Foreign bank accounts have huge penalties for non-disclosure, up to $250,000 plus imprisonment. If you have investments in a foreign bank, you must inform us with all the details. IRS is very serious about assets in foreign countries. There is a new IRS form that must be completed, #FinCEN 114.
New Tax Rate of 39.6% will apply to high income taxpayers. The threshold for
the 39.6% is based on taxable income as follows:
Joint return $450,000
Head of household $425,000
Capital Gains tax rate on investments held over 12 months and qualified dividends
tax rates go up from 15% to 20% for high income taxpayers as indicated above.
You must have the brokerage year end statement 1099B indicating what the brokerage firm shows as a cost basis. Double check the cost basis on this report. Capital gains on depreciable real estate is subject to a 25% tax on depreciation recaptured. Capital losses (net losses after all gains) are still limited to $3,000 per year with the balance of the net capital losses carried forward. For 2013, if someone is in the lowest tax bracket of 10%, the 15% capital gains tax rate is reduced to zero.
.9% additional medicare tax applies for wages in excess of $250,000 for a joint return and $200,000 for a single return. There is no employer match for the .9% additional medicare tax. A new form, # 8959 is used to report the additional tax.
3.8% tax on net investment income (NII) will apply to the lesser of NII or
modified AGI as follows: Joint returns- $250,000, single returns- $200,000.
Net investment income is income from interest, dividends, annuities, royalties, rents, capital gains, and disposition of property.
Net Investment Income is NOT wages, self employment income, S corporation or Partnership income, Pensions, IRA, 401K income, or sale of residence. A new tax form, # 8960 is used to report the additional tax.
Personal Exemptions for yourself, spouse, and dependents is $3,900 per exemption. There is a phase out for income over $300,000 for joint returns and $250,000 for single filers.
Standard Deduction is used by taxpayers who do not have enough itemized deductions.
The standard deductions are as follows:
Single Joint Return HOH
Standard Deduction $6,100 $12,200 $8,950
If over 65, add 1,500 1,200 1,500
Itemized Deductions are phased out for 2013. This phase out is 3% of itemized deductions based on AGI exceeding $300,000 for joint returns and $250,000 for single returns. The maximum phase out is limited to 80%.
Health Insurance paid by your employer will be noted on your year end W-2. This is for information only and is NOT additional taxable income.
Medical deductions have been limited to the excess of 7.5% of AGI. For 2013, that limit has increased to 10%. Taxpayers over the age of 65 at 12/31/13 will still be able to use the 7.5% limit through 12/31/16.
Mortgage Insurance Premiums are deductible as an itemized deduction for 2013.
Mortgage interest is deductible on your residence on the first mortgage up to $1 million dollars and $100,000 on second mortgages. Let us know if your mortgages exceed these limits.
Sales Tax Paid can be deductible as an itemized deduction for 2013. You can deduct actual sales tax paid during the tax year, or use an IRS table based on family size and income. You may also add to the IRS sales tax table tax paid on a car, boat, motorcycle, airplane, or building materials used to improve you home.
Charitable donations of non-cash items can use web site www.satruck.org, donation value guide, to establish values for donated non-cash items.
Educators Expense of $250 per year is deductible for 2013.
Deductible use of Your Automobile for 2013 based on mileage:
Charitable use per mile . .14
Medical use per mile. .24
Moving expenses per mile. .24
The move must be over 50 miles and for a new job.
Business Use of Your Automobile will generate a tax deduction equal to the actual cost of operating your vehicle including depreciation, or you can take a standard mileage rate of 56.5 cents per business mile. You must be able to substantiate the total miles used during the year and the business portion. You must maintain records to prove you business mileage. Mileage from your house to your office is called commuting and is not business mileage.
Office in the Home now has a safe harbor of $5 per square foot for an eligible
office used in your home. Maximum is 300 square feet, or $1,500.
