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Joshua Jenson, CPA. Managing Partner Joshua Jenson, CPA, P.C. & Associates. What’s New for 2014?. Over 50 Tax Breaks Expired as of December 31, 2013!. Important Expired Business Tax Breaks Research credit Work opportunity credit 15-year cost recovery for qualified property

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Joshua Jenson, CPA

Managing Partner

Joshua Jenson, CPA, P.C. & Associates


What’s New for 2014?


Over 50 Tax Breaks Expired as ofDecember 31, 2013!

Important Expired Business Tax Breaks

  • Research credit

  • Work opportunity credit

  • 15-year cost recovery for qualified property

  • Alternative fuel credit

  • Bonus depreciation

Important Expired Individual Tax Breaks

  • State & local sales tax deduction

  • Above-the-line tuition deduction

  • $250 above-the-line teacher expenses

  • Tax-free charitable distributions from IRA’s


So, Now What?


Individuals


More Complex Rate Structure

Seven ordinary income brackets

Three capital gains brackets

With the NII tax, high-income individuals face a combined tax rate of 43.4% on ordinary investment income and 23.8% on long-term capital gains.

The Tax Adviser, September 2014, p. 672


Phaseouts & Deductions Limitations

Personal Exemption Phaseout (PEP)

  • Phaseout begins at $305,050 AGI for MFJ ($254,200 Single)

  • Phaseout ends at $427,550 AGI for MFJ ($376,700 Single)

Itemized Deductions (Pease) Limitations

  • Threshold is $305,050 AGI for MFJ ($254,200 Single)

  • Reduced by lesser of 3% of excess of AGI over thresholds or 80% of total allowable itemized deductions.


Net Investment Income Tax

Big Impact on High-Income Individuals


Only applies if MAGI is over $250,000 (married) or $200,000 (single)

3.8% Additional Tax


3.8% Net Investment Income Tax

What’s included?

What’s not included?

Wages and SE income

Active trade or business income

Retirement plan distributions

Unemployment

SS benefits

Alimony

Municipal bond interest

  • Interest income

  • Dividend income

  • Capital gains

  • Rents

  • Royalty income

  • Passive business income


Real Estate Professionals

Pass 750 hours test

Over ½ of your personal services provided were related to real estate businesses

Must materially participate

Key is documentation. You must be able to prove status to IRS.


Double Whammy on Capital Gains


Additional Medicare Tax

  • 0.9% on wages and SE income

  • MAGI over $250,000 (married) or $200,000 (single)


Health Care Reform Effects for 2014

Substantiating Health Coverage

Individual Shared Responsibility Provision

All US citizens and legal residents required to have qualifying minimum essential health coverage starting January 1, 2014.

2014 Penalty:

Greater of $95 or 1% of household income

Since employer reporting pushed back to 2015, taxpayer must collect information to document coverage.

Must show:

  • Policy terms

  • Who is covered

  • Period of time covered

  • Max Penalty per family = $285

  • Dependent under 18 = $47.50 penalty/each


Individual Tax Planning Strategies


Charitable Contributions

  • Get Proper Documentation MUST STATE NO GOODS OR SERVICES PROVIDED

  • Don’t forget out-of-pocket volunteer expenses & mileage

  • Gifts made by credit card count too

  • Strategically time large donations for best tax year


Retirement PlanningisEssential

Moss-Adams 2014 Year-End Tax Planning Guide for Individuals, www.mossadams.com


Retirement Planning Strategies

Pick the Best Plan

Larger deductions for 401(k) and Keogh plans…must have in place by year-end

Don’t Forget the Kids

Earned Income = Contribute to IRA

New IRA Rollover Rules

For 2015

New once-a-year limit

on IRA rollovers

Roth IRA Conversions

Traditional IRA’s can be converted to Roth IRA’s when beneficial


Flexible Spending Accounts

2014 Limit = $2,500

No More

Use-or-Lose


Home Office Deduction Safe Harbor

  • For small business owners & self-employed individuals

  • No more tracking actual expenses

  • $5/square foot of home office space

  • Maximum deduction = $1,500/year


Businesses


Changes to Section 179 Deduction

2014 Limit = $25,000

Watch Out for the Phase-Out

If purchases exceed $200,000, the deduction is decreased dollar-for-dollar above the threshold.

SUV & Trucks over 6,000 GVWR qualify for up to $25,000 immediate deduction.


Bonus Depreciation & 15-Year Depreciation Life for Qualified Property are GONE

Bonus Depreciation is only available for long-production-period property and certain aircraft.

Qualified Leasehold Improvements now have a depreciation recovery life of 39 years.


Health Care Reform Developments

  • Required employer reporting mandate postponed to 2015.

  • Excise taxes postponed:

    • 50-99 FTE = effective for 2016

    • 100 or more FTE = effective for 2015

  • Avoid the excise taxes by offering coverage to 70% of employees.

  • Coverage must still meet requirements for affordability & minimum value.


JJ’s Strategy for Choosing Right Entity Form


Business Tax Planning Strategies


Push Income, Pull Expenses


Reimburse Mileage


Charitable Contributions

Because charitable contributions are itemized deductions, they may be limited or phased out due to Pease limitations.

