2013 Tax Law Update

Brought to you by:

Presented by: Mike DavolioSenior Tax AnalystIntuit Professional Tax Group

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Mike Davolio, CPASenior Tax Analyst

• With Intuit / Lacerte since 1987• Monitor legislative and regulatory

activity• Circulate information to employees

and customers• Analyze and test software• Train employees and customers• Government liaison• Public relations representative  

Agenda• 2013 Tax Law Changes

• Defense of Marriage Act

• Post 2013 ACA Changes

• Tax Reform

• IRS Initiatives

Let’s Get Started!

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2013 Tax Law Changes

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American Taxpayer Relief Act of 2012 (PL 112-240, 1/2/13)

Income tax rate increase for high earners (beginning in TY13)

• Rates remain at 10%, 15%, 25%, 28%, 33%, 35%• 39.6% rate applies to income above: $450,000 MFJ, QW;

$425,000 HH; $400,000 single; $225,000 MFS

Capital gain & dividend rate increase for high earners (beginning in TY13)

• Top rate rises to 20% (from 15%)• Applies to income above: $450,000 MFJ, QW; $425,000 HH;

$400,000 single; $225,000 MFS• 0% capital gain and dividend rate still applies to taxpayers

whose ordinary income is taxed below 25%

Personal exemption phase-out (PEP) & itemized deduction limitation (Pease) for high earners (beginning in TY13)

• Thresholds: $300,000 MFJ, QW; $275,000 HH; $250,000 single; $150,000 MFS

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ATRA (cont.)

Permanent AMT relief (retroactive beginning in TY12)• Increased exemption amounts: $51,900 single, HH; $80,800 MFJ,

QW; $40,400 MFS• Nonrefundable personal credits allowed to offset AMT

Estate, gift and generation skipping transfer (GST) tax (beginning in TY13)

• $5M exemption permanently extended (indexed for inflation, $5.25M for TY13)

• Top rate increases to 40% (from 35%)• Retains portability feature

Recovery Act of 2009 provisions extended for 5 years (beginning in TY13)

• American opportunity credit• Eased rules for refundable child tax credit• Various elements of earned income credit

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ATRA: Individual Extenders (TY12 & TY13)

• Deduction for school teacher expenses• Tuition and fees deduction• State and local general sales tax deduction• Mortgage insurance premiums treated as residence

interest• Exclusion for discharge of principal residence debt (TY13

only)• Tax-free distributions from IRAs for charitable purposes• Special rule for contributions of capital gain real property

made for conservation purposes• Parity for exclusion of employer-provided mass transit and

parking benefits exclusions

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ATRA: Depreciation Extenders (TY12 & TY13)

• Increased section 179 expensing limits• $500,000 limit with a $2M phase-out

• Treatment of certain real property as section 179 property• 50% bonus depreciation (TY13 only)• Accelerated depreciation for Indian reservation property• 15 year straight-line method for leasehold improvements,

restaurant buildings and improvements, and retail improvements

• 7 year recovery period for motorsports entertainment complexes

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ATRA: Business Extenders (TY12 & TY13)

• Research credit• Work opportunity credit• Employer wage credit for employees who are active duty

members• Indian employment credit• New markets credits• Enhanced charitable deduction for contributions of food

inventory• Railroad track maintenance credit• Mine rescue team training credit• Qualified zone academy bonds

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ATRA: Business Extenders (cont.)

• Exclusion of 100% of gain on small business stock acquired before 1/1/14

• Basis adjustment to stock of S corporations making charitable contributions of property (tax years beginning before 12/31/13)

• Reduction in S corporation’s recognition period for built-in gains tax (10 years instead of 5 years, through 2013)

• Domestic production activities deduction for activities in Puerto Rico (TY06 – TY13)

• Exclusion from a tax-exempt organization’s UBTI of interest, rent, royalties and annuities paid from a controlled entity (through 12/31/13)

• Empowerment zone incentives:• Designation of an empowerment zone (through 12/31/13)• 60% exclusion for small business stock (through 12/31/18)

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ATRA (cont.)

