Peter Pfister, Parter at The Curchin Group, CPAs, shares insight into the tax changes in 2013 and their future impact on businesses and individuals as well as what is likely to happen in 2014.

1. LONG-TERM RELATIONSHIPS ARE ALL ABOUT DEDICATION
Tax Changes and Their Affect
October 22, 2013

2. Expiring Provisions At
December 31, 2013
Businesses:
50% Bonus depreciation on
asset purchases
Section 179 Expense reverts to
$125K from $500K of asset
purchases
S Corporation built-in-gain tax
recognition period current 5
years reverts to 10 years

3. Expiring Provisions at
December 31, 2013
(Continued)
Individual:
Elementary and Secondary
School Teacher Expense $250
Qualified Tuition Deduction

4. Expiring Provisions at
December 31, 2013 (Continued)
Individual:
Sales Tax Deduction
Tax Free Distributions to IRA for
Charitable purposes

5. American Taxpayer Relief Act of 2012
(Passed January 1, 2013)

6. American Taxpayer Relief Act of
2012 (Continued)
 Highest Tax Bracket
increased to 39.6%
 Increased Capital
Gain Rate to 20%
(still some at 15%)
 Qualified Dividends
remain at 15% for
all taxpayers

7. American Taxpayer Relief Act of 2012
(Continued)
Alternative Minimum
Tax Exemption made
permanent
Revival of Itemized
Deduction Phaseout
Revival of Personal
Exemption Phaseout

8. Tax Brackets

9. Tax Brackets (Continued)
The 10, 15, 25, 28, 33, and 35%
brackets remain after 2012.

10. Tax Brackets (Continued)
An additional 39.6%
bracket began in 2013

11. Single Individuals
If taxable income is:
The tax will be:
Not over $8,925
10% of taxable income
Over $8,925 but not over $36,250
$892.50 plus 15% of the excess over $8,925
Over $36,250 but not over $87,850
$4,991.25 plus 25% of the excess over $36,250
Over $87,850 but not over $183,250
$17,891.25 plus 28% of the excess over $87,850
Over $183,250 to $398,350
$44,603.25 plus 33% of the excess over $398,350
Over $398,350 to $400,000
$115,586.25 plus 35% of the excess over $398,350
Over $400,000
$116,163.75 plus 39.6% of the excess over $400,000
Married Couples Filing Jointly
If taxable income is:
The tax will be:
Not over $17,850
10% of taxable income
Over $17,850 but not over $72,500
$1,785 plus 15% of the excess over $17,850
Over $72,500 but not over $146,400
$9,982.50 plus 25% of the excess over $72,500
Over $146,400 but not over $223,050
$28,457.50 plus 28% of the excess over $146,400
Over $223,050 but not over $398,350
$49,919.50 plus 33% of the excess over $223,050
Over $398,350 but not over $450,000
$107,768.50 plus 35% of the excess over $398,350
Over $450,000
$125,846 plus 39.6% over $450,000

12. Capital Gain Rates
The 20% rate will apply to the extent that income
exceeds the thresholds set for the 39.6% bracket
$400K
$450K
Single
Married - Joint

13. Capital Gain Rates (Continued)
Threshold
The 15% rate applies for taxable incomes below the
39.6% threshold.
A 0% rate remains to the extent taxable income
remains below the 15% bracket.

14. Joe and Jane Taxpayer
Capital Gain Tax Example

15. Alternative Minimum Tax (AMT)
Exemptions made permanent 2013
2013 Exemptions
$51,900 for Single Individuals
$80,750 for Married filing Jointly
Adjusted each year for Inflation

16. Itemized Deduction Phaseout
Begins at certain levels of
Adjusted Gross Income
$300K Married Filing Jointly
$275K Head of Household
$250K Single Individuals

17. Itemized Deduction Phaseout
(Continued)
Phaseout reduces itemized deductions by
3% of the excess over the threshold
Itemized Deductions lost CANNOT be
more than 80%
Deductible medical expense, investment
interest, and casualty losses are excluded

18. Personal Exemption Phaseout
Begins at certain levels of adjusted
gross income
$300K
$275K
$250K
Married Filing Jointly
Head of Household
Single Individuals
Exemptions reduced by 2% for each
$2,500 in excess of the threshold

19. Other Notable Items
 Child Tax Credit:
For dependents under
age 17 at the end of
the year
 $1,000 Credit Extended
Permanently
 Income has to be below
certain threshold to obtain

20. Education Credits
• Enhanced HOPE education credit continues
through 2017 (American Opportunity Credit).
• $2,500 credit per year per student
(100% of first $2k paid; 25% of next $2k paid).
• Covers all four years of college.
• After four years, Lifetime Learning Credit applies.
• Credit phase-outs:
– Joint filers – adjusted gross income
between $160k and $180k.
– Other filers – adjusted gross income
between $80k and $90k.

