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Important Tax Law Changes for TY13

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Get the very latest on important tax law changes that will impact returns for Tax Year 2013. There are so many changes to keep track of each year. Let us us do the legwork and keep you up to speed on …

Get the very latest on important tax law changes that will impact returns for Tax Year 2013. There are so many changes to keep track of each year. Let us us do the legwork and keep you up to speed on the current status of tax law changes and extenders. Topics will include the Defense of Marriage Act, Post 2013 Affordable Care Act changes and other IRS initiatives.

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  • Income tax rate increase for high earners (beginning in TY13)$450,000 MFJ, QW; $425,000 HH; $400,000 single; $225,000 MFS (indexed for inflation after TY13)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 (indexed for inflation after TY13)
  • Permanent alternative minimum tax relief (retroactive beginning in TY12)Increased exemption amounts: $51,900 single, HH; $80,800 MFJ, QW; $40,400 MFS (indexed for inflation after TY12)Recovery Act of 2009 provisions extended for 5 years (beginning in TY13)Various elements of the earned income credit: larger credit for taxpayers with 3 or more children; increases in threshold phase-outs for singles, QW & HH
  • Current law: wages subject to 2.9% Medicare payroll tax Workers and employers pay 1.45% each Self-employed people pay both halves Levied on all wages without limit
  • Current law: Medicare payroll tax only applies to wages
  • Current law: taxpayers can take an itemized deduction for unreimbursed medical expenses only to extent that expenses exceed 7.5% of taxpayer's AGI
  • Current law: no limit on contributions to health FSA
  • Many tax breaks now available to legally married same-sex couplesRight to file a joint returnAbility to get tax-free employer health coverageAbility for either spouse to utilize the marital deduction & exclusion for estate and gift tax purposesMany other provisions, such as alimony deduction and innocent spouse relief
  • Applies for all federal tax purposes (income, gift and estate taxes) and to all federal tax provisions where marriage is a factor (filing status, personal and dependency exemptions, standard deduction, etc.)Amended returns can be filed (not required) within statute of limitationsGenerally, 3 years from date the return was filed or 2 years from date the tax was paid, whichever was later
  • Your 2012 tax return will help determine your eligibility for an insurance subsidy from the government.The subsidy will help you afford to buy health insurance.There is nothing special to do.
  • IRS2Go: Smartphone application for iPhone, iTouch and Android Get refund status and tax updatesYouTube Short, informative videos on various tax-related topics Twitter (@IRSnews, @IRStaxpros) Tax-related announcements, news for tax professionals and updates for job seekersPodcasts: Useful facts on many tax topics Audio files and transcripts available on iTunes or from the Multimedia Center page on IRS.gov
  • For the latest updates, we recommend you follow us on our new Training forums. These forum will be updated weekly with helpful content to get you ready for season You will be notified via email when we post new content quick Video updates by Mike on tax law changes, and product updates throughout season.. You can get there by going to (read bit.lys).
  • Transcript

    • 1. 2013 Tax Law Update Brought to you by: Presented by: Mike Davolio Senior Tax Analyst Intuit Professional Tax Group
    • 2. Mike Davolio, CPA Senior 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 2
    • 3. Agenda • 2013 Tax Law Changes • Defense of Marriage Act • Post 2013 ACA Changes • Tax Reform • IRS Initiatives Let’s Get Started! 3
    • 4. 2013 Tax Law Changes
    • 5. 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 5
    • 6. 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 6
    • 7. 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 7
    • 8. 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 8
    • 9. 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 9
    • 10. 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) 10
    • 11. 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) 11
    • 12. Additional Medicare Tax (AdMT) Individuals • New law: 0.9% AdMT on wages, compensation and selfemployment 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 12
    • 13. New Form 8959 • Reported on Form 1040, line 60, box a 13
    • 14. 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 14
    • 15. 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 15
    • 16. 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 16
    • 17. Dollar cap on contributions to health FSAs • FSA (flexible spending arrangement): taxadvantaged 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) 17
    • 18. 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 18
    • 19. 2013 Standard Mileage Rates Business • 56.5 cents/mile Medical and moving • 24 cents/mile Charitable • 14 cents/mile 19
    • 20. Inflation Adjustments 2012 2013 Elective Deferral Plan Limits (401(k), 403(b), SEPs, Thrift Savings, state & local) Base Catch-up Total $17,000 $5,500 $22,500 $17,500 $5,500 $23,000 408(p) Deferral Plan Limits (SIMPLE Plan) Base Catch-up Total $11,500 $2,500 $14,000 $12,000 $2,500 $14,500 Base Catch-up Total $5,000 $1,000 $6,000 $5,500 $1,000 $6,500 IRA Deduction IRA Phase-Out Ranges Single/HOH MFJ/QW $58,000-68,000 $59,000-69,000 $92,000-112,000 $95,000-115,000 20
    • 21. Defense of Marriage Act (DOMA)
    • 22. 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 22
    • 23. 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 samesex 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 23
    • 24. 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 24
    • 25. 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 25
    • 26. Affordable Care Act (ACA) Post 2013 Changes
    • 27. 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 27
    • 28. 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 28
    • 29. 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 29
    • 30. 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/irspdf/p5093.pdf) 30
    • 31. Tax Reform
    • 32. Tax Changes in President’s Budget Proposal Individual • Reduce value of itemized deductions and other preferences (taxexempt 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 32
    • 33. IRS Initiatives
    • 34. 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 34
    • 35. 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 35
    • 36. 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 36
    • 37. 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 37
    • 38. 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 38
    • 39. 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 39
    • 40. 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 40
    • 41. Questions?
    • 42. Get the Latest Updates Follow our new Training Forums for the latest updates Lacerte Training Forum bit.ly/lacforum ProSeries Training Forum bit.ly/proseriesforum Subscribe 42
    • 43. Thank you for viewing!