Self- Employed Individuals can deduct 100% of the cost of eligible health insurance
premiums on page one of their tax return. This also applies to stockholders in S corporations. Eligible health insurance premiums paid include medicare part B and supplemental premiums.
Retirement Contribution limits for the year 2013 are listed below.
Roth and Standard IRA accounts $ 5,500 ($6,500 if over 50 yrs old)
Simple IRA accounts $12,000 ($14,500 if over 50 yrs old)
401K Employer Contributions $17,500 ($23,000 if over 50 yrs old)
SEP Employer Contributions 25% of wages up to $51,000
Note that you must have earned income, such as wages for Standard and Roth IRA contributions. Contributions for a Standard IRA cannot be made after age 70 ½. Contributions to a Roth IRA can be made after 70 ½. For 2013, if you have a non-working spouse and enough earned income, you can now make a $5,500 ($6,500) contribution for the non-working spouse. Contributions must be made by April 15- no extensions. If you are in a retirement plan at work, you will not be able to deduct an IRA contribution if your AGI exceeds $115,000 for a joint filer and $69,000 for single filers.
RMD- Required minimum distributions from you IRA accounts are required by the April 1 after you have obtained age 70½. If you do not take the RMD, you will pay a hefty 50% penalty on money you should have taken but did not. I recommend that you take the RMD in the year you reach 70½. If you wait until the next April 1, you will pay tax on two RMD distributions.
Long Term Health Care Premiums are deductible as medical expenses subject to limitations based on your age. For 2013, the deduction is as follows: Under age 41 the deduction is $360, age 41-50 the deduction is $680, age 51-60 the deduction is $1,360, age 61-70 the deduction is $3,650 and over age 71 the deduction is $4,550.
Net Operating loss- If your losses exceed your income, you may have a Net
Operating Loss. This can be carried back two years and a refund of prior tax
paid will be issued by the IRS. Unused losses can be carried forward for 20
years. You may elect to forgo a NOL carryback in the year of the loss.
Wage Income subject to social security tax for 2013 is maxed out at $113,700 and $117,000 for 2014. There is no ceiling on medicare tax.
Minimum Wage in Florida as of 1/1/2014 is $7.93 per hour. You must pay time and a half for over 40 hours worked in any week.
Social Security Recipients in 2013 between age 62 and full retirement can earn $15,120 and still receive full benefits. For earnings in excess of $15,120 you will lose $1 of benefits for every $2 earned above that amount. There is no earnings limit upon reaching full retirement age. In the year you reach full retirement, you can earn $40,080 until the month you reach full retirement age.
Kiddie Tax is a tax on unearned income (dividends and interest) of a child
under age 18,
or under 24 if a full time student. This tax causes the child’s income to be taxed at the parent’s rate. To avoid the Kiddie Tax, your child must have less than $2,000 of unearned income.
Estate Tax Exemption for 2013 is $5.250 million. For 2014, the exemption will change to $5.340 million. If the FMV of your net assets does not exceed these amounts, you can pass on to family members your assets free of Estate taxes.
Gift Tax Annual Exclusion for gifts is $14,000 in 2013 and 2014. Gifts over this annual amount require a gift tax return to be filed. This is for gifts to non-IRS approved charities, such as friends and family members. Medical payments and tuition are not subject to these limitations.
Dependent Credit is $1,000 and will be available for each qualifying dependent child under age 17. The credit is phased out for married taxpayers with adjusted gross income in excess of $110,000 ($75,000 for single taxpayers). This credit has been made permanent.
Child Care Credit is available for children under age 13 or a disabled dependent who lived with you. You must have paid qualified day care and other child care expenses which allowed you to be gainfully employed. If married, both the taxpayer and spouse must be employed. Qualified expenses of $3,000 for one child ($6,000 for two or more children) will be allowed for computing the tax credit, which is typically 20% of the qualified expenses.