21. Education Credits (Continued)
• Planning Tip – Pay $4k of tuition
from non-529 Plan accounts in
order to maximize credit (no
payments from 529 Plans can be
used for the credit)

22. Basis Reporting
Effective 2011
For every broker that files a 1099B for gross
proceeds:
Must include cost basis of security sold
Covers purchases beginning 2011
What about prior years?
All reporting on IRS Form 8949

23. 1099 Reporting for all vendors
paid > $600 repealed April 2011
Still Required to be issued for
services paid > $600
Questions on tax returns
Reporting Trap

24. New Jersey Tax Rates
2009
Since
2010
$150K - $500K
6.37%
6.37%
$400K - $500K
8.00%
6.37%
$500K - $1 Million
10.25%
8.97%
>$1 Million
10.75%
8.97%
Taxable Incomes:
Note: Below $150k - various rates
ranging from 1.4% - 5.525%

25. New Jersey Items
Alternative Business Loss Carry forward
Categories:
• Net Loss from Business (Schedule C)
• Net Loss from Rental, Royalty, Patent and
Copyrights
• Net Loss from Partnerships
• Net Loss from S Corporations

26. New Jersey Items (Continued)
• Began with 2012 tax year - Separate calculation
• Calculated by netting income/loss in each category
•
Net result from each category is netted to determine
Alternative Business Loss
• Losses carried forward 20 years following the taxable
year of the loss
• Loss carried forward offsets future income from the
category created
• Tax still paid with categories of net income each year

27. Alternative Business Loss Carry Forward
Losses phase-in to a maximum of 50%
YEAR
AMOUNT
2012
10%
2013
20%
2014
30%
2015
40%
2016 and after
50%

28. 1031 Exchanges
No gain or loss on trade; business or
investment property exchanged for
like-kind property, not just real estate
Not available for primary residences

29. 1031 Exchanges (Continued)
LIKE-KIND EXAMPLES
• Apartment for Office
-
Yes
• Land for Building
-
Yes
• Domestic
-
Yes
• Foreign
-
No
• Partnership Shares
-
No
• Stocks
-
No

30. 1031 Exchanges (Continued)
1031 PROCEDURE
• Selling Contract:
– “Seller intends to utilize IRC 1031 to
defer gain on sale and has engaged
Curchin 1031 Exchange as qualified
intermediary”
• At Closing: Proceeds (including deposit)
– To independent intermediary within five
days

31. 1031 Exchanges (Continued)
Independent intermediary cannot be:
 Lawyer
 Accountant
 Realtor
Within 2 years prior to closing

32. 1031 Exchanges (Continued)
45-day identification period:
Letter, e-mail or fax
to qualified intermediary
Up to 3 properties
Up to 200% of
sale price of
property sold
200%

33. 1031 Exchanges (Continued)
180-day title closing
deadline – no exceptions –
or filing date of tax return
(if prior to 180 days)

34. Obamacare Funding Provisions

35. Medicare Contribution Tax
• Begins in 2013
• Additional 3.8% tax on Net
Investment Income (NII)
• Adjusted gross income
thresholds:
– MFJ - $250k
– Others - $200k

36. Medicare Contribution Tax (Continued)
Effect on tax rates:
2013
Including
Medicare Tax*
Ordinary Income
39.6%
43.4%
Qualified Dividends
15.0%
18.8%
Capital Gains
20.0%
23.8%
* AGI >$250K MFJ/$200K others

37. Medicare Contribution Tax (Continued)
Net investment income includes:
• Interest, dividend, annuity, royalty and
rent income.
• Capital gains/losses.
• Allowable deductions against income
items/net gains.
• Taxable gain on sale of primary residence.
• Net gains from passive activities.

38. Medicare Contribution Tax (Continued)
Net investment income - not included:
• Taxable retirement plan distributions
• Gain excluded on sale of primary
residence
• Tradebusiness income
• Tax-exempt income

39. Medicare Contribution Tax (Continued)
Other issues/planning:
• Estates and trusts are subject to
3.8% tax.
• Invest more in tax-exempt bonds?
• Convert traditional IRA to Roth IRA?

40. Medicare Contribution Tax (Continued)
Examples:
• For 2013, a single taxpayer has NII of $50k and MAGI of
$220k.
Medicare tax paid on $20k (amount in excess of threshold).
Tax would be $760 ($20k x 3.8%).
• For 2013, married taxpayers have NII of $75k and MAGI of
$230k.
No Medicare tax since the MAGI does not exceed the
threshold.
• NII will be taxed on the full amount if MAGI exceeds the
threshold amount by at least the amount of NII.

