2014 Personal Tax Guide
Introduction: Tax Planning Beyond the Fiscal Cliff
The year 2012 brought us much uncertainty with respect to the tax policies and provisions for individuals and businesses, which made effective tax planning particularly challenging. The "Bush-era cuts" that were extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 were scheduled to expire at the end of 2012. The economy was having a lackluster recovery and the application of the automatic spending cuts resulted in consumers having less disposable funds to spend. The defense and domestic spending cuts would decrease U.S. production and manufacturing. Lack of long-term Congressional action on the U.S. budget and debt limits furthered the uncertainty that was prevalent at the time. These conditions were commonly referred to by the government and the media as the "fiscal cliff" and indeed there were times when it seemed that we were headed over that cliff!
On January 3, 2013, we learned the ending to this cliff hanger when President Obama signed into law the American Taxpayer Relief Act of 2012 (ATRA). The Bush-era tax cuts were allowed to sunset after 2012 for individuals with taxable income over $400,000 and families over $450,000. The top federal long-term capital gains tax rate is now 20% and the top federal ordinary income tax rate is now 39.6%. ATRA permanently patched the alternative minimum tax (AMT) and many credits were extended. The top estate and gift tax rate is at 40% and a $5 million gift, estate and generation-skipping transfer tax exclusion (subject to annual adjusts for inflation) was established. ATRA also provided for several tax incentives for business. Many of these credits and incentives expired at the end of 2013.
Clearly ATRA will have a major impact on the tax situation of many individuals and families. In addition, the Patient Protection and Affordable Care Act imposes a .9% Health Insurance Tax on earned income for higher income individuals and a 3.8% Medicare Contribution Tax on net investment income. The tax is imposed on the lesser of (a) net investment income, such as interest income, dividends, capital gains and passive income less expenses directly attributable to the production of such income, and (b) the excess of modified adjusted gross income over a specified dollar amount ($250,000 for joint filers or a surviving spouse, $125,000 for married filing separately and $200,000 for other taxpayers). These taxes are imposed in addition to the other anticipated tax increases and do not impact the regular or AMT calculations.
The tax implications of these laws will undoubtedly be felt this April when taxpayers are required by law to pay their entire 2013 income tax liability, whether they file a tax return or request an extension of time to file. In addition, they may be required to make 2014 quarterly estimates based on the higher tax rates, the first of which is due April 15.
While we now have certainty with respect to the tax laws, there is still uncertainty with respect to the fate of the spending cuts and debt limit. We experienced the first government shutdown in decades this past fall. On October 17, 2013, President Obama signed into law the Continuing Appropriations Act of 2014 which temporarily ended the 17-day government shutdown until January and postponed a default of the government's debt obligations which would have occurred on October 17. A bipartisan committee headed by Rep. Patty Murray (D-WA) and Rep. Paul Ryan (R-WI) has put forth a compromise budget, which has been passed by the House and the Senate and signed by the President. The budget relaxes some spending cuts and will prevent the government from shutting down for the next two years. Further, Rep. Dave Camp (R-MI), Chairman of the House Ways and Means Committee, and Sen. Max Baucus (D-MT), Chairman of the Senate Finance Committee have each separately been working on tax reform. To date, we have not seen any significant tax reform come from either committee. Various tax credits and other favorable tax savings have expired as of December 31, 2013; to date these tax breaks have not been extended past this date.
And of course, health care reform continues to be on the forefront of the news and on the minds of many Americans, with the tough rollout of the federal exchange, and the scramble for individuals and families to secure coverage before the end of the year. Certain mandates of the law go into effect on January 1, 2014, while some others, such as the large employer mandate, will be implemented January 1, 2015. Business owners need to determine whether their current health insurance benefits meet the minimum essential coverage standard, and if not, whether they should incur the cost of obtaining adequate coverage or just pay the penalties. Do they "pay or play?" Indeed, employers should not only look at their health insurance coverage but the entire compensation package they are offering their employees to maintain cost effectiveness while remaining competitive in the marketplace.
With all of these law changes and current economic conditions, it is extremely important that you pay attention to your financial position so that you can achieve your financial goals, such as retirement planning, managing cash flow, financing the cost of your children's college education and transferring your family's wealth to the next generation.
We have written this guide to provide you with a tool to identify opportunities to save taxes, accomplish your financial goals, and preserve your family's wealth. This guide includes all major tax law changes through December 30, 2013. The best way to use this guide is to identify areas that may be geared to your unique situation and then discuss the matter with your tax advisor. As always, our tax professionals will be pleased to discuss any of the ideas in this guide or any other tax planning approaches that might apply to your personal financial situation.
It is never too early to start planning for the new year!
|2014 Personal Tax Guide complete download [Adobe PDF file]|
|chapter||Table of Contents– download by chapter|
|1||Tax Planning Strategies|
|2||Tax Rate Overview|
|3||Estimated Tax Requirements|
|4||Alternative Minimum Tax|
|5||Business Owner Issues and Depreciation Deductions|
|6||Capital Gains and Dividend Income|
|7||Stock Options, Restricted Stock and Deferred Compensation|
|8||Small Business Stock|
|9||Passive and Real Estate Activities|
|10||Principal Residence Sale and Rental|
|14||Estate and Gift Tax Planning|
|17||International Tax Issues and Reporting Requirements|
|18||State Tax Issues|
|Appendix A||2014 Federal Tax Calendar|
|Appendix B||2013 Federal Tax Rate Schedules|
|Appendix C||2014 Federal Tax Rate Schedules|
|Appendix D||2013 and 2014 Maximum Effective Rates|
Jerry Cohen, Carolyn Dolci, Dan Gibson, Stephanie Hines, Barbara Taibi, Tom Hall
June Albert, Peter Alwardt, Denise DeLisser, Sally Farber, Susan Fludgate, Stephanie Hines, Mary Ho, Cindy Huang, Jean Jiang, Bo Kearney, Seth Komitzky, Cindy Lai, Bevin Meade, Jason Michaels, Peter Michaelson, Roger Mierzwa, Craig Schmidt, Sandy Stolar, Barbara Taibi, Michael Torhan, Matthew Tse, Evan Waxman, Stephen Valentine, Thomas Varga, Cristina Wolff, Jon Zefi
This tax guide highlights tax planning ideas that may help you minimize your tax liability. This guide does not constitute accounting, tax or legal advice, nor is it intended to convey a thorough treatment of the subject matter. The best way to use this guide is to identify those issues which could impact you, your family, or your business and then discuss them with your tax advisor.
The discussion in this guide is based on the Internal Revenue Code as amended through December 30, 2013. Future legislation, administrative interpretations, and judicial decisions may change the advisability of any course of action. Because of periodic legislation changes, you should always check with your tax advisor before implementing any tax planning ideas.
Any information contained in this guide is not intended or written to be used, and cannot be used, for the purpose of (a) avoiding or reducing penalties that may be imposed by the Internal Revenue Service or any other government authority, or (b) promoting, marketing or recommending to another party any transaction or matter addressed herein.
Copyright 2014 by EisnerAmper LLP. All rights reserved. This publication, or portions thereof, may not be reproduced in any form without permission of EisnerAmper LLP.