Obamacare Implementation Update

Ian 1For many small business owners, dozens of questions have loomed about the implementation of the Affordable Care Act (the “ACA”).  Good news for them: the Obama administration has extended ACA transition deadlines to give small business owners a longer time to become compliant with ACA regulations.

When the ACA was first passed, all employers with 50 or more full-time employees would have had to have offered health insurance coverage to their employees by January 1, 2014.  However, the effective date for this requirement has been pushed back to January 1, 2015.  Additionally, 2015 will be considered a transition year, in which full compliance is not mandatory for employers with up to 100 full-time employees.

Since 2015 is considered a transition year, these mid-size employers (between 50 and 100 full-time employees) will not have to provide health insurance coverage until January 1, 2016 if the following two conditions are met:

  • From February 9, 2014 through December 31, 2014, the company’s number of employees and overall hours worked by employees were not reduced except for bona fide business purposes; and
  • From February 9, 2014 through December 31, 2015, health coverage for employees was not eliminated or materially reduced.

Many Hoffman & Associates clients can potentially benefit from this transition period. For employers with 100 or more full-time employees, the new regulations allow for coverage of 70% of employees in 2015 instead of 95%, which was the previous 2015 requirement.  All other provisions of the Affordable Care Act will be effective.

 

For more information regarding this or any other business planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

The IRS Withdraws Proposed Reg Covering IRA Rollovers

Douglas McAlpineThe IRS has withdrawn proposed regulations covering IRA rollovers.  The change is significant because it supports a Tax Court interpretation of the rollover rules creating a possible “gotcha” for the unwary.  If you are considering doing a rollover where you actually withdraw the funds then deposit them into a new IRA within the 60 day window, you need to be aware of this change.  Custodian to custodian direct transfers are not affected.

Starting January 1, 2015, a non-custodial rollover is limited to one per year regardless of how many IRA accounts you have.  Previously, you could make one such rollover per year from each separate IRA.

The IRA rules are complicated and often unforgiving.  You should discuss any IRA transfers and withdrawals with your tax advisor before you make any changes to your IRA accounts.   Here is the excerpt from the Federal Tax Weekly, Issue 29,  July 17, 2014:

IRS Withdraws Proposed Reg To Reflect Bobrow’s One-Rollover-Per-Year Limit On IRAs

NPRM REG-209459-78

Reflecting the Tax Court’s decision in Bobrow, TC Memo. 2014-21, CCH Dec. 59,823(M), the IRS has withdrawn Prop. Reg. §1.408-4(b)(4)(ii).  This withdrawal makes good on its announced intention earlier in Ann. 2014-15 to follow this pro-government decision.  In Bobrow, the Tax Court found that a taxpayer could make only one nontaxable rollover contribution within each one-year period regardless of how many IRAs the taxpayer maintained.

  • CCH Take Away. “The Bobrow decision affects only IRA to IRA rollovers,” Rob Kaplan, Ballard Spahr LLP, Philadelphia, told CCH.  Bobrow does not affect the ability of an IRA owner to transfer funds from one IRA trustee or custodian directly to another, because a transfer is not a rollover and is not subject to the one-rollover-per-year limit, Kaplan explained. Bobrow also does not apply to rollovers from a 401(k) plan to an IRA. For example, an individual can take a 401(k) distribution from a former employer, roll it over to an IRA and subsequently roll it over to a plan with a new employer without violating the one-rollover-per-year rule, Kaplan noted.

Background

Generally, Code Sec. 408(d)(3)(A)(i) allows a tax-free rollover of an IRA if the funds distributed to the taxpayer are rolled over into an IRA for the taxpayer’s benefit within 60 days, subject to the one-rollover per-year limit of Code Sec. 408(d)(3)(B).  The Tax Court found in Bobrow that the one-year limitation under Code Sec. 408(d) (3)(B) is not specific to any single IRA maintained by an individual but instead applies to all IRAs maintained by a taxpayer. A taxpayer who maintains multiple IRAs may not make a rollover contribution from each IRA within one year, the court held.  After the Tax Court announced its decision, the IRS issued Ann. 2014-15, indicating it “anticipates that it will follow the interpretation of §408(d)(3)(B) in Bobrow and, accordingly, intends to withdraw the proposed regulation and revise Publication 590 to the extent needed to follow that interpretation.”

