theaffordable Care Act (Obamacare) effective January 1 Penalty for not having minimum essential coverage is the greater of: $95 ($47.50 per child up to 18) 1% of household income (total income in excess of $20,000 for family; $10,000 for an individual) 31

32 Planning for ACA Premium tax credit Federal subsidy: credit available on an advanced basis Excess advance premium tax credit repayment (Form8962): additional taxes owed New premium tax credit (same form): additional taxes paid 32

33 Planning for ACA Determining exemption fromthepersonal mandate: Form 8965 Review Form 1095 A (issued by the exchange) 33

34 Planning for ACA Availability of the credit through the federal exchange: Supreme Court granted certiorari in King v. Burwell Oral arguments later this month Final decision by the end of June 2015 Remedial action by Congress?? 34

35 Conclusion Meet with clients as soon as possible to discuss planning options in the time remaining Monitor actions by Congress Expect the filing season to begin late Reminder: Renew your PTIN 35