Energy-related extenders (TY12 & TY13)• Non-business energy property credit for energy-efficient homes• Energy-efficient new homes credit• Energy-efficient appliances credit• 2 or 3 wheeled plug-in electric vehicle credit• Alternative fuel vehicle refueling property credit• Biodiesel and renewable diesel credit• Cellulosic bio-fuel producer credit (TY13 only)• Production credit for Indian coal facilities (extended 1 year)• Credits for facilities producing energy from renewable resources

(extended 1 year)

Pension provision• Retirement plans (including Roth) can allow participants to elect

to transfer amounts to designated Roth accounts (treated as taxable rollover contribution) (after TY12)

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Additional Medicare Tax (AdMT)Individuals

• New law: 0.9% AdMT on wages, compensation and self-employment income received in excess of• $250,000 for MFJ; $125,000 for MFS; $200,000 for

others• Employers collect extra 0.9% on wages exceeding

$200,000• No employer match• Individuals may need to increase withholding or estimates

for AdMT• IRS Q&A: Additional Medicare Tax

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New Form 8959

• Reported on Form 1040, line 60, box a

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Net Investment Income Tax (NIIT)

• New law: Medicare tax will apply to investment income• Tax is 3.8% of lesser of

• Net investment income, or• Excess of modified AGI over $250,000 for MFJ or QW,

$125,000 for MFS, $200,000 for others• Estates and trusts: 2013 threshold is $11,950

• NII: interest (not tax-exempt), dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities• Doesn’t apply to excluded portion of gain on sale of personal

residence• Includes child’s income on Form 8814 (after threshold)

• Reduced by deductions allocable to gross investment income: investment interest expense, investment advisory and brokerage fees, expenses related to rental and royalty income, and state and local income taxes

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New Form 8960

• Reported on Form 1040, line 60, box b or Form 1041, Schedule G, line 4• May need to

increase withholding or estimates• IRS Q&A:

Net Investment Income Tax

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Higher threshold for deducting medical expenses

• New law: raises floor from 7.5% of AGI to 10%• AGI floor for individuals age 65 and older will

remain unchanged at 7.5% through 2016

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Dollar cap on contributions to health FSAs

• FSA (flexible spending arrangement): tax-advantaged account that can be set up through cafeteria plan of employer• Allows employee to set aside a portion of earnings

to pay for expenses as established in cafeteria plan (medical, dependent care, other)

• New law: allowable contributions to health FSAs capped at $2,500 per year (indexed for inflation after 2013)

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Miscellaneous Changes

2% payroll tax holiday expired on 12/31/12• Social security withheld from wages at 6.2% rate

(from 4.2%) up to social security wage limit of $113,700• Same increase applies to SE earnings: 12.4%

rate (from 10.4%)

New Form 4684 (Casualties and Thefts), Section C for Ponzi-type investment schemes• Section C of Form 4684 replaces Appendix A in

Rev Proc 2009-20

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2013 Standard Mileage Rates

Business• 56.5 cents/mile

Medical and moving• 24 cents/mile

Charitable • 14 cents/mile

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Inflation Adjustments

  2012 2013

Elective Deferral Plan Limits (401(k), 403(b), SEPs, Thrift Savings, state & local)

BaseCatch-up

Total

$17,000$5,500$22,500

$17,500$5,500$23,000

408(p) Deferral Plan Limits (SIMPLE Plan)

BaseCatch-up

Total

$11,500$2,500$14,000

$12,000$2,500$14,500

IRA DeductionBase

Catch-upTotal

$5,000$1,000$6,000

$5,500$1,000$6,500

IRA Phase-Out RangesSingle/HOH

MFJ/QW$58,000-68,000

$92,000-112,000$59,000-69,000

$95,000-115,000

Defense of Marriage Act (DOMA)