  • Comment. At press time, the IRS has not yet issued new regs.  The IRS has indicated that it will not apply the Bobrow ruling before January 1, 2015, Kaplan told CCH.

Withdrawn reg

In 1981, the IRS issued a proposed reg that would have provided that the rollover limitation of Code Sec. 408(d)(3)(B) would be applied on an IRA-by-IRA basis. The proposed reg is contrary to the Tax Court’s decision in Bobrow. Under Bobrow, an individual cannot make an IRA-to-IRA rollover if the individual has made an IRA-to-IRA rollover involving any of the individual’s IRAs within the preceding one-year period. As a result, the IRS has withdrawn the proposed reg.

Publication 590

The taxpayers in Bobrow asked the Tax Court to reconsider its decision based on the IRS’s published guidance (Publication 590). The court denied the motion for reconsideration and reminded the taxpayers that the IRS’s published guidance is not binding precedent.

  • Comment. The IRS has apparently not yet updated its online version of Publication 590 to reflect Bobrow.

References: FED ¶49,620 ; TRC RETIRE: 66,702 

 

For more information regarding this or any other tax planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Musings from the CEO – Summer 2014

Mike HoffmanI saw a headline the other day that declared “Why You Should Update Your Estate Plan”. Now, there is a topic that I could write a book about!

I have heard statistics that up to 80% of Americans either have no Will, or some attempt at a Last Will and Testament that is sorely inadequate. The basic core documents that everyone needs are a Will, a General Power of Attorney (that kicks-in upon disability or incapacity), and a Health Care Directive. Once these documents are in place, they need to be reviewed periodically. Obviously, tax laws and family circumstances change. Also, more and more people move because of job changes, they retire to another part of the country, or they move closer to their kids and grandchildren.

A little over two years ago, the $5,000,000 estate tax exemption became “permanent”. This does not mean that it won’t change, and in fact, it does change by going up a little bit each year. Going from $600,000 (the exemption in the ‘90’s) to $5,000,000 took most of us off the estate tax paying rolls and did change the focus of a lot of estate planners. We generally pay more attention to income tax matters than we did before. For instance, if a married couple has over $10,000,000 of exemption available, rather than trying to get everything out of their taxable estates, we would like for at least that much property to go to their heirs from their estates (after death), therefore, with a brand new income tax basis.

I read that one commentator expressed that an estate plan is not meant to be put in a time capsule and to be opened and dissected at death. An estate plan will change and evolve. There are many things that can be accomplished with a comprehensive estate plan. Not only are we saving estate taxes, income taxes, and probate costs, we are protecting assets, providing sound management of assets, and taking care of other responsibilities.

How are we leaving assets to our spouse and descendants? Can we be better stewards of our wealth by considering appropriate planning techniques, such as trusts?

It is important to periodically check the ownership and beneficiary designations of life insurance policies to make sure that these liquid assets will be handled appropriately. It is extremely important to review beneficiary designations on IRA accounts and other retirement plan assets. Not only do you want to make sure the assets go where you intend, but you want to maximize potential tax savings.

The ownership of all assets ought to be reviewed periodically. There are several types of joint ownership that have different consequences for estate planning and tax purposes. It is not just deeds for real property that should be checked, but it’s also important to understand how the titling of your investment accounts can affect the treatment of your assets at death.

If you own property in other jurisdictions, such as a house at the beach or in the mountains, this can complicate probate matters for the family. It is a relatively simple matter to use one of several techniques to remove that particular asset from your probate estate, potentially saving a great deal of time, money and aggravation for your spouse and descendants.

