1. JonKarp,CPA Tax Partner 214.393.9400 Jon.Karp@whitleypenn.com 2014FilingSeasonTechnicalTaxUpdate

2. TaxRates Highesttaxbracketisnow39.6% MarriedFilingJointlyandSurvivingSpouses 2013-$450,000 2014-$457,600 HeadsofHouseholds 2013-$425,000 2014-$432,200 UnmarriedIndividuals 2013-$400,000 2014-$406,750 MarriedFilingSeparately 2013-$225,000 2014-$228,800 3. CapitalGains/Dividends Toprateforcapitalgainsanddividendsraisedfrom15%to20% Toprateof20%isonlyapplicabletothosetaxpayerswhofallinto thetoptaxbracket. Longtermcapitallosseswhichwouldhaveoffsetcapitalgainsat the15%ratecanstilloffsetcapitalgainsatthenew20%rate.No adjustmentfortheratechangeisrequired. Considerusingcarryforwardlossesfrom2012tooffsetany gains in2013. Spreadrecognitionofincomebetweentaxyearsinorderto avoidpushingcapitalgainsintothe39.6%bracketorthe20% capitalgainsbracket. 4. SurtaxonNetInvestment Income Higherincome taxpayersmaybesubjecttoanadditional 3.8%surtaxonnetinvestmentincome(NII). TheNIISurtaxisequaltothelesserof: Netinvestmentincomeforthetaxyear,or Theexcess,ifanyoftheindividualsmodifiedadjustedgross incomeoverthefollowingthresholdamounts: $250,000forjointreturnsandsurvivingspousereturns $125,000formarriedfilingseparatelyreturns $200,000inanyothercase 5. NetInvestment Income NetInvestmentincomeincludes: Interest,dividends,capitalgains,rentandroyaltyincome,and non-qualifiedannuities, Incomeandgainsfrompassiveactivities, Incomeandgainsfrombusinessesinvolvedinthetradingof financialinstrumentsandcommodities,and GainsfromthesaleofinterestsinpartnershipsandS corporationstotheextentthetaxpayerisapassiveowner. 6. SurtaxonNetInvestment Income (cont.) Thethreshold issignificantlylowerthanhighestcapital gainsrateandhighesttaxrate. Therefore,awiderrange oftaxpayerswillbesubjectto3.8%surtax. Taxpayersshouldbeawareofwhatitemsfallintothe categoryofnetinvestmentincome andmonitorthese itemsforexposuretothesurtax Tolessenburdenofthesurtax,taxpayersshouldtryto spreadincomeoveranumberofyearstostaybelowthe thresholdamounts. 7. NetInvestment IncomeTax Thetaxoninvestmentincomeusesaggregationprinciples withrespecttospousesinsofarasthethresholdamountis concerned. Thetotalamountforacoupleis$250,000,witheach spouseentitledto$125,000. However,theinvestmentincomeitselfispersonaltothe ownerandisnotdividedbetweenthetwospouses. Thiscouldmeanthatproperdeploymentofassets coupledwithseparatefilingcouldbemoretax-beneficial thanajointfiling. 8. NetInvestment IncomeTax John & Marcia Married Filing Jointly John - Wages $250,000 Investment Income $50,000 Total $300,000 Tax on NII $50,000 X 3.8% $1,900 9. NetInvestment IncomeTax John & Marcia Married Filing Jointly Married Filing Separate John Marcia John - Wages $250,000 $250,000 $0 Investment Income $50,000 $0 $50,000 Total $300,000 $250,000 $50,000 Tax on NII $50,000 X 3.8% $1,900 $0 X 3.8% $0 X 3.8% 10. NetInvestment Income Tax John & Marcia Married Filing Jointly Married Filing Separate John Marcia Total $300,000 $250,000 $50,000 Est Tax?? $75,000 $72,500 $8,000 Tax on NII $150,000 X 3.8% $1,900 $0 X 3.8% $0 $76,900 $80,500 The structure saves the $1,900 that would have been paid on a joint return, so the next question is whether, and to what extent, additional regular tax was paid. Does not look like an alternative. 