2015 Federal Tax Updates

Transcription

1 2015 Federal Tax Updates Presented T: IRS Practitiner s Frum December 8 10, 2015 Presented by Kathy Schultz, CPA, AEP Directr, Crprate and Internatinal Services Stephanie Chapman, CPA Manager, Crprate and Internatinal Services Belfint, Lyns & Shuman CPAs Wilmingtn, DE / West Chester, PA /kschultz@belfint.cm Extended t December 31, 2014 Expired prvisins include: Sales Tax MIP Insurance Tuitin deductin $250 teacher deductins IRA transfers t charities Persnal residence COD exclusin Extended t December 31, 2014 Cnt. Expired prvisins include: 50% bnus depreciatin Enhanced 179 expense 15 year life fr qualified real prperty Transit pass allwance fringe S Crp 5 year BIG perid Certain businesses tax credits (R&D credit again!) 1

2 What DID Happen in 2015? Highway Funding Bill ABLE Accunts MyRA s First Time Penalty Abatement Increased Penalties n Infrmatin Returns Scial Security Lphles Clsed Miscellaneus Rulings Inflatin Highway Funding Bill Highway Funding Bill Mstly effective starting 2017 Due dates changed fr 2016 returns Enhanced reprting n mrtgage infrmatin returns (1098s issued after ) Outstanding balance at beginning f year Lan riginatin date Address f securing prperty Starting 2015: Enhanced estate valuatin fr stepped up basis 2

3 Highway Funding New Due Dates Highway Funding Bill: Estate Valuatins Applies t estates in which an estate return is filed after Cnsistency between inherited basis and reprted basis Reprting requirements (pstpned t ): Basis reprting by executr t IRS and beneficiary identifying value f each interest in such prperty as reprted n the Estate Return Within 30 days after the due date f the return (including extensins) r the date filed, whichever is earlier ABLE Accunts 3

4 ABLE Accunts: Achieving a Better Life Experience Similar t 529 Plan fr qualified individuals with disabilities Administered by state Earnings nt taxable, qualified distributins nt taxable Excess cntributins at 6% excise penalty, nnqualified distributins at 10% penalty Funding May be setup tax years beginning after Limited t annual gift tax exclusin ($14,000) ABLE Accunts Beneficiary Must have becme disabled by age 26 Must be resident f the state in which plan maintained and can have nly 1 ABLE at a time. Cannt direct the investments mre than 2 times a year Qualified Disability Expenses Health, Educatin, Husing, Transprtatin Emplyment Training, Assistive Technlgy, Persnal Supprt MyRAs 4

5 MyRAs Eligible participants have taxable cmpensatin but n access t emplyer spnsred plan. Gvernment spnsred Rth IRA that hlds a Treasury security earning a variable interest rate. Same cntributin and withdrawal rules as Rth IRAs Cannt reach balance f mre than $15,000 r be held fr mre than 30 years. As sn as ne limit is reached, must transfer t a Rth IRA. Cntributins will be reprted frm Cmerica Bank n Frm 5498 Apply nline at myra.gv First Time Penalty Abatement Wrking with the IRS: First Time Penalty Abatement (FTA) We all make mistakes...first time s free Use fr Failure t file, pay r depsit penalties Nt applicable t accuracy related penalty T use, write a letter citing the FTA request. File all frms, agree t pay all taxes and have a threeyear clean histry f ther penalties. Applies nly t ne perid. If multiple perids, will apply t earliest and the later perids may be abated n reasnable cause. 5

