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2011 federal tax update

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A current summary of upcoming tax law changes

A current summary of upcoming tax law changes

Published in: Business, Technology
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  • 1. Gary Fox, CPA
  • 2. Key Issues  Bush Tax cuts  Bonus Depreciation  Section 179 Expensing  S Corporation Built-in Gains Tax  Start-Up Expense Deduction  Self-Employed Health Insurance  1099 requirements  Obamacare  Expiring Tax Benefits
  • 3. Expiration of Bush Tax Cuts  Will they be extended?  Current rates range from 10% to 35%  New rates range from 15% to 39.6  Dividends now subject to ordinary rates  Capital Gains rate up to 20% from 15%  Tax for Married filing joint with $ 100,000 of taxable income from $ 17,369 in 2010 to $ 18,895 in 2011
  • 4. Bonus Depreciation  50% Bonus depreciation for 2011  Only Automobiles and real estate are excluded  Equipment  Qualified Leasehold improvements  Can be used to generate a taxable loss
  • 5. Section 179 Expensing  Increased 179 expensing in 2011  Maximum is now $ 500,000  Phase out begins at $ 2,000,000  Qualified leasehold property can be expensed up to $ 250,000 (Code section 168(e))
  • 6. S-Corp Built-In Gains Tax  BIG tax is 35% of appreciation on assets  Only applies to C Corps that convert to S Corp  Only assessed if S Corp assets are sold within 10 years (old law)  New law reduces holding period to five years
  • 7. Cell Phones  Cell Phones (and similar devices) are no longer “Listed Property”  Relieved of strict substantiation requirements  Personal use of primarily business cell phone now excluded from Gross Income  Relic from the days of expensive phones
  • 8. Start-Up Expense Deduction  Costs related to creating or investigating the creation or acquisition of an active trade or business  Old law allowed $ 5,000 deduction  New law increase this to $ 10,000  If more than $ 60,000 is spent, the deduction gets reduced dollar for dollar
  • 9. Self-Employed Health Insurance  No change in tax deduction  Now deductible for self-employment tax purposes  Self-employment tax starts at 15.3% and drops to 2.9% about $ 110,000 for 2011  For self-employed with income of $ 110,000 and health insurance of $ 12,000, the savings is $1,836  For self-employed with income of $ 200,000 and health insurance of $ 12,000, the savings is $ 348
  • 10. 1099 Requirements  Individuals who receive rental income must issue 1099’s to all service providers paid over $ 600
  • 11. Patient Protection and Affordable Care Act (aka Obamacare)  Devil is in the details  Small employer health insurance credit.  35% of employer contributions  Must pay at least half of the cost  No more than 25 full-time employees  Employee wages average no more than $ 50,000  Full credit available only to employer with 10 or fewer employees with wages under $ 25,000  Self-employed not treated as employees
  • 12. Patient Protection and Affordable Care Act (aka Obamacare)  Health coverage for employee’s children under 27 is tax free  Adoption credit is increased to a maximum of $ 13,170 per child  Credit is now refundable  10% excise tax on tanning services  W-2 must include cost of employer-provided health insurance (optional in 2011) Benefits not taxable (Yet)  Over the counter medicine no longer allowed in FSA
  • 13. Patient Protection and Affordable Care Act (aka Obamacare  Information reporting requirements in 2012  1099’s must be filed for any entity paid over $ 600 during the year.  Individuals (same as current law)  Partnerships and LLC’s (same as current law)  Corporations (This is new)
  • 14. Patient Protection and Affordable Care Act (aka Obamacare)  2013  Increased tax on high-earning workers and self- employed  0.9% Hospital insurance tax on wages or self-employed income  Over $ 250,000 for married filing joint  Over $ 125,000 for single  Over $ 200,000 for others  This is called “Foot in the door tax”
  • 15. Patient Protection and Affordable Care Act (aka Obamacare)  Surtax on “Unearned” income of higher-income individuals  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 MFJ or $ 125,000 for single  Net investment income includes interest, dividends, royalties, rents, passive activity GROSS income and net gain from disposition of property
  • 16. Patient Protection and Affordable Care Act (aka Obamacare)  Higher threshold for medical expense deduction  10% of AGI from 7.5% of AGI  Flexible Spending Arrangements capped at $ 2,500 compared to $ 5,200
  • 17. Patient Protection and Affordable Care Act (aka Obamacare)  2014 changes  Individuals must pay penalty if they don’t maintain minimum essential coverage  Large employers must pay penalty if any employee purchases insurance through state exchange
  • 18. Patient Protection and Affordable Care Act (aka Obamacare)  Changes for 2018  Cadillac Tax  40% excise tax on high-cost employer sponsored health coverage
  • 19. Expiring Tax Benefits  Exclusion of unemployment compensation ($ 2,400)  Tax-free distributions from IRA’s to charities ($ 100k)  Deduction for educator expenses ($ 250)  Tuition and fees deduction  Itemized deduction for sales tax on new motor vehicle  Research credit  Alternative motor vehicle credit (golf cart credit)  Estate tax Exemption down to $ 1,000,000 tax at 55%  15-year depreciation on leasehold improvements
  • 20. Expiring Tax Benefits  Shareholder basis adjustment for stock of S Corporations making charitable contributions  Environmental cleanup cost deduction  Marriage penalty is back  Child tax credit reduced from $ 1,000 to $ 500  Dependent care credit reduced to $ 720
  • 21. Conclusion  I expect some of the Bush tax cuts to be extended for at least two years  For practice owners, the bonus depreciation and section 179 expensing can be used to offset any tax increases  If you are considering buying, building or selling a practice, now is the time sit down and map out a strategy.

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