2014 Tax Update

Technical Excellence. Superior Service.
2014 Tax update
Presented by:
Scott Taylor
February 25, 2015

Technical Excellence. Superior Service. 2
What we will cover today
 What changed retroactively on December 19,
2014 for the beginning of 2014 and what may be
extended or changed for 2015?
 What’s going on in Washington?
 What are some planning strategies and
opportunities your clients should be considering
for now and the future with unsure tax law?

Update from Washington
Living in a state of uncertainty
Congress currently is not able to agree with
administration regarding the pending fiscal cliff that
we have experienced.
We will have major conflicts with President, and
Supreme Court rulings that are pending

 Current discussion with the President:
 We can expect him to push to extend most of the
technically expired 2015 tax provisions, but not the
tax cuts for higher-income taxpayers
 There will be fights with the administration
regarding raising capital gains tax rates and
increasing rates on the highest tax brackets or
decreasing deductions.

Looking toward the future
It seems certain that we will be looking at a temporary
extension of some expiring tax provisions
A 12-month extension may be the likeliest scenario
A temporary extension would buy time for Congress to
develop tax reform legislation in 2015 and future years
It’s possible that this won’t be resolved until after the
summer or late fall which causes planning problems for
taxpayers

2014 TAX UPDATE
Expiring Tax Provisions…
• Federal income, dividend, & capital gains tax rates
• Itemized deductions & personal exemption phase-outs
• Charitable contributions via retirement plan distributions
• AMT exemption amounts
• Social Security payroll tax reduction for employees
• Qualified charitable IRA distribution exclusion
• State and local sales tax deduction
• Education credits & deductions eliminated or reduced
• Earned income and child tax credits reduced
• Estate & gift tax exemption amounts
• Portability of estate tax exemption for surviving spousal
Note: The above list of items is not intended to be all
inclusive.

2014 TAX UPDATE
Ordinary Income and Capital Gain Tax Rates:
• Tax Bracket 10%, 15%, 25%, 33% and 39.6% rates are permanent:
• Thresholds for highest brackets are :
• $457,601 for married-filing-jointly and surviving spouses
• $432,201 for head-of-households
• $406,751 for single “Qualified” dividend rate will rise to match standard
income tax rates on January 1, 2013
• Long-term capital gain rates:
• Two lowest tax brackets pay 0%
• 25% to 35% brackets pay 15%
• Highest tax bracket pay 20%

2014 TAX UPDATE
Income Tax Brackets…
2014 Individual Tax Brackets
Tax Bracket Single
Married Filing
Jointly
Married Filing
Separately
Head of Household
10% $0 - $9,075 $0 - $18,150 $0 - $9,075 $0 - $12,950
15% $9,076 - $36,900 $18,151 - $73,800 $9,076 - $36,900 $12,951 - $49,400
25% $36,901 - $89,350 $73,801 - $148,850 $36,901 - $74,425 $49,400 - $127,550
28% $89,351 - $186,350 $148,851 - $226,850 $74,426 - $113,425 $127,551 - $206,600
33% $186,351 - $405,100 $226,851 - $405,100 $113,426 - $202,550 $206,601 - $405,100
35%
Excess 39.6%
$405,101 - $406,750 $405,101 – $457,600 $202,551 - $228,800 $405,101 - $432,200

Affordable Care Act-The Tax
Impact
Additional Medicare Surcharge:
• Applied to individuals with modified AGI greater than 200K for singles or 250K for married
• Additional .9% of “earned income”
• Employers must withhold the additional tax from wages paid in excess of $200,000, without regard
to person’s filing status
• Net Investment Income surcharge:
 Imposed on individuals, trusts and estates for tax years beginning on and after January 31, 2013
 Applies to the lesser of:
 Net investment income (NII), or
 MAGI over an applicable threshold amount (ATA)
 Included items
 Interest
 Dividends
 Rents
 Annuities
 Capital gains
 Royalties
 Passive activity income