6 ... Speaking f Penalties Increased Penalty fr Failure t Prvide Infrmatin Frms Effective this upcming filing seasn (2016) fr 2015 frms Applies t W 2, 1099 R, 1099 MISC, 1094 B/1094 C, and 1095 B/1095 C Penalty increases frm $100 per t $250 per frm If crrected within 30 days, drps t $50 If crrected >30 days, but befre August 1, penalty is $100 Scial Security Lphles Clsed Scial Security Lphles Clsed Bipartisan Budget Act 2015 Lphle 1: File and Suspend CLOSES after April 30, 2016 OLD: Higher earning spuse files and immediately suspends, s that lwer earning spuse can claim spusal benefits. NOW: Spuse can n lnger claim benefits ff uncllected filing Can als n lnger change mind and cllect backbenefits. 6

7 Scial Security Lphles Clsed Lphle #2: Claim Nw, Claim Mre Later CLOSES fr individuals reaching 62 in 2016 nward OLD: Lwer earning spuse files fr benefits. Higherearning spuse nt at FRA files fr spusal benefits, then files at 70 fr higher benefits. NOW: If a filer is eligible fr bth retirement and spusal benefits, will autmatically receive the higher f the tw. Gambling Winnings IRS Ntice prpses using gambling sessins t determine wins instead f single wins Prpsal includes changing rules fr W 2G This will allw gamblers t net gains and lsses per sessin Sessin defined as same game, same casin, same day Filing Status Supreme Curt n 6/26/2015: Legally married same sex cuples Married fr incme tax purpses Frm 8958 required t split cmmunity incme Switching frm MFS t MFJ is allwed while statute is pen and prir t 90 day ntice Spuse wn t sign, MFS it is (Salzer) 7

8 2015 Tax Rulings Vss Mrtgage Interest Deductin $1,000,000 threshld n unmarried jint wnership f residence Limit per persn, nt per residence Bbrw: nly ne 60 day rllver per year, nt per IRA accunt (use trustee t trustee still) Ntice Issued Nvember 24, 2015 Affects Tangible Prperty Reg 1.263(a) 1(f) De Minimus Safe Harbr Increases the de minimus safe harbr limit fr taxpayers withut an Applicable Financial Statement frm $500 t $2,500 per invice (r per item, substantiated with an invice) Taxpayers with an AFS still at $5,000 safe harbr. Officially effective fr csts incurred in tax years beginning n/after JANUARY 1, 2016, hwever Ntice assures that fr csts incurred befre, IRS will nt pursue as lng as meet all ther requirements f Reg 1.263(a) 1(f) Inflatin Adjustments 8

9 Tax Rates fr Single Filing Status % n the first 9,075 9,225 9,275 Plus 15% up t 36,900 37,450 37,650 Plus 25% up t 89,350 90,750 91,150 Plus 28% up t 186, , ,150 Plus 33% up t 405, , ,350 Plus 35% up t 406, , ,050 Plus 39.6% thereafter Tax Rates fr Married Filing Jint % n the first 18,150 18,450 18,550 Plus 15% up t 73,800 74,900 75,300 Plus 25% up t 148, , ,900 Plus 28% up t 226, , ,450 Plus 33% up t 405, , ,350 Plus 35% up t 457, , ,950 plus 39.6% thereafter Standard Deductin Married Jint $12,200 $12,400 $12,600 $12,600 Head f Husehld $8,950 $9,100 $9,250 $9,300 Single $6,100 $6,200 $6,300 $6,300 Married Separate $6,100 $6,200 $6,300 $6,300 9

10 Exemptins Persnal $3,950 $4,000 $4,050 Kiddie Tax* $2,000 $2,100 $2,100 * Include n parent s 1040 if kiddie incme is: $1,000 $10,000 $117, $1,050 $10, $1,050 $10,500 The Kiddie Tax Rate Kiddie tax applies if: Child is under 19 (24 if a student nt supprting self with earned incme) Either parent is alive Unearned incme exceeds $2,100 and Child desn t file jint return Return f Pease and Exemptin Phaseuts Persnal Exemptins are reduced by 2% fr each $2,500 in excess f AGI abve the applicable threshld Threshlds Single $254,200 $258,250 $259,400 Married Jint $305,050 $309,900 $311,300 Head Husehld Married Separate $279,650 $284,050 $285,350 $152,525 $154,950 $155,650 10

