4th Annual Tax Update

4th Annual Tax Update
Presented by
Steven Mills, CPA, Partner, Insero & Company CPAs, P.C.
Don Susswein, Principal, McGladrey LLP
Mark Peterson, President & CEO, Greater Rochester Enterprise
June 18, 2013
Insero & Company CPAs, P.C. presents the

StevenMills,CPA
Steven Mills, CPA is a Partner and Tax
Practice Leader for Insero & Company
CPAs, P.C. with over 25 years of
experience in public accounting. His
experience includes domestic,
international and state and local taxes
with a focus on planning and research.
Steve is a hands-on leader responsible
for all of the firm's tax services including
recurring compliance as well as the
development, design and
implementation of tax strategies.

DonSusswein
Don Susswein, Principal, McGladrey LLP
leads the Washington National Tax team
in the areas of partnerships (subchapter
K) and the taxation of debt and other
financial instruments or products. His
extensive background in government
and consulting includes serving as
Majority Tax Counsel to the U.S. Senate
Committee on Finance, an attorney in
the Honors Program of the Appellate
Section of the Tax Division of the
Department of Justice, and as a partner
at KPMG and PwC.

MarkPeterson
Mark Peterson, President & CEO of
Greater Rochester Enterprise (GRE) has
an outstanding background in regional
economic development, financial
administration, and high-value fund
raising. Recruited to join GRE as
Managing Director in 2005, Mark was
named President & CEO in early 2009
and charged with the continued creation
and execution of GRE's strategic plan.

“Anyone may arrange his affairs so that his taxes shall be as
low as possible; he is not bound to choose that pattern
which best pays the treasury. There is not even a patriotic
duty to increase one’s taxes. Over and over again the courts
have said that there is nothing sinister in so arranging affairs
as to keep taxes as low as possible. Everyone does it, rich and
poor alike and all do right, for nobody owes any public duty
to pay more than the law demands.”
- Judge Learned Hand
Gregory V. Helvering (1934)
- Timothy Cook
Apple CEO (2013)

Selected Tax Issues as
of 1/1/13
What Was Scheduled
to Happen
What Did
Happen
1. All Individual Tax Brackets Go up to 2001 rates
Stayed as is except for
top bracket (39.6%)
2. Alternative Minimum Tax
Exemption
$45,000
$78,750
(“permanent” and
indexed for inflation)
3. Dividend Rates According to Tax Bracket
Treated as LTCG
(“permanent” change)

of 1/1/13
What Was Scheduled
to Happen
What Did
Happen
4. LTCG Rates 20%
0/15/20%
(“permanent” rate)
5. Medicare tax on net
unearned income at
$250,000 (MFJ) of AGI
3.8% 3.8%
6. Section 179 $139,000
$500,000 for 2013
then $25,000
thereafter

of 1/1/13
What Was Scheduled
to Happen
What Did
Happen
7. Limitation on Itemized
Deductions at $300,000
(MFJ) of AGI
Reinstated Reinstated
8. Phase out of Personal
Exemptions at $300,000
(MFJ) of AGI
Reinstated Reinstated
9. Bonus Depreciation % 0%
50% in 2013 (0%
thereafter)

of 1/1/13
What Was Scheduled
to Happen
What Did
Happen
10. Medicare tax on earned
income over $250,000 (MFJ)
of AGI
0.9% 0.9%
11. Payroll tax (employee
portion)
6.2% 6.2%
12. Estate Exemption $1,000,000 not portable
$5,250,000 portable
(permanent)

of 1/1/13
What Was Scheduled
to Happen
What Did
Happen
13. Estate Tax Rates 50% + 40% (from 35%)
14. R & D Credit Expired Extended to 12/31/13

Recommendations
1. Time your capital gains in portfolio if possible
• Coordinate with pass thru losses
• Harvest other capital losses
• Spread gains over multiple tax years if you can take the
risk

Recommendations
2. Do not try to form a 501(c)(4) organization with the
words “Tea Party,” “Constitution,” etc.

Recommendations
3. Get tax planning/projections done if you really want
to know the tax effects of a transaction or for
withholding purposes. It is IMPOSSIBLE to do tax
planning/projection without some effort.

Recommendations
4. Know that Big Brother is watching ever more
carefully
• IRS has been issuing “Review” letters
• First time I’ve ever seen these
• The word “Audit” is not mentioned
• Matching by computer is expanding (Example of Small
Business Health Care Credit form)
• More auditors
• Employee Benefit Audit Checklist now surfacing
• Affordable Care Act – alleged increase in IRS employment
of 14,000 people – what will they do?

