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“Taxing” is a word synonymous with “onerous” and “wearing.” Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance. We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters.
There are a number of new tax issues to take into account as you do your year-end tax planning. Wayne Zell of law firm Odin, Feldman Pittleman asked me to join him for a session of the Power of Attorney radio show to talk about the planning opportunities taxpayers can take advantage of before year-end.
The interview will air tomorrow (Saturday, 12/7) at 10AM on Federal News Radio (1500AM). We’ll discuss the new net investment income tax, as well as several exemption and deduction phase-outs, and the new effective tax rates for higher income levels. I’ll also offer strategies for increasing or making retirement plan contributions, harvesting capital losses, and other important year-end strategies.
For more information about tomorrow’s interview, and the Power of Attorney show, click here. Hope you can join us at 10AM tomorrow!
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In our previous post, we outlined the basics for those individuals who are subject to the 3.8% Net Investment Income Tax (NIIT) for 2013. In summary, portfolio and passive income are two categories of income subject to the NIIT. It would then seem intuitive that to avoid this additional surtax of 3.8% on net investment income, you would simply need to have income derived from a business, since income derived from a business is neither passive nor portfolio. Unfortunately, there is a key phrase in the Internal Revenue Code which states that income must be earned in an “active” trade or business in order not to be subject to the additional surtax.
In addition to the various tax increases enacted on January 1st of this year as part of the American Taxpayer Relief Act of 2012 (which averted the so-called fiscal cliff), taxpayers should note one other tax change for 2013: the 3.8% tax on net investment income. While it was actually put in place way back in 2010 as part of the health-care law, it went into effect for this year and will apply to individual returns due April 15, 2014.
Specifically, this is a 3.8% tax on the lesser of a taxpayer’s net investment income for the year or the excess of his/her modified adjusted gross income (AGI) at the following thresholds:
If your adjusted gross income does not exceed those limits, the net investment income tax will not apply to you.
The IRS has released a change to flexible spending accounts (FSAs) under cafeteria plans which addresses the “Use-or-Lose” provision. Essentially, an employer can amend their cafeteria plan to allow participants/employees to rollover up to $500 of unused funds to the following year to reimburse out-of-pocket qualified medical expenses. Treasury estimates that nearly 14 million families participate in these plans, which means that a large base of taxpayers is impacted by the change.
As a result of the 16-day government shutdown, the IRS is already predicting a delayed start to the 2014 filing season. Citing a need to allow adequate time to program and test tax processing systems, the IRS is anticipating a delay ranging from one to two weeks. If that expectation stands, taxpayers will be able to begin filing their 2013 tax returns no earlier than January 28th, and no later than February 4th.
UPDATE: With the end of the government shutdown, the IRS has resumed operations and is processing tax returns received since 10/1, as well as refunds. They have begun to respond to correspondence and requests, but do expect initial delays, as well as high call volumes. For additional information on the transition and any associated delays, visit the IRS website.
With the government shut down, IRS operations are limited; according to its contingency plan, the IRS will only keep about 9% of employees on the job. So, what does this mean for you, the taxpayer?
The IRS has announced updated 2014 per-diem rates for the optional high-low substantiation method, effective October 1, 2013. Per-diem rates can be used by employers in lieu of reimbursing actual substantiated expenses for lodging, meals and incidental expenses (M&IE) while an employee is on business travel. The employee must provide simplified substantiation (time, place and business purpose) and the reimbursement is treated as made under an accountable plan (not taxable to the employee).
As promised, the IRS yesterday issued guidance for employers who need to correct prior payroll tax withholding for employees previously taxed on certain same-sex spouse benefits. In Notice 2013-61, the IRS outlines two optional special procedures for correcting income tax withholding and Federal Insurance Contribution Act (FICA) tax withholding for all prior quarters in 2013. It also outlines the procedure for claiming refunds on prior years’ FICA taxes withheld.