Most family/closely-held businesses do not have a succession plan or an exit strategy. This is particularly concerning when it is that family business that created the wealth. Will the business suffer a potential loss of value to the family when the patriarch or matriarch is no longer in the picture?

There are countless reasons why you should update your estate plan. First and foremost, make sure you have an estate plan. A failure to plan is a plan to fail.

 

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Can You Afford To Ignore Your Business Exit?

Mike HoffmanHere’s another excellent article written by Denis M. Brown from Pace Capital Resources, LLC.  It is from The Exit Planning Review newsletter, issue 282, dated June 8, 2014.  Can You Afford To Ignore Your Business Exit?

Sincerely,

Mike

 

For more information regarding this or any other business planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Georgia Education Expense Tax Credit – Do Not Wait, Apply for Approval Now

Mary 1The Georgia Department of Revenue has already approved 50% of the $58M education expense tax credits allowed for 2014.  Last year all of the credit cap was approved by May 9, 2013.  It is expected that the entire 2014 credit cap will be met by the end of January 2014.

This tax credit is for contributions made to Georgia Student Scholarship Organizations.  These organizations provide scholarships for students to attend primary and secondary private schools.  The contribution is deductible on your individual federal income tax return as a charitable contribution, and a dollar for dollar tax credit is allowed to offset your Georgia income tax.  Taxpayers must apply for pre-approval in order to participate in this program.  Once the annual credit cap is met, no additional applications are approved.

For more information regarding this or any other tax planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Hoffman & Associates Expands 2013

ATLANTADec. 26, 2013PRLog — Hoffman & Associates, Attorneys-at-Law, LLC, Sandy Springs welcomed 2 new attorneys this fall, Doug McAlpine and Rhiannon Brusco.  Doug brings with him a wealth of experience having founded and managed his own firm for over 20 years.  He is a welcome addition to H&A bringing over 30 years of experience in the areas of income tax planning and compliance, probate, small business formation and estate planning.  Doug is licensed as both an attorney and CPA in the state of Georgia.  Rhiannon joined the firm in October as an Associate and will specialize in the areas of estate planning and probate.  Prior to joining Hoffman & Associates, Rhiannon was a litigation attorney for a large international firm in both Miami and Atlanta.  Rhiannon’s experience as a seasoned litigator brings Hoffman & Associates the ability to foresee potentially “troublesome” positions and provisions.

Contact
Hoffman & Associates
404-255-7400
carolina@hoffmanandassoc.net
Read more Information at  Online form Press Release.com

2013 Year-End Tax Planning: Personal Tax Considerations

As January 1, 2014 gets closer, year-end tax planning considerations should be starting to take shape. New tax legislation has brought greater certainty to year-end planning, but has also created new challenges. The number of changes made to the Tax Code and the opportunities these changes bring may seem overwhelming. However, early planning will help you to maximize your potential tax savings and minimize your tax liability. This letter is intended to be a mile-high view of some key year-end tax planning strategies.

Changes for 2013 and beyond

In 2012, year-end planning was complicated by the great uncertainty over the fate of the Bush-era tax cuts. For more than 10 years, individuals had enjoyed lower income tax rates, but these rates were scheduled to expire after 2012. Moreover, many tax credits and deductions that had been made more generous were also set to expire after 2012. In January 2013, Congress passed the American Taxpayer Relief Act of 2012, which made permanent many, but not all, of the Bush-era tax cuts and also some tax benefits enacted during the Obama administration. Congress also permanently “patched” the alternative minimum tax (AMT) to prevent its encroachment on middle income taxpayers. The result is much greater certainty in year-end tax planning for 2013 because we know what the individual tax rates are in 2014, how many tax credits and deductions are structured, and much more.