Recommendations
5. Understand how the Affordable Care Act will Impact
You (and get help if necessary)

ThankYou
Thank you for your attendance at
today’s program.
For more information regarding the topics discussed
today, please feel free to contact:
Steven Mills, CPA
steven.mills@inserocpa.com
585.697.9629
Insero & Company CPAs, P.C.
www.inserocpa.com

MaterialDisclaimer
These materials were prepared solely for the
purpose of continuing professional education. They
are distributed with the understanding that Insero &
Company CPAs, P.C. and its employees are not
engaged in rendering legal, accounting, or other
professional service as part of this CPE presentation.
If advice or other expert assistance is required, the
services of a competent professional person should
be sought. Please contact an Insero & Company
team member with any questions.

© 2013 McGladrey LLP. All Rights Reserved.
June 18, 2013
Washington Update

Today’s presenter
20
Don Susswein
Principal
Washington National Tax
don.susswein@mcgladrey.com

 What happened to my taxes on New Year’s Eve?
 Will they change again – and when?
 Do we have a tax problem?
 Does everyone pay their “fair share” of taxes?
 Do we need a Buffett rule?
 Do we have a spending problem?
 Do deficits – as a percentage of GDP – matter?
 Will there be “tax reform”?
 Is Obamacare a new entitlement program?
 Who really pays the costs of the Affordable Care Act?
Topics of Interest

Important Tax Policy Themes of the 20th Century
 “Federal Insurance Contributions Act” - 1935
 “A rising tide lifts all boats” - 1963
 “154 [Millionaires] Who Didn’t Pay Any Taxes” - 1969
 “Tax expenditure” - 1967
 “The tax code is a disgrace to the human race” - 1976
 “Broaden the base, lower the rates.” - 1986

What is the Buffett Rule?

 "People making more than $1 million a year should not
pay a smaller share of their income in taxes than middle-
class families pay.”
 "Middle-class families shouldn't pay higher taxes than
millionaires and billionaires . . . That's pretty
straightforward. It's hard to argue
against that.”
 Capital gains should not be taxed at a lower rate than
ordinary income.
What is the Buffett Rule?

“The taxing power of government must be used to provide revenues
for legitimate government purposes. It must not be used to regulate
the economy or bring about social change. We've tried that, and
surely we must be able to see it doesn't work.”
Another Point of View

Tax Rates - 1988 vs. 2013
Then Now
Capital gains and ordinary income
taxed at top rate of 28%.
Top ordinary rate 39.6%(plus potential
3.8%) capital gains and dividends vary
from 15 to 20% (plus potential 3.8%)
Estate tax rate of 55%, for estates over
$1.2 million (2013 dollars)
Estate tax rate of 40%, for estates over
$5.12 million (2013 dollars)
Business income predominantly in
“double tax” corporate tax system
More than one-third of American
business conducted in pass-throughs
(saving between 7% and 10%)

$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
BillionsofDollars
Business Receipts of Pass-throughs Now Exceed
50% of C-Corp Business Receipts
C Corp Business Receipts Passthrough Business Receipts (S-Corp and P-ship)

Federal Revenues By Source
28

Tax Reform: 1986 vs. Now
 Consensus for broad base, low rates
- No consensus now as to what “reform” means
 Personal commitment of President
Reagan, Senator Bill Bradley, and others
- No strong champions for “reform”
 1982 and 1984 “dress rehearsals”
 8% individual cut, 30% corporate hike
- No cuts in store
 No popular items eliminated
- Only popular items “in play”
 We now know the low rates didn’t last!
29

 2011 Spending: Approx. $3,600,000,000,000.00
 Deficit: Approx. $1,300,000,000,000.00
2012 ESTIMATES
 2012 Revenues: $2.469 Trillion
 2012 Spending: $3.795 Trillion
 Deficit: $1.326 Trillion
30
Do we have a deficit problem?