11 AMT Exemptin Unmarried Exemptin $52,800* $53,600* $53,900* Phaseut $117,300* $328,500 $119,200* $333,600 $119,700* $347,600 28% Rate $182,500* $185,400* $186,300* * Annually adjusted fr inflatin AMT Exemptin Married Exemptin $82,100* $83,400* $83,800* Phaseut $156,500* $484,900 $158,900* $492,00 $159,700* $494,600 28% Rate $182,500* $185,400* $186,300* * Annually adjusted fr inflatin Effective Tax Rates Earned Incme Investment Incme Investment Incme when AMT applies New Rate n Ordinary Incme New Rate n C/G s and Dividends Effective Rate frm Phaseuts ObamaCare tax n Earned Incme ObamaCare tax n Net Investment Incme 39.6% 39.6% 20% 20% 25% 6.2% 6.3% 3.1% N/A.9%.9% 3.8% 3.8% 3.8% TOTALS 46.8% 26.9% 28.8% 11

12 Cmpare 2012 t 2015 Rates Earned Incme Investment Incme Investment Incme when AMT applies % 26.9% 28.8% % 15% 18.75% Increase 11.8% 11.9% 10.05% % Increase 34% 80% 54% Annual IRA Cntributins Year Max IRA Cntributin $5,000 $5,500 IRA Catch up Cntributin $1,000 $1,000 Active Participant(S) Limit Year Single Taxpayer Jint Return 2013 $59,000 $69,000 $95,000 $115, $60,000 $70,000 $96,000 $116, $61,000 $71,000 $98,000 $118, $61,000 $71,000 $98,000 $118,000 12

13 One Spuse Active Participant If ne spuse is an active participant and ne is nt, Secnd spuse may cntribute Much higher AGI limits t determine if deductin is allwed Taxable Year AGI PhaseutRange 2013 $178,000 $188, $181,000 $191, $183,000 $193, $184,000 $194,000 Annual Rth IRA Cntributins Year Max Rth IRA Cntributin Rth Catch up Cntributin $5,000 $5,500 $1,000 $1,000 Rth IRA AGI Phase ut Amunt Year Single Taxpayer Jint Return 2013 $112,000 $127,000 $178,000 $188, $114,000 $129,000 $181,000 $191, $116,000 $131,000 $183,000 $193, $117,000 $132,000 $184,000 $194,000 Nte: Active participatin is nt cnsidered when determining Rth IRA limitatins 13

14 Pensin Limitatin Amunts Max defined cntributin plan $52,000 $53,000 $53,000 SEP IRA $52,000 $53,000 $53,000 Max annual benefit fr a defined benefit plan $210,000 $210,000 $210,000 SIMPLES $12,000 $12,500 $12,500 Annual cmpensatin limit $260,000 $265,000 $265,000 Elective Deferral Limits (k); 403(b); 457; SARSEP $17,500 $18,000 SIMPLE $12,000 $12,500 Age 50 Catch Up Cntributins (k); 403(b); 457; SARSEP $5,500 $6,000 SIMPLE $2,500 $3,000 14