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U.S. Supreme Court holds DOMA unconstitutional

• U.S. v. Windsor, 6/26/13 • DOMA required same-sex spouses to be treated

as unmarried for federal law purposes• Impacts many sections of IRC that involve

definition of spouse• Many tax breaks now available to legally

married same-sex couples• Right to file a joint return

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IRS guidance on DOMA ruling

• Same-sex couples who were legally married in jurisdictions that recognize their marriages are treated as married for federal tax purposes• Regardless of whether resident state recognizes same-

sex marriage• Applies for all federal tax purposes and to all federal tax

provisions where marriage is a factor• Filing status change (MFJ or MFS) mandatory going

forward: 2013 tax returns or original 2012 returns filed after 9/15/13

• Amended returns can be filed (not required) within statute of limitations

• Gender neutral terms in Code referring to marital status (spouse, marriage) include lawful same-sex individuals and marriages

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IRS guidance on DOMA ruling (cont.)

• Taxpayer's spouse cannot be dependent of taxpayer; taxpayer who is considered married cannot file as HH; if spouses file as MFS and have a child, only one can claim child as dependent

• “Marriage” doesn’t include RDPs and civil unions (even if opposite sex)

• Some states will need to issue guidance• State returns filed by same-sex married couples in

states that don’t recognize their marriages• In 24 states that don’t recognize same-sex marriage,

taxpayers need to rely on federal return (start with federal TI or AGI, or utilize federal filing status)

• IRS guidance: IR-2013-72

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States that recognize same-sex marriage

• California: June 17, 2008 through Nov. 4, 2008; June 26, 2013 through present

• Connecticut: Nov. 12, 2008• Delaware: July 1, 2013• Iowa: Apr. 20, 2009• Maine: Dec. 29, 2012• Maryland: Jan. 1, 2013• Massachusetts: May 17, 2004• Minnesota: Aug. 1, 2013• New Hampshire: Jan. 1, 2010• New York: July 24, 2011• Rhode Island: Aug. 1, 2013• Vermont: Sept. 1, 2009• Washington: Dec. 6, 2012• Washington, DC: Mar. 9, 2010

Affordable Care Act (ACA)Post 2013 Changes

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Penalties and Subsidies for Individuals

• Beginning in 2014, U.S. citizens and legal residents must carry health insurance or be subject to a penalty

• Penalty is the greater of: (phased in)• $695 per year ($2,085 maximum per family), or• 2.5% of household income

• Beginning in 2014, people who purchase insurance through an exchange may be eligible for the Premium Assistance Credit (i.e. subsidy) for low and middle income individuals• Credit is refundable and payable in advance directly to

the insurer• Individual then pays difference between total

premium and credit• For employed individuals, premiums can be made

through payroll deductions

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Penalties and Credits for Businesses

• Businesses with 50 or more full-time employees must offer insurance or face a penalty• $2,000 per year for every employee starting with the

31st employee• Recently delayed until 2015

• Businesses with fewer than 50 full-time employees are exempt from penalty for not offering coverage to employees

• Tax credit is available for small businesses that offer insurance• Less than or equal to 25 employees with an average

salary of less than or equal to $50,000• Employer must cover at least 50% of premium

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Key Dates

• On January 1, 2014, all individuals, except for a few, will be required to purchase health insurance or face a tax penalty• On October 1, 2013, uninsured Americans will

be able to enroll in health plans through state and federal exchanges• Your 2012 tax return will help determine your

eligibility for an insurance subsidy from the government

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ACA Online Resources

Intuit has launched a new ACA website for accountants• http://accountants.intuit.com/health/index.jsp• Educate accountants and clients about new

health care law• Basic and advanced content relating to

individuals and small businesses

IRS website explains tax provisions of health care law• IRS.gov/aca• Publication 5093: Health care law online

resources (http://www.irs.gov/pub/irs-pdf/p5093.pdf)