Maybe Deficits Don’t Matter?
31

Maybe Deficits Do Matter?
32

What questions would a CFO ask?
33

0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
30.0%
Taxesas%ofAGI
AGI
INCOME TAX PAYMENT RATES (TAXES/AGI) BY INCOME CLASS AT
75K TO $100K – ABOUT 8%
ABOVE $1 MILLION -- ABOUT 25%

$0
$200,000,000,000
$400,000,000,000
$600,000,000,000
$800,000,000,000
$1,000,000,000,000
$1,200,000,000,000
$1,400,000,000,000
$1,600,000,000,000
TotalAGIByIncomeGroup
AGI
ONE PERCEPTION OF THE DISTRIBUTION OF
INCOME POTENTIALLY SUBJECT TO TAX

$0
$200,000,000,000
$400,000,000,000
$600,000,000,000
$800,000,000,000
$1,000,000,000,000
$1,200,000,000,000
$1,400,000,000,000
$1,600,000,000,000
$1,800,000,000,000
$2,000,000,000,000
TotalAGIByIncomeGroup
AGI
APPROXIMATE AGGREGATE TOTAL INCOME AT DIFFERENT AGI
LEVELS BASED ON IRS STATISTICS FOR 2009

What about payroll taxes and mandates?
Are Social Security Payroll Taxes “Taxes” – Or Mandatory Insurance
Premiums?
Are Mandatory Insurance Premiums “Premiums” – or Taxes?

Depression
Era Adults
"Greatest
Generation"
Early
Boomers
Late
Boomers
Year of Birth 1895 1915 1945 1965
Age in 1933 38 18
Age in 1942 47 27
Age now 116 96 66 46
Benefits 297,000$ 595,000$ 906,000$ 1,226,000$
Taxes 36,000$ 209,000$ 704,000$ 971,000$
Taxes/Benefits 12% 35% 78% 79%
Source: Urban Institute
Portion of Retirees' Lifetime Social Security and Medicare Benefits
"Paid For" By Payroll Taxes on Employers and Employees

$-
$200,000
$400,000
$600,000
$800,000
$1,000,000
$1,200,000
$1,400,000
Depression Era
Adults, Retiring
1960
"Greatest
Generation" -
Retiring 1980
Early Boomers-
Retiring 2010
Late Boomers -
Retiring 2030
Portion of Retirees' Lifetime Social Security and Medicare
Benefits "Paid For" By Payroll Taxes on Employers and
Employees
Funded Portion Unfunded Portion

Are The ACA Mandates Disguised Payroll Taxes?
 Employer and Employee shares of health costs look like payroll taxes
- On $25,000 of wages – worker’s FICA taxes are $1,912
- On $25,000 of wages – employer’s FICA taxes are $1,912
- For $25,000 single wage-earners – worker’s cost is $2,300
- For $25,000 single wage-earners – employer’s cost is $2,700
- For large employer opting out – cost is $3,300 per worker

For America’s largest companies?
 No big changes for most of America’s largest corporations or
other employers that already provide their workers with more
or better insurance benefits than the Affordable Care Act
(ACA) requires
41

Other “large” employers (over 49 FTEs)
 “Large” employers must offer partially subsidized health
insurance–or pay a penalty that in most cases will be more
expensive than providing the insurance
 Most “large” employers will have little reason not to provide
the relatively modest subsidies required to avoid penalties
42

Individual mandates
 Workers (and other Americans) must carry insurance or pay
penalties
 Some will reject insurance–knowing they can use the
emergency room or get insurance later
 The penalties may be too small to encourage participation
43

Tax credit subsidies?
 Tax credits are available for some middle- and lower-income
families, but on a very restricted basis
44

What about gross premium costs?
 News reports indicate that new coverage and pricing
requirements are likely to increase gross insurance costs in
the individual and small group markets
45

Example–Will employer “pay or play?”
 Assume employees are all age 43, married with two
children, and making $40,000
 Least costly “bronze” policy for worker-only costs $5,000
 Worker can be charged as much as $3,800
 Employer only required to pay $1,200
 Children and spouse may be required to pay full price
- $1,200 of deductible insurance costs, $780 after taxes, compared to a
$2,000 nondeductible penalty
- Even the $1,200 may ultimately be passed on in reduced wages for non-
minimum wage workers
46

Why some workers will reject coverage
 For a $40,000 wage-earner, self-only premiums may cost
$3,800
 Covering a spouse may cost $5,000
 Covering children may cost $3,500
 Total (before deductibles) is $12,300
 No tax credits are available
 Tax penalty (in 2016) for going without insurance is only $2,100
 Emergency rooms will still be open
 Insurance can be obtained later if someone becomes sick
47