Student Loan Interest expense up to $2,500 can be deducted on page one of the 1040, even if you do not itemize your deductions. This deduction is phased out for single taxpayers with income over $75,000 or joint returns over $155,000.
College Tuition Credit is a maximum of $2,500 and includes all four years of college. To get the maximum credit, you must incur $4,000 of qualified tuition expenses. The credit is phased out if you have more than $90,000 of income for a single filer and $180,000 for joint filers. Note that $1,000 of the credit or 40% (whichever is less) is refundable even if you owe no tax.
College Tuition Fee Expense up to $4,000 is a deduction on page one of form 1040 for 2013. This deduction is phased out for AGI for a joint return in excess of $160,000 and a single return with AGI in excess of $80,000.
Depreciation of personal property purchased during the year and used in a business qualifies for a 100% deduction under IRS Sect. 179 up to $500,000. IRS Sect. 179 does not apply to automobiles or real estate. You may purchase up to $2 million of qualified personal property in 2013 before there is a reduction in the Sect. 179 expense limit.
50% bonus depreciation is available for new property purchased in 2013 and used in a business. You may elect out of this 50% bonus depreciation. Automobiles have a maximum bonus depreciation of $11,160 and trucks and vans have a maximum bonus depreciation of $11,360. SUV’s that have a unloaded gross vehicle weight of less than 6000 lbs are limited to a maximum depreciation of $25,000.
Rental Property losses are limited to a maximum of $25,000 per year. This $25,000 limit is phased out if your adjusted gross income exceeds $150,000 before the real estate loss.
Extensions for 2013 will automatically extend your return for 6 months. The extension is only to file the return. Any tax due must be paid by 4/15/2014. IRS will assess a late penalty plus interest if the tax is not paid by 4/15/2014. If you are not sure if you will owe tax, we strongly recommend that you send in some money with the extension.
Subchapter S Corporations- There is now a late penalty per stockholder for failure to file the tax return on time. The tax return is due by 3/15/2014 or by 9/15/2014 with an extension.
Partnership Returns and Trust Income Tax Returns can be extended until September 15. There is now a late penalty for Partnership returns based on the number of partners.
Mortgage Forgiveness of Debt due to foreclosure on your primary residence is non taxable up to $2M. This is important if you are losing your home. Rental property forgiveness of debt could be taxable.
Business health insurance paid by a small business with less than 25 employees could qualify for a 35% tax credit on health insurance premiums paid in 2013 and a 50% credit for premiums paid in 2014. This is a complicated set of rules so contact us immediately if you provide insurance coverage for all employees. The owners of the business do not qualify.
2014 Obamacare has penalties for individuals who do not have personal health
insurance. If you have insurance through your employer, you are covered. If
you have no health insurance, the penalties will be as follows:
2014- the penalty is $95 or 1% of taxable income; 2015- the penalty is $325 or 2% of taxable income and for 2016- $695 or 2.5% of taxable income.
Low income taxpayers may qualify for a Premium Assistance Credit (PAC). This is a payment by the Government directly to the insurance company during the tax year. This reduces the monthly insurance premium. IMPORTANT- this is a “loan”. At the end of the tax year, the actual PAC available will be re-computed. It is very possible that all or part of the PAC payments paid by the Government will have to be repaid when your tax return is filed. You have the option to elect out of the PAC during the tax year and wait until the year end when the actual income will be available.
Items scheduled to expire as of 1/1/14:
$250 educator credit
Mortgage insurance deduction
State sales tax deduction
College tuition and fees
Home energy credits
Bonus 50% depreciation
Forgiveness of debt cancellation on residence
Identity Theft- scams posing as IRS agents have been prevalent. Never give you social security number, bank information, or credit card information to anyone claiming to be with the IRS. The IRS already has this information. IRS does not contact taxpayers via e-mail. IRS form 14039 should be filed with IRS if you are a victim of identity theft.
Please contact our office if you have questions on any of the issues discussed above.