New Tax Provisions of the Healthcare Law

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John Henegar presented this PowerPoint at the 2012 RocketCity GovCon Conference hosted by Solvability in Huntsville, Ala. on September 20, 2012.

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New Tax Provisions of the Healthcare Law

  1. 1. New Tax Provisions of the Healthcare LawJohn Henegar, CPA, CMA Tax Director, Decosimo
  2. 2. WHERE WE HAVE BEEN• Top individual tax rate 35% • Does Congress really get it? • Long term capital gains/qualified dividends- 15% • 50% bonus depreciation • $139,000 first year expensing (179 expense) • Full deduction for itemized deductions and dependents 2
  3. 3. WHAT IT BECOMES TAX ITEM 2012 2013 Qualified 15%/15% 43.4%/23.8% Dividends/LTCG Ordinary Income 10,15,25,28,33,35% 15,28,31,36,39.6% 50% of qualified Bonus Depreciation No provision property First Year Expensing $139,000/$560,000 $25,000/$200,000 3
  4. 4. WHAT IT BECOMES • No more 10% tax bracket • Expansion of brackets for married filing joint reduced from 200% to 167% • Itemized deductions and exemptions subject to high income phase out • Increased AMT exemption expired • 2 point cut in payroll tax expired • Medical expense threshold increased from 7.5% to 10% of AGI (65 or older starts in 2016) 4
  5. 5. WHAT SAY THE CBO?• Tax increases that result from the sunset of the “Bush” tax cuts would probably lead to economic conditions that would be considered a recession 5
  6. 6. WHAT SAY MR. OBAMA?• Extend the “Bush” tax cuts only to individuals with income : • <$200,000 single • <$250,000 married 6
  7. 7. WHAT SAY MR. ROMNEY?• Limit home mortgage and charity for high income• End exemption for municipal bonds• Tax employer provided health insurance• Tax inside build up of life insurance• Keep “Bush” cuts in place, cut rates by 20% 7
  8. 8. HEALTH CARE AND EDUCATION RECONCILIATIONACT OF 2010 • Raises revenue for Medicare in two ways: 1. Additional .09% imposed on earned income 2. Additional 3.8% imposed on investment income • First time in history employment tax has been levied on investment type income 8
  9. 9. TAX ON EARNED INCOME • Additional .09% due on: • Wages • Self employment income that exceeds • $200,000 single • $250,000 married • $125,000 married-separate 9
  10. 10. EARNED INCOME• Employers must withhold the additional tax once wages are >$200,000• Self employed individuals get no deduction for any portion of the additional tax• Alert!! Married taxpayers with wages under $200K but >$250K when combined. NO WITHHOLDING! 10
  11. 11. TAX ON INVESTMENT INCOME What is investment income? • Interest • Dividends • Annuities • Royalties • Net rents • Net capital gains • Passive business income 11
  12. 12. TAX ON INVESTMENT INCOME What is NOT investment income? • Distributions from qualified plans • Income from self employment • Gain from sale of business assets 12
  13. 13. TAX ON INVESTMENT INCOME How does it work? • Additional 3.8% tax applied to the lesser of: • Investment income, or • Modified Adjusted Gross Income (MAGI) that exceeds the appropriate threshold: • $200,000 single • $250,000 married-joint • $125,000 married-separate 13
  14. 14. TAX ON INVESTMENT INCOME How to manage this additional tax? • Harvest capital gains in 2012, repurchase positions • Shift to growth investments vs. current income • Tax exempt securities • Maximize investment in qualified plans • Life insurance contracts • S corporations 14
  15. 15. SINGLE INDIVIDUAL WAGE EARNER TAX ITEM 2012 2013 TAX INCREASE WAGES $275,000 $275,000 0 INCOME AND $73,500 $79,917 $6,417 (8.7%) AMT ADDITIONAL 0 $675 $675 MEDICARE TAX TOTAL TAX $73,500 $80,592 $7,092 (9.6%) 15
  16. 16. MARRIED WAGE EARNER TAX ITEM 2012 2013 TAX INCREASE WAGES $380,000 $380,000 0 INCOME AND $102,900 $109,358 $6,458 (6.3%) AMT ADDITIONAL 0 $1,169 $1,169 MEDICARE TAX TOTAL TAX $102,900 $110,527 $7,627 (7.4%) 16
  17. 17. BUSINESS OWNER• Self employment income $350,000• Net investment income $75,000• AGI and MAGI $413,000• Married-joint return 17
  18. 18. BUSINESS OWNER TAX ITEM 2012 2013 TAX INCREASE ADJUSTED $413,000 $413,000 0 GROSS INCOME INCOME, AMT $132,960 $144,642 $11,682 (8.8%) AND SE TAX ADDITIONAL 0 $3,509 $3,509 MEDICARE TAX TOTAL TAX $132,960 $148,151 $15,191 (11.4%) 18
  19. 19. RETIRED COUPLE • Dividends $55,000 • Net rents $25,000 • Pensions $200,000 • LT cap gain $175,000 • AGI (MAGI) $455,000 • Net investment income $255,000 19
  20. 20. RETIRED COUPLE TAX ITEM 2012 2013 TAX INCREASE ADJUSTED $455,000 $455,000 0 GROSS INCOME INCOME AND $94,000 $108,639 $14,639 (15.6%) AMT ADDITIONAL 0 $7,790 $7,790 MEDICARE TAX TOTAL TAX $94,000 $116,429 $22,429 (23.9%) 20
  21. 21. WORKING COUPLE, TWO CHILDREN < 14 YRS TAX ITEM 2012 2013 TAX INCREASE WAGES $80,000 $80,000 0 INCOME AND $9,100 $9,100 0 AMT CHILD TAX $2,000 $1,000 ($1,000) CREDIT TOTAL TAX $7,100 $8,100 $1,000 (14%) 21
  22. 22. Questions? 22
  23. 23. CONNECT WITH ME John E. Henegar, CPA, CMA Tax Director 423.756.7100 johnhenegar@decosimo.com On LinkedIn: http://www.linkedin.com/pub/john- henegar/26/86a/291 Disclaimer: The contents of this presentation are for informational purposes only. The information is not intended to be a substitute for professional accounting counsel. Always seek the advice of your accountant or other financial planner with any questions you may have regarding your financial goals or specific situations.
  24. 24. You Are Invited!• 2012 Decosimo Tax Seminar • Chattanooga Convention Center • Oct. 30th | 8:15 a.m. to 5:00 p.m. EST • $99 | Eligible for up to 8 hours CPE • Topics: Half-day Federal Tax Update, Various Afternoon Breakout Sessions • Register: www.decosimo.com/TaxSeminar2012• 2012 Decosimo Business Leaders Series • Chattanooga Convention Center • Oct. 30th | 1:00 to 5:00 p.m. EST • $49 | Eligible for up to 4 hours CPE • Topics: Effective PR, Employment Law Updates, Fraud Red Flags • Register: www.decosimo.com/October2012Series 24

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