7. Health Insurance
• For employees, tax-free income for health insurance
premiums paid by employer
• For business owners and sole proprietors, health
insurance premiums are tax deductible
7
8. Health Insurance
• Health savings accounts (HSA)
– For those covered by a high deductible health plan
– Tax deductible contributions for 2014
• $3,300 for self only coverage
• $6,550 for family coverage
– Distributions are tax-free if reimburse qualified
medical expenses
– Allowing funds to accumulate produces an “extra
IRA”
8
9. Health Insurance
• Flexible spending arrangement (FSA)
– Can be funded by employer or employee
– Maximum 2014 contribution is $2,500
– Use it or lose it
• Grace period of up to 2½ months after year-end
• Or $500 carryover to following year
9
10. Health Insurance
• Individual Health Care Coverage Mandate
– Effective for 2014 tax returns
– Must maintain minimum essential coverage or pay
penalty
10
11. Qualified Retirement Plans
• Company provided Section 401(k) plans and 403(b)
plans
• Maximum contribution:
11
2014 2015
Annual contributions $17,500 $18,000
Over age 50 catch up $ 5,500 $ 6,000
12. Qualified Retirement Plans
• Pre-tax or Roth contributions – which is better?
– Will you be in higher tax bracket a retirement?
– Can you afford reduction in take home pay today?
– Required minimum distributions begin at 70½
unless Roth 401(k) is rolled into a Roth IRA
12
13. 401(k): Pre-tax versus Roth Contributions
• A 45-year old earns $75,000 annually. He will
contribute 8% of annual salary to his 401(k). He will
retire at age 65 and retirement will last 20 years.
13
Pre-Tax
401(k)
Roth
401(k)
Difference
Take home pay pre-retirement $1,035,120 $1,005,120 $(30,000)
Nest egg at age 65 $294,510 $294,510 -
Post-tax retirement income $502,560 $591,120 $ 88,560
Net Roth advantage $ 58,560
14. Individual Retirement Accounts (IRA)
• Three types of IRA contributions: pre-tax, Roth, after-tax
• Back door Roth IRA conversion
– Can be used if income is too high to make Roth IRA contribution
– Make non-deductible IRA contribution
– Immediately convert the non-deductible IRA to a Roth IRA
– Conversion causes no tax if the non-deductible IRA is the only
IRA that a person owns
14
2014 2015
Annual contributions $5,500 $5,500
Over age 50 catch up $1,000 $1,000
15. Roth IRA Conversion
• Lowers overall taxable income over long-term
• Tax-free compounding
• No required minimum distributions at age 70½
• Tax-free withdrawals for beneficiaries
15
16. Business Retirement Plans
• SEP-IRA – $57,500 ($58,500 over age 50)
• SIMPLE IRA - $12,000 ($14,500 over age 50) plus
employer match
• Individual 401(k) - $52,000 ($57,500 over age 50)
• Cash balance plans
• Defined benefit plans
16
17. Prioritizing Tax Efficiency of Trust Investments
17
Tax-Exempt (Muni Bonds)
I/EE Savings Bonds
Tax-Managed Stock Funds
Most Index Stock Funds
Large Growth Stock Funds
International Stocks
Large Value Stocks
Small Cap Stocks
Small Value Stocks
Stock Trading Accounts
Balanced Funds
REITs
TIPS
Taxable Bonds
High-Yield Bonds
Most Tax Efficient
Least Tax Efficient
18. • Active, aggressive capital loss harvesting makes sense
for a trust
• $3,000 of trust’s capital loss carryforwards can reduce
other income
• Capital loss carryforwards last for life of trust
• Excess capital losses carry to beneficiary in year of
trust termination
18
Capital Loss Harvesting
19. • Municipal bonds
• Section 529 plans
• Health savings accounts
19
Tax-Free Investments
20. WB Individual Clients Who Paid 3.8% NIIT
• Over three quarters of the individuals owed NIIT
because of their net investment income
20
What Was Tax Based On?
76%
24%
NII
AGI
21. • The higher the income, the more likely that the tax
was based on net investment income
21
WB Individual Clients Who Paid 3.8% NIIT
Did Answer Change Based on Income?
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Up to $500,000 $500,000 to $1
million
Over $1 million
NII
AGI
22. Planning for the Business Owner
• Choose type of entity which is most tax efficient
– Limited liability companies
– S Corporations
• Avoid use of Schedule C (sole proprietors) and
Schedule F (farming)
• Buy fixed assets when depreciation is “on sale”
• Minimize depreciation periods, including cost
segregation
• Watch for retroactive reinstatement of expired bonus
depreciation
• Material participant versus passive investor
22
23. Passive Activities
• Seven tests which a taxpayer uses to determine material
participation:
1. Participation of more than 500 hours in a year
2. Taxpayer’s participation is substantially all the participation in
the activity
3. Participation of more than 100 hours in a year and this
participation is not less than the participation of any other
individual
4. Participation for more than 100 hours in a year and participation
in all activities qualifying for this test exceeds 500 hours a year
5. Material participation for any 5 of the last 10 years
6. If the business is a professional service business, material
participation for any 3 prior years
7. Meeting a facts and circumstances test
23
Section 469 Rules
24. Planning for Charitable Giving
• Donation of long-term appreciated stock
• Charitable remainder trusts, especially with net income make up
• Setting up private foundation vs. donor advised fund
• Obtain receipts
• Properly value donations of household items
– Salvation Army Donation Value Guide:
http://satruck.org/donation-value-guide
– Goodwill Industries: http://www.goodwill.org/donate-and-
shop/donate-stuff/
• Watch for retroactive reinstatement of donation of $100,000
from IRA to charity directly (for those 70½ and older)
24
25. Common Federal Tax Credits
• Health insurance for small employers
• Foreign tax credit
• Research credit
• Education credits
• Child credits
• Alternate fuel vehicle credits
25
26. Common Georgia Tax Credits
• Education expense credits (make reservation now
for 2015)
• Film credits
• Low income housing credits
• Retraining credit
• Angel investor credit
• Alternate fuel vehicle credits
26
27. Staying Out of Trouble
• File and pay on time
• Big audit issues: meals & entertainment, passive
activities, Schedules C & F
• File foreign bank account report forms. Seek help if
you are delinquent.
• Multi-state taxpayers should file in all states
• Keep proof of filing – certified mail
27
28. Barbara M. Coats, CPA
Principal
Windham Brannon
3630 Peachtree Road
Suite 600
Atlanta, Georgia 30326
Main: 404.898.2000
Direct: 678.510.2724
Fax: 404.898.2010
Email: bcoats@windhambrannon.com
Contact Information
46