Example of tax credits
 Large-company worker, age 43, making $40,000, spouse
works part-time making $10,000, two children
 No credits for anyone if worker offered self-only policy for
$3,800
 Adding spouse and children brings total cost to $12,300
 Identical worker for “small” company gets tax credits of
$9,800–reducing cost to $3,500
48

More on tax credits (a sleeping giant?)
 Unavailable for any family member if either spouse is offered
an “affordable” self-only policy
 Could make jobs with “small companies” more desirable
 Could encourage husband and wife to replace two full-time
positions with four part-time jobs
 Could be viewed as a “marriage penalty”
49

Big picture questions
 Will anything be done to actually lower gross costs?
 Will costs spiral in the small group and individual market if
only the sick participate?
 Will the tax credits (or expanded Medicaid benefits) be viewed
as unfair?
 Will labor markets (or family structures) be adversely affected
by tax credit rules and exemptions for “part-time” workers?
50

Policy options?
 Allow less-expensive “catastrophic” policies?
 Apply prorated employer penalty to part-time employees?
 Treatment of “Cadillac” plans?
 Changes to tax credit rules?
51

New health insurance exchange/marketplace
 Starting in 2014, the
exchange or marketplace
will offer individuals and
small businesses a choice
of health plans that meet
certain benefits and cost
standards
52

Timeline
 Exchanges
- Oct. 1, 2013: Open enrollment for 2014 starts
- Jan. 1, 2014: Exchanges will be operational
53

Exchanges by state
 19 enacted (includes D.C.)
 7 partnerships
 25 defaulted to federal
54

Affordable Care Act–summary
55
Employees
 Buy health insurance or pay penalty
- $ ($95,$325,$695) or % (1,2,2.5) in
2014,2015,2016
 0.9% Medicare tax on wages over
$200,000
 FSA employee limit of $2,500
 Potential tax credit if employer does not
provide insurance or the insurance offered
is inadequate or unaffordable
Employers
 Minimum essential coverage if 50 or greater full-time
employees plus full-time equivalents (FTEs)
- Controlled group test
- Full-time employees average 30+ hrs/ week
- Part-time employees are aggregated FTEs
- Calculated on the prior-year employees
- Calculated each month
 Withhold 0.9% on wages over $200,000 (no employer
contribution)
 W-2 in 2012: Include value of benefits on W-2 if greater
than 250 W-2s in the prior year
 Penalty #1: Failure to offer minimum essential coverage.
$2,000 nondeductible penalty on all full-time employees
(minus first 30 employees). Only applies if any employee
receives tax-subsidized health insurance
 Penalty #2: Failure to offer affordable coverage. If more
than 9.5% of the employee’s W-2, Box 1 income is
charged to the employee for coverage and the employee
declines employer coverage and gets tax-subsidized
coverage, then a $3,000 nondeductible penalty for each
such employee
Insurance Exchange
 In 2014

Affordable Care Act
56
Large employer?
Health insurance to FTEs?
Minimum coverage?
Minimum value?
Affordable?
Explore Small Business Health Care Tax
Credit; consider insurance exchange
$2,000 non-deductible penalty on all full-time
employees (less first 30 EEs)
2,000 non-deductible penalty on all full-time
employees (less first 30 EEs)
$3,000 non-deductible penalty for each
employee receiving subsidy
$3,000 non-deductible penalty for each
employee receiving subsidy
No
Yes
Yes
Yes
Yes
No
No
No
No

Thank you
57
Washington Update
Don Susswein, Principal
Washington National Tax
don.susswein@mcgladrey.com

Disclaimer
The information contained herein is general in nature and based on
authorities that are subject to change. McGladrey LLP guarantees neither the
accuracy nor completeness of any information and is not responsible for any
errors or omissions, or for results obtained by others as a result of reliance
upon such information. McGladrey LLP assumes no obligation to inform the
reader of any changes in tax laws or other factors that could affect information
contained herein. This publication does not, and is not intended to, provide
legal, tax or accounting advice, and readers should consult their tax advisors
concerning the application of tax laws to their particular situations.
Circular 230 Disclosure
This analysis is not tax advice and is not intended or written to be used, and
cannot be used, for purposes of avoiding tax penalties that may be imposed
on any taxpayer.
McGladrey LLP is the U.S. member of the RSM International (“RSMI”)
network of independent accounting, tax and consulting firms. The member
firms of RSMI collaborate to provide services to global clients, but are
separate and distinct legal entities which cannot obligate each other. Each
member firm is responsible only for its own acts and omissions, and not those
of any other party.
McGladrey, the McGladrey signature, The McGladrey Classic logo, The
power of being understood, Power comes from being understood and
Experience the power of being understood are trademarks of McGladrey LLP.
McGladrey LLP
1501 M Street, Suite 340
Washington, D.C.
888.811.1023
www.mcgladrey.com