2014 TAX UPDATE
Health Care Reform…
Health Care Reform (ruled constitutional by the Supreme Court)
In effect now:
• Children can’t be denied coverage because of pre-existing conditions
• Coverage required under parent’s plan for dependent children under age 26
• Insurers can’t impose lifetime caps on coverage and can’t cancel or deny coverage if you are sick
Key provisions effective January 1, 2013:
• Medical expense deduction threshold increases to 10% of adjusted gross income for those under age 65 (from 7.5%)
• Increasing the self-employment tax rate by 0.9% on higher-income individuals (MAGI of $200K single, $250K married)
• New 3.8% tax on some or all of the net investment income of these higher-income individuals
• Interest, dividends, capital gains, royalties, rents, annuities, passive income from partnership/S corporation
• Distributions from qualified retirement plans and IRAs would NOT count
Key provisions effective January 1, 2014: (new forms required in 2014 with individual mandate penalties)
• All Americans must carry health insurance or face a penalty of up to 2.5% of household income
• Employers with more than 50 employees must offer health insurance or be fined per employee
• States must establish an exchange that facilitates the purchase of qualified health plans
• Adults with pre-existing conditions can’t be denied coverage or have their insurance cancelled
• Tax credits will be available to qualifying families
• Doctors and hospitals will receive less compensation from government sources
• Taxes or fees imposed on health insurance providers and drug companies
Note: The above list of items is not intended to be all inclusive.

Net Investment Income
 Items specifically excluded
 Self-employment income
 Non-resident aliens
 Active Trade or business income
 Gain on the sale of an active interest in
partnership or S corporation
 IRA or qualified plan distributions
 Trusts for charity (except Charitable lead trusts)

Applicable Threshold
Amounts
 Married taxpayers filing jointly...........$250,000
 Married taxpayers filing separately....$125,000
 All other individual taxpayers.............$200,000

Phaseouts of
Deductions
Itemized Deduction & Exemption Phaseout:
Applies when AGI exceeds
$305,050 (Married)
$279,650 (Head of Household)
$254,200 (Single)

2014 Income tax
planning opportunities
 Bonus Depreciation & 179 deduction extended:
 50% Bonus depreciation is now available for
qualified property
 179 deduction was increased back to $500,000
for taxable income
 Qualified Leasehold available for was extended
for 15 year life rather than 39 years

2014 Income Tax Planning
Opportunities
Gain Harvesting
Accelerating expenses and deferring income into
future years
Avoiding the 3.8% Medicare surtax

2014 Income tax
Other questions you may have
Do I exercise stock options now or later?
Do I deduct charitable gifts now or later?
Do I defer income into future years?
Do I accelerate deductions?

2014 Income tax
Considerations
Higher tax rates provide motivation to plan now
without fence sitting
Rule of thumb: Defer income when you can, and
accelerate deductions and losses
 With rates rising, the opposite might be a better
strategy
 Should we accelerate income into lower tax years,
and defer deductions and losses into higher rate
years? Technical Excellence. Superior Service. 17

2014 Income tax
Stock options and charitable deductions
May want to exercise nonqualified stock options
this year, since spread is taxed at ordinary income
rates
Charitable deductions:
 Worth more to your client next year than this year
 If you have a large carry-forward, may want to
consider using this year (if he has a retirement or
IRA plan and wants to convert it to a Roth)?

2014 Income tax
Two planning strategies to consider
Direct a transfer to a qualified charity if you do not
itemize. (only to the extent of the required minimum distribution)
Defer taking the RMD until late 2015, when there may
be greater clarity extension provisions
 If the law is revived, it could follow the same” special rule”

2014 Income tax
Roth IRA conversions
Can convert o a Roth IRA now with the flexibility to
unwind as late as October 15, 2015
Can then make the Roth decision with hindsight, with
respect to not only investment outcomes but also tax
rates
A Roth makes even more sense given the 3.8% surtax
 Distributions from a Traditional IRA do count as part of AGI,
which can push one over the threshold for surtax purposes

AMT triggers
 2014 exemptions $82,100 married, $52,800 Single
 State and local income tax deductions
 Real estate and personal property tax deductions
 Interest on home equity loan or line of credit not used
to buy, build or improve your principal residence
 Miscellaneous itemized deductions subject to
2% of AGI floor
 Long-term capital gains and dividend income
 Accelerated depreciation adjustments and related
gain or loss differences when assets are sold
 Tax-exempt interest on certain private-activity
municipal bonds
 Incentive stock option exercises

Avoiding AMT or reducing
its impact
 Planning for AMT will be a challenge
until Congress passes long-term relief
 AMT system isn’t regularly adjusted
for inflation
 Congress legislates adjustments,
typically as a “patch” which are currently expected
but is not regularly discussed

Timing of income and
expenses is key
 Smart timing can reduce your tax liability
 Poor timing can unnecessarily increase it
 Tax rates changes are unsure for future
years without major changes in
Washington

YEAR END PLANNING
Final Thoughts…
PLAN
P---Prepare
L---Layout an entire 3-5 year projection
A---Analyze with a professional
N---Navigate carefully what is happening in
Washington with law changes

Thank you
Please contact me with any question:
staylor@pbtk.com
Please visit www.pbtk.com.

2014 Tax Update

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2014 Tax Update