Of course, there are always complexities in the Tax Code. In 2013, two new Medicare taxes kicked-in (3.8-percent net investment income (NII) surtax and a 0.9-percent Additional Medicare Tax). In addition, the U.S. Supreme Court ruled that the federal government’s denial of recognition of same-sex marriage was unconstitutional, opening the door to allowing married same-sex couples to file joint federal tax returns and take advantage of other tax benefits available to married couples. Beginning in 2014, some of the most far reaching provisions of the Affordable Care Act will become effective: the individual mandate, the start of Marketplaces to obtain insurance and a special tax credit to help offset the cost of insurance.

Planning for expiring tax incentives

First, do not lose the benefit of some generous, but temporary tax incentives that are available in 2013 but may not be in 2014. Are you planning to purchase a big-ticket item such as a new car or boat? The state and local sales tax deduction (available in lieu of the deduction for state and local income taxes) is scheduled to expire after 2013, and you may want to accelerate that purchase to take advantage of the tax break. A valuable tax credit for making certain energy efficient home improvements, including windows and heating and cooling systems, and a deduction for teachers’ classroom expenses are also scheduled to expire after 2013. These are just some of many incentives that will sunset after 2013 unless extended by Congress. The window for maximizing your tax savings for 2013 is closing. Please contact our office for more details.

Planning for new taxes and rates

Some individuals may be surprised that they owe additional taxes in 2013, even with the extension of the Bush-era tax cuts. Three new taxes are in effect for 2013: the NII surtax, the Additional Medicare Tax and a revived 39.6 percent tax bracket for higher income individuals. The 3.8-percent NII surtax very broadly applies to individuals, estates and trusts that have certain investment income above set threshold amounts. These amounts include a $250,000 threshold for married couples filing jointly; $200,000 for single filers. It should also be noted that trusts will hit the highest tax rate with only $11,950 of retained taxable income.  One strategy to consider is to keep, if possible, income below the threshold levels for the NII surtax by spreading income out over a number of years or finding offsetting above-the-line deductions. If you are considering the sale of your home, and the gain will exceed the home sale exclusion, please contact our office so we can discuss any possible NII surtax.

The Additional Medicare Tax applies to wages and self-employment income above threshold amounts including $250,000 for married couples filing joint returns and $200,000 for single individuals. If you have not already reviewed your income tax withholding for 2013, now is the time to do it. One way to reduce the sting of any Additional Medicare Tax liability is to withhold an additional amount of income tax.

As discussed, ATRA extended the Bush-era tax rates for middle and lower income individuals. ATRA also revived the 39.6 percent top tax rate. For 2013, the starting points for the 39.6 percent bracket are 450,000 for married couples filing jointly and surviving spouses, $425,000 for heads of households, $400,000 for single filers, and $225,000 for married couples filing separately. ATRA also revived the personal exemption phaseout and the limitation on itemized deductions for higher income individuals.

Starting in 2013, ATRA also sets the top rate for capital gains and dividends to 20 percent. This top rate aligns itself with the levels at with the new 39.6 percent income tax rate bracket starts: capital gains and dividends to the extent they would be otherwise taxed at the 39.6 percent rate as marginal ordinary income will be taxed at the 20 percent rate. ATRA did not change the application of ordinary income rates to short-term capital gains. However, individuals should plan for the possibility of being subject to a higher top rate (39.6 percent).

Planning for health care changes

Before year-end, individuals need to review how the Affordable Care Act will impact them. The Affordable Care Act brings a sea-change to our traditional image of health insurance. The law requires individuals, unless exempt, to either carry minimum essential health care coverage or make a shared responsibility payment (also known as a penalty). Most employer-sponsored health insurance is deemed to be minimum essential coverage, as is coverage provided by Medicare, Medicaid, and other government programs. Self-employed individuals and small business owners should revisit their health insurance coverage, if they have coverage, before year-end and weigh the benefits and costs of obtaining coverage in a public Marketplace (or a private insurance exchange) for themselves and their employees. Small businesses may be eligible for a tax credit to help pay for health insurance. Individuals may qualify for a premium assistance tax credit, which is refundable and payable in advance, to offset the cost of coverage. Please contact our office for more details about the Marketplaces, and health insurance coverage for small businesses and individuals.