Sponsor projects or programs through a business instead. There are no phase-outs on that!


New Tangible Property Regulations

Key Provisions:

  • Building & structural components considered 1 unit

  • Safe harbor provision for small business taxpayers for qualified real property

  • De minimis rules added

    • $5,000 with AFS

    • $500 without AFS

  • Safe harbor for routine building maintenance

Effective 1/1/14

Strategies:

  • Use safe harbors

  • Elect to recognize loss on partial disposition of asset annually

  • Follow your financial statement capitalization policy for purchases set in the policy implemented

  • Re-evaluate issue each year to determine policy limits and elections


Estates, Trusts, & Gift Tax


2014 Limits

Estate Exclusion Amount

$5,340,000

Gift Tax Limit

$14,000


  • For 2014, the 3.8% tax is imposed on the lesser of the undistributed net investment income for the tax year or the excess of the AGI over $12,150.

  • Net investment income includes interest, dividends, annuities, royalties, rents not derived in the ordinary course of trade or business, net income from passive activities, net gain on disposition of passive activity property.

Net Investment Income Tax Impact on Estates & Trusts

  • Final regulations exclude certain estates & trusts.

  • Business trusts are business entities and are not subject to the NII at the entity level.

  • Charitable remainder trusts are not subject at the entity level, but distributions from a CRT to the annuity or unitrust recipient are subject to the tax.

  • Foreign estates and nongrantor trusts are also exempt.


Estate, Trust, & Gift Tax Planning Strategies


Gift-Splitting with Spouse

Each spouse can give $14,000 to an individual per year

That’s $28,000 that can be given and received tax-free.


  • Final regs change method of deducting costs of trust or estates. Trustees must now split costs between those that are subject to 2% floor from costs that are not subject to the floor.

  • Trusts can qualify as real estate professionals. Frank Aragona Trust, 142 T.C. No. 9 (2014)

Recent Developments to Consider

  • IRS issued PLR on incomplete grantor trusts approving the use of this strategy, which has been used to lower state/local taxes, but now may be a good strategy to reduce NII tax exposure.

  • New proposed regs will affect transactions of holders of appreciated property that attempt to use charitable remainder trusts to minimize gains on the sale of those assets.


Tax Planning is More Important Than Ever


49.55%!!!


www.irs.gov/uac/Newsroom/IRS-To-Realign-Compliance-Operations


www.irs.gov/uac/Newsroom/Plan-Now-to-Get-Full-Benefit-of-Saver%E2%80%99s-Credit-Tax-Credit-Helps-Low-and-Moderate-Income-Workers-Save-for-Retirement


http://www.irs.gov/uac/Newsroom/Scam-Phone-Calls-Continue-IRS-Unveils-New-Video-to-Warn-Taxpayers


www.irs.gov/uac/Newsroom/In-2015,-Various-Tax-Benefits-Increase-Due-to-Inflation-Adjustments


www.irs.gov/uac/Newsroom/IRS-Announces-Tax-Guidance-Related-to-Ebola-Outbreak-in-Guinea,-Liberia-and-Sierra-Leone


www.irs.gov/uac/Newsroom/2015-PTIN-Renewal-Period-Underway-for-Tax-Professionals


www.irs.gov/uac/Newsroom/IRS-Announces-2015-Pension-Plan-Limitations;-Taxpayers-May-Contribute-up-to-$18,000-to-their-401(k)-plans-in-2015


www.irs.gov/pub/irs-pdf/f1040sb.pdf


Report of Foreign Bank and Financial Accounts (FBAR)

If you have a financial interest in or signature authority over a foreign financial account, including a bank account, brokerage account, mutual fund, trust, or other type of foreign financial account, exceeding certain thresholds, the Bank Secrecy Act may require you to report the account yearly to the Department of Treasury by electronically filing a Financial Crimes Enforcement Network (FinCEN) 114, Report of Foreign Bank and Financial Accounts (FBAR).

FinCEN introduces new forms

On September 30, 2013, FinCEN posted a notice on their website announcing the current FBAR form, FinCEN Report 114, Report of Foreign Bank and Financial Accounts. FinCEN Report 114 supersedes the previous years’ form TD F 90-22.1 and is only available online through the BSA E-Filing System website.

http://bsaefiling.fincen.treas.gov/NoRegFBARFiler.html


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Same-sex marriage now is legal in Oklahoma. Oklahoma couples began to marry after a surprise move by the U.S. Supreme Court not to take on the issue of whether states can ban same-sex marriage. (October 2014)


www.irs.gov/Individuals/Online-Payment-Agreement-Application


www.irs.gov/pub/irs-prior/i1099msc--2014.pdf


http://www.aicpa.org/Publications/TaxAdviser/2014/september/Pages/Horn_Sept2014.aspx


http://www.aicpa.org/Publications/TaxAdviser/2014/september/Pages/Horn_Sept2014.aspx


Joshua Jenson, CPA, PC & Associates

  • Website: www.joshuajensoncpa.com

  • Twitter: @TheCPAFirm

  • Facebook: TheCPAFirm

  • Linkedin: TheCPAFirm

Special Thanks to Megan Fredrickson, CPA

Director of Tax & Senior Tax Manager at Joshua Jenson, CPA, P.C. & Associates


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