15 Scial Security: SSI Beneficiaries receive 1.7% COLA adjustments fr 2015, 0% fr Therefre als n Part B premium increase fr many. Max SS Taxable Earnings 2014: $117, : $118,500 Retirement Earnings Limits Under FRA $15,480 $15,720 Year Reach FRA $41,400 $41,880 After FRA N Limit N Limit Estate Transfer Tax Chart Persns Dying in Applicable Exclusin Amunt $3,500,000 ($1 millin fr gift tax) $5,000,000 r n estate tax if using mdified carryver basis Applicable Credit Amunt Tp Marginal Tax Rate $1,455,800 45% $330,800 35% r n estate tax if electin made 2011 $5,000,000 $1,730,800 35% 2012 $5,120,000 $1,772,800 35% 2013 $5,520,000 $2,045,800 40% 2014/2015 $5,340,000/$5,430,000 $2,081,800/$2,125,800 40% 2016 $5,450,000 $2,125,800* 40% *Assessing n change t tp marginal rate Gift Annual Exclusin $14,000 unchanged since 2014 Nncitizen spuse 2014: $145, : $147, : $148,000 Receipt f Gifts Reprtable frm Freign Dnrs: Frm Nnresident alien r freign estate: $100,000 Frm Freign Crpratin r Partnership: 2014: $15, : $15,671 Transfers frm Freign Dnrs Estate tax exclusin fr freign wners f U.S. prperty: $60,000 Gifts N lifetime exclusin. Only annual exclusin Real, Tangible, and Cash (U.S. stcks are nt reprtable fr Gift Tax Purpses) 15

16 179 Expense Electin * Maximum 179 deductin $250,000 $500, ,000 Phase ut begins $800,000 $2,000,000 $200,000 *Unless Cngress enacts extender 168(k) Bnus Depreciatin Expired fr assets purchased after /1/10 9/9/10 9/9/10 12/31/ % 100% 50% 0 % Federal Mileage Per Diem Rates Business Mileage Medical/Mving Charitable Mileage

17 Freign Updates Inflatin adjustments Freign Earned Incme Exclusins 2014 $99, $100, $101,300 Expatriatin: Average Annual Net Incme Tax (Past 5 Years) Market t Market Exclusin $160,000 $161,000 $690,000 $693,000 Freign Reprting Freign Reprting: FinCEN 114 Due June 30, n extensins Tw parts: Disclsure n Schedule B (with the 1040) even if n Interest r Dividend Incme Filing the FBAR Every U.S. Persn with an aggregate value f freign financial accunts in which there is either signature authrity r financial interest at any pint in the year reaches $10,000 17

18 FinCEN 114 Terms U.S. Persn: USA = 50 states + D.C. + all territries/pssessins persn in the legal sense entities, kids, trusts, estates regardless f incme tax filing U.S. residents and citizens Entities (crpratins, LLCs, trusts) frmed in the US. NOT IRAs r qualified plans. Aggregate Value Desn t require any ne accunt t exceed $10,000 Cnvert t USD at FinCEN 114 Terms Cnt. Freign At a branch that is lcated utside the US US bank physically lcated utside the US = FOREIGN Freign bank physically lcated inside the US = DOMESTIC Financial Accunt Securities, brkerage, savings, demand, checking, depsit, time depsit Futures r ptins cntracts Life insurance r annuities with a cash value Signature Authrity Cntrls the dispsitin f assets Certain exceptins apply if signature authrity but NO financial interest FinCEN 114 Terms Cnt. Financial Interest Owner f Recrd r Hlder f Legal Title, regardless f whether the accunt is maintained fr client r smene else, OR The Owner f Recrd r Hlder f Legal Title is Agent, attrney, nminee acting n behalf f US persn Crpratin, Partnership r ther entity in which US persn wns directly r indirectly > 50% stck/prfits interest Trust US persn is grantr AND has an wnership interest fr US tax purpses, OR A US Persn has a > 50% present beneficial interest in assets r incme 18

19 FinCEN 114 Examples U.S. LLC (hlding cmpany) wns 65% f a freign crpratin N bank accunts f its wn LLC reprts the full value f bank accunts f its ffshre crprate subsidiary U.S. individual with a Caribbean rental unit Managed by Prperty Manager Reprt the escrw balance FBAR Failure t file penalties are enrmus Fr willful failure, penalty is greater f 50% f freign accunt s highest balance r $100,000 $10,000 fr nn willful vilatins Dn t Frget Sch. B Questin James Mre answered n t Freign Accunt questin n Schedule B Failure negated reasnable cause argument t reverse FBAR penalty Penalty was $40,000 ($10,000 fr each year) fr failure t file an FBAR 19