11. Form8960-NetInvestmentIncomeTax 12. Form8960-NetInvestmentIncomeTax 13. Additional Medicare Tax EmployeeshareofMedicaretaxincreasedby0.9%of coveredwagesinexcessofcertainhigherincome-level thresholdamountsasfollows: $200,000forindividualsandheadsofhouseholds $250,000formarriedfilingjointly $125,000formarriedfilingseparately 14. Additional Medicare Tax(cont.) Forexample,asingleindividualwillpay1.45%of Medicaretaxonthefirst$200,000ofcompensationand 2.35%(1.45%+0.9%)oncompensationinexcessof $200,000. Thereisnocapontheamountofcompensationsubject totheMedicaretax. EmployersarerequiredtocollectadditionalMedicare taxesforemployeesthatearnover$200,000inwagesin acalendaryear. 15. Additional Medicare Tax Withholding Note: An employee may not request additional withholding specifically for Additional Medicare Tax. However, if the employee anticipates liability for Additional Medicare Tax, the employee may request that the employer withhold an additional amount of income tax withholding on Form W-4. The additional income tax withholding will be applied against taxes shown on the individual income tax return (Form 1040), including any Additional Medicare Tax liability, as discussed below. 16. Additional Medicare Tax Calculatingthetax IndividualsliableforAdditionalMedicareTaxwillcalculate AdditionalMedicareTaxliabilityontheirindividualincometax returns(Form1040),alongwithnewForm8959presentedand discussedlater. OnthatForm,individualswillalsoreportAdditionalMedicareTax withheldbytheiremployersontheirindividualtaxreturns,and anyAdditionalMedicareTaxwithheldbyanemployerwillbe appliedagainstalltaxesshownonanindividualsincometax return,includinganyAdditionalMedicareTaxliability. 17. Additional MedicareTax 18. SurveyingtheLandscape II.Taxprovisionsappearinganddisappearing(?)in2013 13 19. Additional Medicare Tax Self-employmentincome IndividualswithwagessubjecttoFICAtaxandself-employmentincome subjecttoSECAtaxcalculatetheirliabilitiesforAdditionalMedicareTax inthreesteps: Step1 -CalculateAdditionalMedicareTaxonanywagesinexcessof theapplicablethresholdforthefilingstatus,withoutregardtowhether anytaxwaswithheld. Step2 -Reducetheapplicablethresholdforthefilingstatusbythe totalamountofMedicarewagesreceived-butnotbelowzero. Step3 -CalculateAdditionalMedicareTaxonanyself-employment incomeinexcessofthereducedthreshold. 20. Additional Medicare Tax(Examples1,2,3) A:Asinglefiler,has$130,000inself-employmentincomeand$0in wages.AisnotliabletopayAdditionalMedicareTax. B:Asinglefiler,has$220,000inself-employmentincomeand$0in wages.BisliabletopayAdditionalMedicareTaxon$20,000. C:Asinglefiler,has$145,000inself-employmentincomeand $130,000inwages.C'swagesarenotinexcessof$200,000soC's employerdidnotwithholdAdditionalMedicareTax.However,the $130,000ofwagesreducestheself-employmentincomethresholdto $70,000($200,000thresholdminusthe$130,000ofwages). CisliabletopayAdditionalMedicareTaxon$75,000ofself- employmentincome($145,000inself-employmentincomeminus thereducedthresholdof$70,000). 21. Additional Medicare Tax Examples Example3-E,whoismarriedandfilesajointreturn,has $140,000inself-employmentincome.F,Esspouse,has$130,000 inwages. Fswagesarenotinexcessof$200,000soFsemployerdidnot withholdadditionalMedicaretax. However,the$130,000ofFswagesreducesEsself-employment incomethresholdto$120,000($250,000thresholdminusthe $130,000ofwages). EandFareliabletopayadditionalMedicaretaxon$20,000ofEs self-employmentincome($140,000inself-employmentincome minusthereducedthresholdof$120,000). 22. 1.AdditionalMedicaretaxonearnedincome Step 2 Reduce the applicable threshold for the filing status by the total amount of Medicare wages received - but not below zero. Step 1 Calculate Additional Medicare Tax on any wages. Copyright 2013 Surgent McCoy CPE, LLC NFFI 23. 