Individuals with health flexible spending accounts (FSAs) and similar arrangements should take a look at their spending habits for 2013 and predict how they will use these tax-favored funds in the future. In 2013, the maximum salary-reduction contribution to a health FSA is $2,500. Remember that health FSAs have strict “use it or lose it” rules, and the cost of over-the-counter drugs cannot be reimbursed with health FSA dollars unless you obtain a prescription (there are some exceptions).

Individuals who itemize their deductions also need to keep in mind the 10 percent floor for qualified medical expenses. This change took effect at the beginning of 2013. It means that you can only claim deductions for medical expenses when they reach 10 percent of adjusted gross income (for regular tax purposes and for alternative minimum tax purposes). There is a temporary exception for individuals over age 65 for regular tax purposes.

Planning for gifts

Gift-giving is often overlooked as a year-end planning strategy. For 2013, individuals can make tax-free gifts (no tax consequences for the giver or the recipient) of up to $14,000 to any individual. Married couples may “split” their gifts to each recipient, which effectively raises the tax-free gift to $28,000. Gifts between spouses are always tax-free unless one spouse is not a U.S. citizen. In that case, the first $143,000 in gifts made in 2013 is tax-free.

There are special rules for gifts made for medical care and education that can be a valuable component of a year-end tax strategy, especially for individuals who want to help a family member or friend. Monetary gifts given directly to a college to pay tuition or to a medical service provider are tax-free to the person making the gift and the person benefitting from education or medical care.

Gifts to charity also are frequently made at year-end. Through the end of 2013, taxpayers age 70 ½ and older can make a tax-free distribution from individual retirement accounts directly to a charity. The maximum distribution is $100,000. Individuals taking this option cannot claim a deduction for the charitable gift.

Planning for retirement savings

Year-end is a good time to review if your retirement savings plans and tax strategies complement each other. For 2013, the maximum amount of contributions that can be made to an IRA is $5,500, with a $1,000 catch-up amount allowed for individuals over age 50. Keep in mind that the maximum amount that can be contributed to a Roth IRA begins to decrease once a taxpayer’s adjusted gross income crosses a certain threshold. For example, married couples filing jointly will begin to see their contributions begin to phase out when their AGI is $178,000. Once their AGI reaches $188,000 or more, they can no longer contribute to a Roth IRA. For single filers the corresponding income thresholds for 2013 are $112,000 and $127,000. Please note that 2013 contributions, for tax purposes, may be made until April 15, 2014.

Traditional IRAs and Roth IRAs are very different savings vehicles. A traditional IRA or Roth IRA set up years ago may not be the best savings vehicle today or for the immediate future if employment and other personal circumstances have changed. Some individuals may be contemplating rolling over a workplace retirement plan into an IRA. Very complex rules apply in these situations and rollovers should be carefully planned. The same is true in converting a traditional IRA to a Roth IRA and vice-versa. Every individual has unique goals for retirement savings and no one size fits all. Please contact our office for a more detailed discussion of your retirement plans.

Planning for Small Businesses

There are also strategies available for small businesses seeking to maximize tax benefits in 2013.  Two of the business incentives scheduled to end or significantly change after 2013 are the bonus depreciation allowance and the enhanced section 179 expensing provisions.

Bonus depreciation is scheduled to end after 2013 if not renewed by Congress. Additional 50-percent bonus depreciation was extended by the American Taxpayer Relief Act of 2012 (ATRA, signed into law on January 2, 2013) for one-year only and applies to qualifying property placed in service before January 1, 2014. In the case of property with a longer production period and certain non-commercial aircraft, the extension also applies to property acquired before January 1, 2014 and placed in service before January 1, 2015.