20 FinCEN 114 Lessn Learned Organizers are likely inadequate. There have been cases where a n checked n the rganizer was deemed intentinal cncealment in applying the nn filing penalties. Spend a few mre minutes asking abut ffshre interests. Reprtable accunts may nt be tp fmind. Shuld I file? Prbably. Freign Financial Asset: FATCA IRS Frm 8938 required if: Individual exceeds filing threshld N reprting fr dmestic entities (trusts, partnerships, etc.) Reprt aggregate balance in freign financial assets Financial accunts Stck r security Cntract, interest Frm 8938 Filing Threshld If Ttal Value f Freign Financial Assets Exceed Nt Living Abrad Last Day f Year Any Time During Year Single and MFS $50,000 OR $75,000 Married Filing Jint $100,000 OR $150,000 Living Abrad Single and MFS $200,000 OR $300,000 Married Filing Jint $400,000 OR $600,000 20

21 Duplicate Reprting Nt Required Frm 8938 reprting nt required if assets reprted n: Frm 3520 Freign Trusts Frm 5471 Freign Crpratins Frm 8621 Passive Freign Investment Cmpanies Frm 8865 Freign Partnerships IRS says failure file Frm 8938 with tax return suspends statute f limitatins Offshre Vluntary Disclsure Prgram (OVDP) 50,000 vluntary disclsures t date Mre than $7 billin cllected Dn t use if tax previusly paid, but FBAR reprt nt filed. File late FBARs and attach explanatin 21

22 Dn t Frget the NIIT! 3.8% Tax n Net Investment Incme (NIIT) This is a third incme tax regime 1. Regular tax = 10% t 39.6% 2. AMT = 26% & 28% 3. NII Tax = Flat 3.8% in additin NII Tax is based n AGI, which means yu culd have zer regular tax and still be subject t NII tax 3.8% Tax n Net Investment Incme 3.8% NII tax n lesser f: Net Investment Incme (NII) r Mdified AGI in excess f: $250,000 MFJ / $125,000 MFS $200,000 Single and HOH Threshlds are nt inflatin adjusted 22

23 Net Investment Incme Interest, dividends, annuities, ryalties, rents Passive activity incme Trading financial instruments and cmmdities (Hedge fund mgrs.) Net gains frm sales f nnbusiness prperty and gains frm (2) an d(3) Less: Allcable deductible expenses What s Nt Investment Incme? Active trade r business incme Gains frm sale f active trade r business assets ( 1231 gains) Self emplyment incme Retirement plan distributins Tax exempt and muni bnd interest Other excluded incme (e.g., life insurance) Trade r Business Exceptin Nt NII if: Incme is derived in the rdinary curse f trade r business, and Activity is carried n regularly, cntinuusly, and substantially, and The activity is nt A passive activity r Trading in financial instruments r cmmdities 23

24 RE Prfessinal Safe Harbr Qualify as a RE prfessinal (750 hurs / 50% tests) Materially participate using either 500 hurs in current year r 500 hurs in 5 f last 10 years Thse wh use ther tests may still avid NII tax facts and circumstances If material participatin in rental activity, then rental incme (and gain n sale) is presumed t be trade r business nt subject t NII tax Asset Sales and NIIT Recgnized gains subject t 3.8% tax Exceptins: Gains frm sale f active business assets Gains nt recgnized due t like kind exchanges, invluntary cnversins, etc. Capital lsses ffset gains $3,000 excess capital lss deductible against ther NII surces Sale f Partnership r S Crpratin Applied n activity by activity analysis Lk t level f participatin in each activity cnducted by the partnership r S crpratin t determine if it is a passive activity f the taxpayer t determine whether all r a prtin f the gain is NII Was the sale a sale f a nn passive (nt NII) r passive (NII) activity? 24