1.AdditionalMedicaretaxonearnedincome Step 2 Reduce the applicable threshold for the filing status by the total amount of Medicare wages received - but not below zero. Step 1 Calculate Additional Medicare Tax on any wages. 24. Additional Medicare Tax Additional 0.9% No Benefit for added tax 25. Alternative Minimum Tax Exemptionamountsfor2013: $51,900forindividualsandheadsofhousehold $80,800formarriedfilingjointlyandsurvivingspouses TaxpayerswhoarenotliableforAMTfor2013,buthave beeninthepastyear,maybeeligibletotake minimum taxcreditagainsttheirregulartaxthisyear. 26. A. Phaseoutofitemizeddeductionsreturnsin2013 Ifanindividualsadjustedgrossincomeexceedsthethresholdamount,the otherwise-allowableitemizeddeductionsmustbereducedbythreepercentof theamountofsuchexcess.However,thetotalreductioncannotexceed80 percentoftheotherwise-allowabledeductions. Thethresholdfor2013isas follows: Filing Status Phase-out of Itemized deductions begins at Married Filing Jointly $300,000 Surviving Spouse $300,000 Head of Household $275,000 Single $250,000 Married Filing Separately $150,000 27. Phaseoutofitemizeddeductionsreturnsin2013 MFJ AGI = $400,000 Medical Limit 10% Subtotal AGI Phase- Out 3% X $100,000 Net Itemized Deduction Medical Expense $5,000 ($5,000) $0 $0 Investment Interest (Inv Income + $15,000) $5,000 $5,000 $5,000 Taxes/ Charity/ Mortgage/ Misc. $20,000 $20,000 ($3,000) $17,000 Total $30,000 ($5,000) $25,000 ($3,000) $22,000 28. Phaseoutofitemizeddeductionsreturnsin2013 MFJ AGI = $400,000 Medical Limit 7.5% Subtotal AGI Phase- Out 3% X $100,000 Net Itemized Deduction Medical Expense $5,000 ($5,000) $0 $0 Investment Interest (Inv Income + $15,000) $5,000 $5,000 $5,000 Taxes/ Charity/ Mortgage/ Misc. $20,000 $20,000 ($0) $20,000 Total $30,000 ($5,000) $25,000 ($0) $25,000 Tax Increase yes If this were 2012 29. Phaseoutofitemizeddeductionsreturnsin2013Morethan80% MFJ AGI = $1,000,000 Medical Limit 10% Subtotal AGI Phase- Out 3% X $700,000 Net Itemized Deduction Medical Expense $5,000 ($5,000) $0 $0 Investment Interest (Inv Income + $15,000) $5,000 $5,000 $5,000 Taxes/ Charity/ Mortgage/ Misc. $20,000 $20,000 ($20,000) $0 Total $30,000 ($5,000) $25,000 ($20,000) $5,000 30. Phaseoutofitemizeddeductionsreturnsin2013 MFJ AGI = $1,000,000 Medical Limit 10% Subtotal AGI Phase- Out 3% X $700,000 Net Itemized Deduction Medical Expense $5,000 ($5,000) $0 $0 Investment Interest (Inv Income + $15,000) $5,000 $5,000 $5,000 Taxes/ Charity/ Mortgage/ Misc. $20,000 $20,000 ($20,000) $0 Total $30,000 ($5,000) $25,000 ($20,000) $5,000 80% Max Reduction ($16,000) $4,000 $9,000 31. PersonalExemption Phaseout AGIthresholdsmirrorthethresholdsinthePeaseLimitation. $300,000formarriedfilingjointly &survivingspouses $275,000forheadsofhouseholds $250,000forsingleindividuals $150,000formarriedfilingseparately Underthephase-out,thetotalamountofexemptionsthat maybeclaimedisreducedby2%foreach$2,500bywhichthe taxpayersAdjustedGrossIncome(AGI)exceedstheapplicable thresholdlevel 32. PersonalandDependency Exemptions Example: TheGosselinshaveeightdependentchildren. Theiradjustedgrossincomeis$400,000 in2013whentheyfileajointreturn. Incomputingtheirtaxableincomefor2013,theymaydeductasexemptionsonly$7,800;calculatedas follows: 2013Grossexemptionamount $39,000 ($3,900X10) Adjustedgrossincome $400,000 Less:MFJthreshold (300,000) Excess $100,000 Divideby$2,500 40 (Iftheresultisnotawholenumber,increaseittothenexthigherwholenumber) Multiplyby2%(.02)andentertheresultasadecimal .80 Multiplygrossexemptionbyexclusionpercentage ($31,200) DeductionforExemptions $ 7,800 33. Medical Expense Deduction For2013,thethresholdforunreimbursedmedical expensesislimitedto10%ofAGI However,taxpayerswhoare65oroldermaycontinueto applythe7.5%limitation. 