Unlike regular depreciation, under which half- or quarter-year conventions may be required, a taxpayer is entitled to the full, 50-percent bonus depreciation irrespective of when during the year the asset is purchased. Therefore, year-end placed-in-service strategies can provide an almost immediate “cash discount” from qualifying purchases, even when factoring in the cost of business loans to finance a portion of those purchases.

An enhanced section 179 expense deduction is available until 2014 for taxpayers (other than estates, trusts or certain non-corporate lessors) that elect to treat the cost of qualifying property (so called section 179 property) as an expense rather than a capital expenditure. The current section 179 dollar cap for 2013 is $500,000. For tax years beginning after 2013, that dollar limit is officially scheduled to plunge to $25,000 unless otherwise extended by Congress. For tax years beginning in 2013, the overall investment limitation is $2 million. That level is also scheduled to fall to $200,000 in 2014. Please contact our office regarding how to best benefit from these provisions in 2013.

Georgia Tax Credits

The State of Georgia has several state specific credits against Georgia income taxes.  Many of you may be aware of or have utilized the Georgia Private School Credit.  Each year Georgia sets aside an amount of money which is available to taxpayers who qualify in advance for the benefit.  Married taxpayers can claim up to $2500 and single taxpayers up to $1000.  Since there is a finite amount available, the fund will be fully utilized well before the end of 2014.  If you wish to claim this credit, you should make it a New Year’s resolution and apply for qualification at the beginning of 2014.  You can get more specific information at http://www.gadoe.org/External-Affairs-and-Policy/Policy/Pages/Tax-Credit-Program.aspx or talk directly with your private school.  This credit is a win/win since you get every dollar up to the limit back on your tax return and you also get a federal income tax deduction on Schedule A if you itemize. 

The film industry in Georgia is entitled to tax credits.  The law allows these credits to be transferred to other taxpayers.  As a result, unused credits are being sold at a discount and you can purchase them to satisfy your Georgia tax liability.  Additionally, you get a full itemized deduction for the amount of the credit but you must report the discount as a short-term capital gain on Schedule D.  An additional benefit is that the credit is treated like withholding and can minimize or eliminate the need for estimated payments and possibly withholding.

A small but frequently overlooked credit is the $150 Driver Education Credit.  If you pay for your child to take a driver’s education course and get a certificate of completion, you are entitled to a credit of the amount spent up to $150.

It should also be noted that the income tax exclusion on retirement income, for taxpayers who are 65 and older, will increase from $100,000 in 2013 to $150,000 in 2014, $200,000 in 2015, and to an unlimited retirement income exclusion effective in 2016.

We have reviewed only some of the many year-end tax planning strategies that could help you minimize your 2013 tax bill and maximize savings.  Please contact our office to schedule an appointment to personalize your 2013 year-end tax planning.

For more information regarding this or any other tax planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Musings from the CEO (Fall 2013)

Mike_Hoffman_17Here’s a dire prediction. You will remember 2013 as the year your taxes really went up! There has been a perfect storm of tax law changes that take effect in 2013, combined with the expiration of a number of recession tax relief measures, and the general prognosis that earnings and investment income are finally moving up in 2013 and into 2014.

In 2011 and 2012, those of you with earned income noticed a reduction in your Social Security withholding from 6.2% to 4.2%. That reduction is gone for 2013. You will also notice a Medicare tax increase of .9% that kicks in on earned income for those married taxpayers with modified adjusted gross income in excess of $200,000 for single taxpayers and $250,000 for married filing joint. This was part of Obamacare.

Also related to Medicare is a new Obamacare tax on net investment income, which includes capital gains (even taxable gain on the sale of a personal residence) of an additional 3.8% for those individual taxpayers with modified adjusted gross income of over $200,000 and married taxpayers with modified adjusted gross income of over $250,000.

