Date: December 9, 2013

Expert Year-End Tax Tips

Health Care Reform – Despite last-minute postponements in the effective date of some provisions of the Affordable Care Act (ACA), it’s important to determine now what impact this law will have on your business.  By acting now, we can identify a long-term plan that anticipates the eventual rollout of the reporting and penalty provisions of the employer mandate. 

The Small Business Health Care Tax Credit can help offset the cost of coverage for many companies by providing a credit against taxes, but there will be changes beginning in 2014. The credit rises to 50% of premiums paid (35% for small tax-exempt employers), but it only applies to small businesses that participate in the Small Business Health Options Program (SHOP) Marketplace. We will be happy to answer your questions about the SHOP, as well as other provisions of the ACA.

Employers should also be aware that a number of other provisions will go into effect as originally scheduled, such as the 90-day limit on the period before a new hire can become eligible for employer-provided health coverage.

New Tax Laws in Effect

  • Extended small business expensing under Section 179 through 2013, as well as the availability of first-year “bonus” depreciation, which helps lower the after-tax costs of new business property.
  • The highest individual income tax rate rose to 39.6% in 2013. Taxpayers at this income level also will see tax rates on dividend income and long-term capital gains rise to 20% (up from 15% in 2012). High-income business owners who find themselves paying more in taxes under the new law should consider options for minimizing their outlays.
  • There is a new tax starting with 2013 returns, the 3.8 investment income tax. It applies to single taxpayers with adjusted gross income of $200,000 and joint filers earning $250,000. This new tax may affect the return on the sale of your investments, but proper planning may serve to minimize the impact.  Flow-through entities have been very popular in recent years, but the higher tax rate and new 3.8% net investment income tax could significantly erode their tax benefits. We can advise you on the form of entity that suits your business needs and tax situation.
  • Although the alternative minimum tax (AMT) originally was aimed at high-income taxpayers, it has increasingly affected more and more middle-income taxpayers over the years. Although the AMT now is indexed for inflation, the use of certain tax breaks still could subject you to the tax.
  • DOMA Decision’s Impact on Financial Planning for Same-Sex Couples – If you are a member of a married same-sex couple, then the U.S. Supreme Court’s recent decision to strike down the Defense of Marriage Act could have a substantial effect on many aspects of your financial life. You may want to consider, for example, filing an amended income tax return if you now qualify for deductions or credits available to married couples under federal law. Since same-sex couples are now eligible for the estate tax exemption available to surviving spouses, it may also be time to review your estate planning.
  • Using IRA Distributions for Charitable Deductions – Have you considered using the funds in your individual retirement account (IRA) to make a charitable contribution? If so, it’s a good idea to follow up on your plans sooner rather than later. Under the American Taxpayer Relief Act of 2012, individuals who are age 70½ or older can make a qualified charitable distribution from an IRA directly to a charity. You can exclude donations up to $100,000 of an otherwise taxable distribution from your gross income and count them toward the current tax year’s required minimum IRA distributions. 

Other Key Considerations

  • Is Your Will Up To Date?  When was the last time you reviewed your will? People generally make wills to guarantee the proper disposition of their money and property, which is why it’s a good idea to consult your CPA when it’s time to create or update your will.  We recommend that you revisit your will every time you experience a major life event, such as marriage, the birth of a child, retirement or other significant milestones. Even if there is no meaningful change in your life, it’s smart to review the document every couple of years to ensure it still addresses all your estate concerns and reflects your wishes. Changes in the value of your investments, such as a stock portfolio or real estate may also require adjustments in your estate plans.
  • Stop Tax Identity Theft in Its Tracks – Imagine after sending in your annual tax return, you receive a notice from the Internal Revenue Service saying that another return has already been filed using your name and Social Security number and claiming a refund. Sound impossible? It can happen if you become one of a growing number of victims of tax return identity theft. According to one estimate, tax-related identity theft cases have soared more than 650% since 2008. At the least, this crime can lead to a delay in your refund, but the consequences may be much more serious. In addition, you may face a larger problem with identify theft if the scammer is also running up credit card debt or taking out loans in your name.

To avoid becoming a victim, we recommend steps such as safeguarding your Social Security number and other financial information, keeping an eye on changes to your credit ratings and taking precautions with electronic transfers of confidential information. Be sure to contact us if you believe you have been a victim of identity theft or would like advice on the best ways to secure your financial information.

Stephen M. Ruggiero, C.P.A., M.S.T.

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Paul Schatz, President, Heritage Capital