34. Sunsetting Extenders Scheduledtoendin2013(unlessCongressrenews) StateandLocalSalesTaxDeduction ExclusionofCancellationofIndebtednessonPrincipal Residence IRADistributionstoCharity Mortgageinsurancepremiums Teachersexpensededuction 35. Additional Considerations ChildTaxCredithasbeenpermanentlysetat$1,000per qualifyingchild HealthFlexibleSpendingArrangements (FSA)arecapped at$2,500 Anysalaryreductionsinexcessof$2,500willsubject employeetotaxondistributionsfromhealthFSA Same-SexMarriageisnowrecognizedforallfederaltax purposes,regardlessofwhereacouplelives 36. EstateandGiftTaxes Permanentmaximumfederalunifiedestateandgifttax rateof40% $5milliondollarexclusionforgiftsmadeandestates ofdescendantsdyingafterDecember31,2012 Annualgifttaxexclusionpreservedat$14,000 37. Planning forBusiness Scheduledtoendorchangeafter2013(unlessCongress renews) Section179deductionscheduledtodropto$25,000 and thecorrespondingphase-outceilingtodropto$200,000 50%BonusDepreciation 15-YearRecoveryforLeasehold/RetailImprovementsand RestaurantProperty WorkOpportunityTaxCredit ResearchTaxCredit 38. Copyright 2013 Surgent McCoy CPE, LLC LLPW 13/01 1792012 RememberNottoForget!! 2003 AND 2013 2003 Restated 2012 With Inflation 2008 2009 2010 - 2013 200,000 400,000 560,000 800,000 2MM Trade/ Bus Inc. Trade/ Bus Inc. Trade/ Bus Inc. Trade/ Bus Inc. Trade/ Bus Inc. 25,000 100,000 139,000 250,000 500,000 39. Copyright 2013 Surgent McCoy CPE, LLC LLPW 13/01 1792014 RememberNottoForget!! 2003 AND 2014 2003 Restated 2012 With Inflation 2008 2009 2010 - 2013 200,000 400,000 560,000 800,000 2MM Trade/ Bus Inc. Trade/ Bus Inc. Trade/ Bus Inc. Trade/ Bus Inc. Trade/ Bus Inc. 25,000 100,000 139,000 250,000 500,000 40. HomeOffice Newin2013-SimplifiedHomeOfficededuction Newfor2013,taxpayersmayuseasimplifiedoptionwhenfiguringthedeductionfor businessuseoftheirhome. Thissimplifiedoptiondoesnotchangethecriteriaforwho mayclaimahomeofficededuction.Itmerelysimplifiesthecalculationand recordkeepingrequirementsoftheallowablededuction. ThesimplifieddeductioniscalculatedonLine30ofScheduleC. Thedeductionallowsfor $5persquarefootofthehomeusedforbusiness,withamaximum300squarefeet,or $1,500deduction. 41. HomeOffice Comparisonofsimplifiedandregularhomeofficemethods TipsfornewpreparersSelectingaHomeOfficemethod Taxpayersmaychoosetouseeitherthesimplifiedmethodorthe regularmethodforanytaxableyear. Chooseonatimelyfiledreturn Cannotlaterchangeforthatsameyear. Ifataxpayerutilizesthesimplifiedmethodforoneyearanduse theregularmethodforanysubsequentyear,theymustcalculate thedepreciationdeductionforthesubsequentyearusingthe appropriateoptionaldepreciationtable. 42. EnergyIncentives CodeSection25C NonbusinessEnergyPropertyCredit extended Plug-inElectiveDriveMotorVehicleCredit Limitedto$7,500 RenewableResourcesCredit ManyEnergyCreditsExpiringafter2013 43. Affordable CareAct Mostkeyprovisionshavebeendelayeduntil2015 EmployerMandate: Employerscouldfacepenaltiesiftheydonotofferitsfulltime employeesopportunitiestoenrollinminimumessentialcoverage EmployerandInsurerReporting Largeemployerswillhavetofileinformationreportsthatdetail termsandconditionsofhealthcarecoverage Insurerswillberequiredtofilesimilarinformationreports SmallEmployerHealthInsuranceCreditisavailabletoencouragesmall employerstoprovidehealthinsurancecoveragetotheiremployees 44. Whopaysthemosttax? 45. Partingcheer 46. Questions