The personal exemption phase outs (PEP) were eliminated during the recession over the last several years, but come back for 2013. This means that the deduction you would normally get for personal exemptions is phased out again, starting for those with adjusted gross income of over $250,000 for individual taxpayers or $300,000 for married taxpayers filing jointly.

Similarly, the limitations on itemized deductions, which had been suspended over the last several years, come back with a vengeance in 2013. These so-called Pease limitations reduce your itemized deductions up to 80% starting with individual taxpayers with adjusted gross income exceeding $250,000 or married taxpayers with adjusted gross income of over $300,000.

The threshold or floor for deducting medical expenses has been increased by 33 1/3% for 2013. In 2012, qualified medical expenses in excess of 7½% of adjusted gross income were deductible as an itemized deduction, and that threshold/floor has been increased to 10% for 2013.

Tax rates in general have gone up as a result of legislation taking effect in 2013. The top individual income tax rate has increased from 35% to 39.6%. The dividends and capital gains tax rate has increased by 1/3 from 15% in 2012 to 20% in 2013.

The Social Security wage base increased from 2012 to 2013 up to $113,700. That is the amount of earned income which is subject to the Social Security tax of 6.2% for an employee or 12.4% on earnings considered as from self employment.

What does all this mean? Tax rates on earned income have increased from potentially 52.1% (46.1% federal income tax, social security, Medicare, and 6% Georgia) to 61.8% (55.8% federal income tax, social security, Medicare, Obamacare and 6% Georgia). That’s 18.6% increase, and that’s the best scenario. Dividends and capital gains tax has increased 41.9%, from 21% (15% federal, 6% Georgia) to 29.8% (20% federal, 3.8% Obamacare, 6% Georgia).

Primarily, it means get your year-end planning done soon to mitigate any surprises. The need and the benefit of accelerating deductions or deferring income could be the most significant you have ever witnessed. Caution is advised to determine if you are in an alternative minimum tax situation, as this will have a significant effect on some year-end tax maneuvers that you might employ.

Examine your withholding and estimated payments to determine that you have eliminated or minimized any under-payment penalty. Explore the use of a plethora of state tax credits that are available, particularly in Georgia, to pay your state taxes. This could result in saving anywhere from 10% to 40% of your state tax liability, combined with the elimination of any potential under payment penalties.

Most tax preparers have software available to run a mock-up of your 2013 tax returns. This could come in handy to guide you as to whether it is advisable for you to accelerate certain deductions, harvest some capital losses to offset capital gains, convert traditional IRA assets to Roth IRAs, or confirm that your judgment to do nothing is rational.

In addition to being a full service law firm, Hoffman & Associates maintains a stand-alone tax practice area dedicated to the preparation and filing of all types of tax returns. Please do not hesitate to contact me or any of us if we can arrange to assist you in achieving some significant income tax savings for 2013.

For more information regarding this or any other estate or tax planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

Conservation Easements – Easy Tax Savings

Ian 1You may not be able to have your cake and eat it too, but you can own your land and donate it too.

Conservation easements allow a property owner to maintain ownership of their land while also ensuring that it will be preserved in perpetuity.  This allows a land owner to maintain private ownership of their land while also limiting development, essentially making a charitable donation and therefore receiving a tax deduction for the reduction in value under IRC Sec. 170.

Although the landowner will maintain possession of the land, the conservation easement burdening the land is permanent and runs with the land, so the land can be transferred, but the conservation easement restrictions will always remain in place.

Why would you want to burden your land forever?  Besides the charitable aspect, a landowner can save a significant amount of real estate taxes, income taxes, and estate taxes with a conservation easement.  In fact, right now, a qualified farmer who puts a conservation easement on the farm can offset up to 100 percent of his or her federal taxable income, leaving the farmer with ZERO income tax for the year, and up to a 15 year carryover of any unused deduction.  Additionally, there are state tax credits in Georgia and many other states for conservation easements.