25 Sale f Partnership r S Crpratin Cnt. Other Rules Regulatins require pass thrugh entities prvide necessary inf t sellers Sellers must attach statement t return t exclude part r all f gain frm NII Rules apply t interests sld n installment, including installment sales prir t 2013 if prperly elected Expenses Deductible frm NII Deductible investment interest expense (including carryver) Currently deductible investment expenses (advisry and brker fees) used in cmputing regular tax Prrate 2% reductin and 3% phaseut if ther miscellaneus itemized deductins Early withdrawal penalties Tax preparatin fees Deductible Investment Expenses State and lcal taxes allcable t NII Allcate prrata r ther reasnable methd Reduce by PY refunds if 1411 tax benefit received Use same allcatin as year f deductin 25

26 Planning t Avid NII Tax Reduce AGI Use retirement plan deductins Use tax exempt incme, tax deferred and whle life insurance investments Shift r defer incme with exchanges and installment sales Planning t Mitigate NII Tax Reduce NII Shift taxable investments t tax free Cnvert passive incme t active incme, but beware S/E Tax Cnvert business structure t S crpratin t generatin nn dividend distributins which are nt subject t S/E r NIIT Calculate allcable prtins f investment expense Health Savings Accunts The answer t cst increases fr health insurance curtesy f ACA 26

27 HDHP/HSA Cntributin Limits 2015 Family Self Only HDHP deductible f at least $2,600 $1,300 Out f pcket expense limit $12,900 $6,450 Deductible cntributin limit $6,650 $3,350 $1,000* Additinal cntributin fr taxpayers age 55 r lder per spuse * Each spuse must cntribute t their wn separate HSA $1,000 Prmte Health Savings Accunts (HSA) Available since 2004 Fund until April 15 f fllwing year Tax deductins fr bth emplyer and emplyee cntributins HDHP required need insurance cmpany certificatin HSA is prtable it belngs t emplyee Health Savings Accunts Tw cmpnents f HSA High deductible health insurance plan (HDHP) Health savings accunt (HSA) Qualified medical expenses can be paid frm HSA Unspent mney at year end can be rlled ver

28 Health Savings Accunts Cnt. Individual deduct HSA befre AGI Individuals deduct HDHP Self emplyed: 100% befre AGI Other individuals: Schedule A medical subject t 10% AGI limitatin Health Savings Accunts Cnt. At death, HSA can be rlled ver tax free t spuse At death f secnd spuse, HSA ges t named beneficiary, but can n lnger be used fr medical benefits Nn spuse beneficiaries must pay tax as mney is taken frm accunt like an IRA Qualified Tuitin Prgram 529 $14,000 / $28,000 annual gift limit $70,000 / $140,000 every five years 3.8% net investment incme tax avided if incme used fr cllege expenses See savingfrcllege.cm 28

29 Qualified Tuitin Prgram 529 Cnt. NEW! 529 Plan investments can be changed twice a year Cnsider 529 plans nw that Kiddie Tax affects cllege students until age 24 Reprting Stck Optins When selling shares purchased thrugh stck ptin exercises, remember t add the spread r bargain element t basis Example: Jack buys XYZ stck fr $5 per share when market price is $10. Jack pays tax n spread which is added t basis. Basis = $10 per share When Jack sells the stck the 1099 B will reprt $5 f basis. Yu must make the adjustment n Frm 8949! Unattended Charity Drpbxes Written recrds required, but can be self prepared Must include: Name f charity and date f cntributin Detailed descriptin f dnated prperty FMV f prperty dnated and hw FMV was determined Receipt still required if > $250 29

30 Nncash Cntributins > $500 < $5,000 Charity nncash receipts need dates and descriptins must match the Frm 8283 Charity nncash receipts must be cmpletely filled ut cntempraneusly Vehicle cntributins require Frm 1098 C if claim ver $500 Questins? 30