Tax Reform

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Tax Changes in President’s Budget Proposal

Individual• Reduce value of itemized deductions and other preferences (tax-

exempt interest, retirement contributions, etc.) to 28% for taxpayers in top 3 tax brackets

• Buffet rule: millionaires pay no less than 30% of income in taxes• Permanently extend American opportunity credit, elements of

child tax credit and earned income credit• Prohibit individuals from accumulating over $3M in tax-preferred

retirement accounts

Business• Permanently extend increased section 179 limit• Permanently extend and enhance research credit• Require employers that have over 10 employees and don’t offer

a retirement plan to enroll employees in a direct deposit IRA (with ability to opt out)

• Repeal LIFO accounting method• Bar use of lower of cost or market and subnormal goods

methods of inventory accounting

IRS Initiatives

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IRS statement on court ruling related to return preparers

• On 1/18/13, U.S.D.C. enjoined IRS from enforcing regulatory requirements for registered tax return preparers• Tax return preparers covered by program not

required to complete competency testing or secure continuing education• Ruling doesn’t affect regulatory practice

requirements for CPAs, attorneys or enrolled agents• On 2/1/13, court clarified that order doesn’t

affect requirement for all paid tax return preparers to obtain a PTIN• Appeal filed on 3/29/13

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Intuit Resources

Intuit & National Association of Tax Professionals (NATP) team up for professional development • http://www.natptax.com/intuit• More than 300 live nationwide workshops,

facilitated online, self-study & webinar courses designed by tax professionals• Maintain CPA, EA status with CPE courses• EA Exam Preparation Course

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IRS combats identity theft and refund fraud

Top priority for IRS

Refund fraud detection and prevention• During 2012, IRS protected $20B of fraudulent refunds,

including ones related to identity theft• Expanded for 2013

Increasing efforts to help victims• Identity Protection Personal Identification Numbers (IP PIN)

expanded• More resources devoted to victim case resolution

IRS criminal investigation• Tripled number of investigations in 2012• See special identity theft section

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Victims of refund fraud

• Identity thieves try filing fraudulent refund claims using another person’s identifying information, which has been stolen.• Innocent taxpayers are victimized because their refunds are

delayed.• If taxpayer receives a notice from IRS or learns from tax

professional that:• More than one return was filed;• There is a balance due, refund offset or collection action for a

year a return wasn’t filed;• IRS records indicate more wages received than earned; or• State or federal benefits were reduced or cancelled because

agency received information reporting an income change• Respond immediately by calling number on notice

• Fill out IRS Identity Theft Affidavit: Form 14039 • Taxpayer Guide to Identity Theft:

http://www.irs.gov/uac/Taxpayer-Guide-to-Identity-Theft

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Tips to protect you from becoming a victim of identity theft

• Don’t carry Social Security Card or any documents with SSN or ITIN

• Don’t give a business your SSN or ITIN unless required• Protect your financial information• Check your credit report every 12 months• Secure personal information in your home• Protect your personal computers• Don’t give personal information via phone, mail or

internet unless you initiated contact or you know whom you’re dealing with

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Notices related to Form 1099-K

• Form 1099-K: information return that reports payment card and third party network transactions

• Used to complete return and retained for records• Transactions should already be reflected in gross receipts

on return• Gross receipts comprised of payment card receipts and

other forms of payment (cash, checks)• Taxpayers receive notices because gross receipts may be

underreported • Tips • Read notice and complete any worksheets• Gather tax records, including 1099-Ks, and determine if

you agree with notice• Contact IRS with any questions

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Free tax help from IRS social media tools

IRS2Go: Smartphone application for iPhone, iTouch and Android

YouTube• English | Spanish

Twitter (@IRSnews, @IRStaxpros)

Tumblr: Up-to-date tax news

Facebook: Useful posts for tax professionals

Podcasts: Useful facts on many tax topics• English | Spanish

Questions?

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