3. Expiration of Bush Tax Cuts
Will they be extended?
Current rates range from 10% to 35%
New rates range from 15% to 39.6
Dividends now subject to ordinary rates
Capital Gains rate up to 20% from 15%
Tax for Married filing joint with $ 100,000 of taxable
income from $ 17,369 in 2010 to $ 18,895 in 2011
4. Bonus Depreciation
50% Bonus depreciation for 2011
Only Automobiles and real estate are excluded
Equipment
Qualified Leasehold improvements
Can be used to generate a taxable loss
5. Section 179 Expensing
Increased 179 expensing in 2011
Maximum is now $ 500,000
Phase out begins at $ 2,000,000
Qualified leasehold property can be expensed up to $
250,000 (Code section 168(e))
6. S-Corp Built-In Gains Tax
BIG tax is 35% of appreciation on assets
Only applies to C Corps that convert to S Corp
Only assessed if S Corp assets are sold within 10 years
(old law)
New law reduces holding period to five years
7. Cell Phones
Cell Phones (and similar devices) are no longer “Listed
Property”
Relieved of strict substantiation requirements
Personal use of primarily business cell phone now
excluded from Gross Income
Relic from the days of expensive phones
8. Start-Up Expense Deduction
Costs related to creating or investigating the creation
or acquisition of an active trade or business
Old law allowed $ 5,000 deduction
New law increase this to $ 10,000
If more than $ 60,000 is spent, the deduction gets
reduced dollar for dollar
9. Self-Employed Health Insurance
No change in tax deduction
Now deductible for self-employment tax purposes
Self-employment tax starts at 15.3% and drops to 2.9%
about $ 110,000 for 2011
For self-employed with income of $ 110,000 and health
insurance of $ 12,000, the savings is $1,836
For self-employed with income of $ 200,000 and
health insurance of $ 12,000, the savings is $ 348
11. Patient Protection and Affordable
Care Act (aka Obamacare)
Devil is in the details
Small employer health insurance credit.
35% of employer contributions
Must pay at least half of the cost
No more than 25 full-time employees
Employee wages average no more than $ 50,000
Full credit available only to employer with 10 or fewer
employees with wages under $ 25,000
Self-employed not treated as employees
12. Patient Protection and Affordable
Care Act (aka Obamacare)
Health coverage for employee’s children under 27 is tax
free
Adoption credit is increased to a maximum of $ 13,170
per child
Credit is now refundable
10% excise tax on tanning services
W-2 must include cost of employer-provided health
insurance (optional in 2011) Benefits not taxable (Yet)
Over the counter medicine no longer allowed in FSA
13. Patient Protection and Affordable
Care Act (aka Obamacare
Information reporting requirements in 2012
1099’s must be filed for any entity paid over $ 600
during the year.
Individuals (same as current law)
Partnerships and LLC’s (same as current law)
Corporations (This is new)
14. Patient Protection and Affordable
Care Act (aka Obamacare)
2013
Increased tax on high-earning workers and self-
employed
0.9% Hospital insurance tax on wages or self-employed
income
Over $ 250,000 for married filing joint
Over $ 125,000 for single
Over $ 200,000 for others
This is called “Foot in the door tax”
15. Patient Protection and Affordable
Care Act (aka Obamacare)
Surtax on “Unearned” income of higher-income
individuals
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 MFJ or $ 125,000
for single
Net investment income includes interest, dividends,
royalties, rents, passive activity GROSS income and
net gain from disposition of property
16. Patient Protection and Affordable
Care Act (aka Obamacare)
Higher threshold for medical expense deduction
10% of AGI from 7.5% of AGI
Flexible Spending Arrangements capped at $ 2,500
compared to $ 5,200
17. Patient Protection and Affordable
Care Act (aka Obamacare)
2014 changes
Individuals must pay penalty if they don’t maintain
minimum essential coverage
Large employers must pay penalty if any employee
purchases insurance through state exchange
18. Patient Protection and Affordable
Care Act (aka Obamacare)
Changes for 2018
Cadillac Tax
40% excise tax on high-cost employer sponsored
health coverage
19. Expiring Tax Benefits
Exclusion of unemployment compensation ($ 2,400)
Tax-free distributions from IRA’s to charities ($ 100k)
Deduction for educator expenses ($ 250)
Tuition and fees deduction
Itemized deduction for sales tax on new motor vehicle
Research credit
Alternative motor vehicle credit (golf cart credit)
Estate tax Exemption down to $ 1,000,000 tax at 55%
15-year depreciation on leasehold improvements
20. Expiring Tax Benefits
Shareholder basis adjustment for stock of S
Corporations making charitable contributions
Environmental cleanup cost deduction
Marriage penalty is back
Child tax credit reduced from $ 1,000 to $ 500
Dependent care credit reduced to $ 720
21. Conclusion
I expect some of the Bush tax cuts to be extended for at
least two years
For practice owners, the bonus depreciation and
section 179 expensing can be used to offset any tax
increases
If you are considering buying, building or selling a
practice, now is the time sit down and map out a
strategy.