41. Medicare Tax on Earned Income
• Also begins in 2013
• Imposes tax of .9% of wages in excess:
• $250K
MFJ
• $200K
Others
• $125K
MFS
• Employers are required to withhold
• Withholding begins at $200K for all taxpayers
• Individuals responsible if tax not withheld

42. Medicare Tax on Earned Income (Continued)
• Net Earnings from SelfEmployment also subject to
tax
• S Corporation income is not
earned income-not subject
to tax
• Calculation of additional
tax/refund on personal tax
return
• Focus of the tax is on Earned
Income not AGI

43. Medicare Tax on Earned Income (Continued)
Examples:
• Taxpayer wages = $300k
• Employer withholds .9% on
excess over $250k or $450
• If married and spouse has
additional earned income, it
would be paid with the tax
return filing
• If married and spouse has
negative earned income, a
refund results

44. Medicare Tax on Earned Income (Continued)
• Taxpayer has K-1
Partnership income of
$300k
• Taxpayer has ($50k)
loss from sole
-proprietorship
• Not subject to .9% not in excess of $250k

45. Increased AGI threshold for
claiming medical on Schedule A
 From 7.5% to 10%
 Remains at 7.5% for
those age 65
and older until 2016
 New Jersey threshold
remains at 2%

46. Mr. and Mrs. Big
2012 vs. 2013
Tax Impact

47. Tax Planning Going Forward

48. Income and Expense Shifting
Usually Defer Income
Capital Gains
Bonuses
Installment Sales
Other Income

49. Income and Expense Shifting (Continued)
Usually accelerate expenses:
 Medical
 State Estimated Payments
 Real Estate taxes
 Misc. Itemized deductions

50. Income and Expense Shifting
(Continued)
Maybe the “Usual” doesn’t work with many
variables to consider:
 3.8% Medicare Contribution Tax
 10% AGI Limitation for medical
expenses
 Alternative Minimum Tax
 0%, 15%, or 20% Capital Gains
Rates
 New Jersey Tax Impact

51. Roth IRA Conversion
• Beginning in 2010, conversions allowed with
no income limits.
• For 2010 only, conversions were recognized
ratably in 2011 and 2012 unless election
made to recognize in 2010.
• For 2011 and after, tax paid in year of
conversion
• Low values spurred conversion opportunity.

52. Roth IRA Benefits
• Value not included in required minimum
distribution calculation.
• Not taxed when distributed as long as held
for five years.
• Establishes a legacy for future beneficiary.
• Downside: Paying tax on value upon
conversion.

53. Roth IRA Legacy Example
• Husband converts regular IRA to Roth at age 65.
• His death occurs at age 73 (Roth held 8 yrs.).
• Wife inherits at age 70 and dies at age 86 (Roth held
16 yrs.).
• Daughter inherits at age 55 and must begin
minimum distributions.
• Daughter life expectancy is 29 yrs.
• Roth legacy potential = 53 years (8 + 16 + 29).

54. Estates
Federal Estate Exemption for 2013 $5,250,000
SAME AMOUNT
Lifetime gift exemption
Top tax rate
40%
$14,000
Yearly gift allowance for 2013
See Handout of Historical Exemptions and Rates

55. Lifetime Gifts
• Removes gifted assets from estate now
• Removes future growth
and income associated
with those assets
• Minimizes estate taxes
• Shifts income tax associated with
the gifted asset to the donee

56. Other Gift Considerations
 Donor should make sure they have
enough assets to live on
 Annual gift exclusion excludes
payments made directly to qualifying
educational organizations for tuition
and medical expenses paid directly to
providers

57. Exemption Portability
 Allows unused exemption of first
spouse to die to be passed to
survivor

58. Exemption Portability (Continued)
 Regardless of estate value, an
estate return MUST be filed to elect
portability of the unused exemption
 This means $10.5 Million of assets
can move to heirs Federal Estate
TAX FREE

59. New Jersey Estates
Exemption
$675,000

60. Federal vs. New Jersey Estates
• Difference in Exemptions
• Possibility exists to pay NJ
Estate Tax and zero Federal
Estate Tax

61. What to Do???
• Reduce Estate size
• Move out of New Jersey
• See Attachment titled
“Florida Residency
Checklist”

62. DISCUSSIONS AND QUESTIONS
LONG-TERM RELATIONSHIPS ARE ALL ABOUT DEDICATION