However, at the end of 2013, the income deduction limit is set to revert to 30% of a donor’s income and only a five year carry forward.

For example, in 2013, if a farmer who makes $500,000 a year sets up a conservation easement worth $1.5 million, the farmer can deduct $500,000 in 2013 and carry forward the $1,000,000 excess charitable deduction to offset income in future years.  However, if that farmer waits until next year and Congress does not pass the Enhanced Easement Incentive, that same $1.5 million conservation easement would only be worth a $150,000 deduction and a carryover period of only five years.  Therefore, the farmer would lose out on $600,000 of the deduction.

The amount deductible from tax will be the difference between the value of the property before the conservation easement and the value of the property after that conservation easement, which must be determined by a qualified appraiser.

The landowner grants the conservation easement to either a government unit or a charity and the contribution must be exclusively for “conservation purposes.”

The state of Georgia gives a dollar-for-dollar income tax credit for 25% of the fair market value of the donation, up to a maximum credit amount of $250,000.  It can be carried forward for 10 years.  Additionally excess credits can be sold to other taxpayers for cash.  However, there is a $5,000 application fee.

For more information regarding this or any other estate planning concern, please visit the Hoffman & Associates website at www.hoffmanestatelaw.com, call us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

UNCLAIMED PROPERTY

State governments in the U.S. have between $35 and $400 billion dollars of unclaimed assets sitting in state funds awaiting retrieval.  A non-profit organization called the National Association of Unclaimed Property Administrators (“NAUPA”) has members from every state in the U.S. helping oversee unclaimed property. The databases that house the unclaimed property records are maintained by each individual state, not by NAUPA.  Most state databases are free to search.

Unclaimed property is defined as “accounts in financial institutions and companies, that have had no activity generated or contact with the owner for one year or longer” (The time period is set by each state).  There is currently no statute of limitations on unclaimed property.

 There are many different reasons why property is turned over to the state and becomes unclaimed.  A few of the most common are:

  • you move without notifying every business contact (i.e. utility company);
  • you forget about accounts you may still have open;
  • you may have checks that were lost in the mail or put in a drawer and forgotten about;
  • you leave a job and don’t collect your final paycheck
  • a loved one passes away and there is no process for contacting heirs.

 

If you believe you may have unclaimed property, you can visit NAUPA’s site www.unclaimed.org or the national database www.missingmoney.com, which will link you to the individual state’s unclaimed property database.  If you search Georgia, you can go directly to the Georgia Department of Revenue’s site www.etax.dor.ga.gov. Type in your name – the name you had when you lived in that state.  If you find your name you can initiate a claim on the website.  You should allow at least 120 days for the initial inquiry to be processed.  If the state believes the property could be yours, it will send you another form and request documentation to establish ownership/identity as the rightful owner.

Legitimate proof of your right to unclaimed property includes proof of address and proof of name at the time the property was originally left unclaimed.  If you are claiming property from someone who is deceased, you will need to provide documentation that shows your relationship and right to claim.

A huge unclaimed account exists in New York.  Last year, a Holocaust survivor died at age 97 with no Will and no heirs to his estate.  He died leaving an estate worth an estimated $40 million.  If no heirs are found, his estate will go to the state of New York.  This is yet one more reason why everyone needs a Will and should advise their loved ones as to the location of important papers.

If you would like more information or need assistance in searching and possibly claiming your property, please contact us at 404-255-7400 or send us an email.

In accordance with IRS Circular 230, this article is not to be considered a “covered opinion” or other written tax advice and should not be relied upon for IRS audit, tax dispute, or any other purpose. The information contained herein is provided “as is” for general guidance on matters of interest only. Hoffman & Associates, Attorneys-at-Law, LLC is not herein engaged in rendering legal, accounting, tax, or other professional advice and services. Before making any decision or taking any action, you should consult a competent professional advisor.

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