Greater Rochester Enterprise’s
Mission
Greater Rochester Enterprise supports
business attraction and expansion, as
well as entrepreneurship and innovation.
GRE collaborates with companies,
universities, not-for-profit organizations
and government leaders to deliver a
unified approach to regional economic
development.

Finger Lakes Region
Finger Lakes Region Population: 1,216,188
Total Workforce: 608,500
Geographic Size:
Comprised of 9 counties in
Upstate New York:
Genesee, Livingston, Monroe,
Ontario, Orleans, Seneca,
Wayne, Wyoming and Yates
6,727 total square miles – Bigger
than Connecticut, Delaware,
Rhode Island, and DC
Sources: U.S. Census data, 2011; NYS Dept of Labor, November 2012

Rochester – Steady and Stable
Largely a small to mid-size company town
• “Big Four” no longer dominate local
economy
• 97% of companies employ fewer than 100
people
Highly diversified economy
• Rich agricultural as well as high tech assets
• Healthcare and education leading sectors;
steady despite downturn in economy

Food Processing and
Agriculture
Education and Knowledge Creation
Major Industry Strengths
Optics and Imaging
Life Sciences
Energy Innovation
Business Services
and SoftwareAdvanced
Manufacturing
Health Care

Competitive Advantages
Size, breadth, and quality of higher education
Proximity to major metropolitan areas without the
high cost
 Rochester is within 500 miles of 1/3 of the US and
Canadian population
Availability of
 7% of world’s fresh water is right here
 Other regions of the country envy our water supply
Fresh Water
Low Cost, High Quality Health Care
Workforce – “Labor Cubed”
 High caliber – skilled and educated
 Available – Competitive wages

National Accolades for Rochester
#1 Best Place to Buy a Home (Zillow & Forbes)
3rd Best Place in the Country to Raise A Family
7th Fastest-Recovering City
14th Most Innovative City in the U.S.
America’s 10th Smartest City
One of Safest Weather Cities
in the U.S.
3rd Best Economy in the U.S.
46th Best Economy in the world
One of Editor’s Top 7 Location Picks
4th Best Food Processing Region in U.S.Best City in U.S. for Commuters
5th Best City for Families
10 Greater Rochester high schools
among top 3% of
“America’s Best High Schools”
Most Livable Bargain Market
One of 35 innovation
hubs in the country
10 Cities Poised for Greatness in 2012
One of Ten Underrated
Hotbeds of American
Innovation
32nd Best City
in U.S.

New Innovative Start Up Companies

Explosive Growth of Existing Businesses

New Companies-Thousands of New Jobs

Multiplier Effect is Significant
$500 Million in New Capital Investment
from top 10 projects
Creation of Thousands of New Jobs
Initial capital investment plus impact of
job creation equals total wealth
creation output of $1.2 Billion

Finger Lakes Regional
Economic Development
Council

$165 Million
2011-2012 Priority Projects
• EBP Revitalization / NY BEST
• Health Sciences Center for
Computational Innovation
• Finger Lakes Business Accelerator
Cooperative
• GRE Regional Economic Gardening
• Seneca AgBio Green Energy Park
• Finger Lakes Museum
• Finger Lakes Health Collaborative
• 1-390 Southern Corridor

$165 Million
2011-2012 Priority Projects (cont’d)
• Golisano Institute for Sustainability
Building
• Regional Revolving Loan Fund
• Midtown Tower
• College Town
• Workforce Development - Middle
Skills Jobs
• STAMP
• Finger Lakes Small Business
Expansion Fund

Benefits of Regional Councils
Develop 5-year strategic plans
– Focus on long-term, sustainable regional
economic growth
Align state resources with priority projects
Identify public and private sector resources
Reduce obstacles to growth
Continually update and improve strategies

GRE Going Mobile – Keep
Competitive Advantage
Free Mobile app - RochesterBiz
• Why Rochester Rocks
• Available Sites & Buildings
• Podcasts of Radio Show
• Workforce Data

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