C E R T I F I E D P U B L I C A C C O U N T A N T S Year End & 2016 Tax Planning Guide

Transcription

1 B A R R Y A R R Y & M O O R E, P. C. C E R T I F I E D P U B L I C A C C O U N T A N T S 2015 Year End & 2016 Tax Planning Guide

2 B A R R Y & M O O R E, P. C. C E R T I F I E D P U B L I C A C C O U N T A N T S Dear clients and friends, Barry & Moore is pleased to present you with our 2015 year end and 2016 tax planning guide. This guide consists of a variety of tax related information about new tax legislation, investing, business taxes, retirement, education, estate planning, health care, and more. Although 2015 was a very quiet year for tax legislation; year end tax planning has continued to be challenging because of Congressional uncertainty, and this year is no exception. Regardless of what Congress does, or doesn t do, there are tax strategies you may want to take advantage of before year end. In uncertain times, proactive tax planning can help you preserve your financial well-being. We hope you find the information contained in this guide helpful. Please visit our website at for any legislative updates to the information contained in this guide. We would be happy to discuss with you any of the these tax matters and how they may affect your specific situation. We appreciate the trust you have placed in us. As always, our mission is your complete satisfaction and success. We wish the best for you and yours through the 2015 holiday season and for all of Sincerely, Barry & Moore, P.C East Camelback, Suite 370 Phoenix, Arizona (602) FAX (602)

3 Table of Contents Information for Everyone Tax planning information for all Investing Help in making tax-smart investment decisions Businesses Important information for those with business ownership interests Charitable Giving Provide support and save taxes Retirement Tax information to help you create and preserve your wealth Family & Education Ways to minimize your taxes while maximizing your family s benefit Estate Planning Dealing with legislative uncertainty Patient Protection and Affordable Care Act Tax implications in 2015 and beyond Energy Efficiency When it comes to tax time, it pays to be green Tax Rates & Limits Schedules and more to answer your basic questions The material in this guide is for informa onal purposes only. This informa on should not be construed as legal, accoun ng, or other professional advice provided by Barry & Moore, P.C. This guide should not be subs tuted for professional services. Consult your tax advisor concerning the applica on of this informa on to your specific circumstances.

4 Information for Everyone Tax planning information for all Frequently Asked Questions Over the past few years we have noted the most common areas for your questions, these areas and their location in this guide are listed below for your quick reference: AZ Tax Credits - Page 6 Estate Planning - Page 9 Annual Gift Tax Exclusion - Page 9 Affordable Care Act (Obamacare) - Page 10 Tax Brackets - Page 12 Last December, in a dramatic rush to beat the clock, the Tax Increase Prevention Act of 2014 was signed into law on December 19, This measure retroactively extended a variety of tax relief provisions that had expired at the end of 2013, including some valuable breaks for businesses. Unfortunately, the extensions were generally only through December 31, Congress will again be required to take action to revive the extenders for 2015 or to possibly make them permanent, perhaps as part of larger tax reform legislation. Tax Extenders Unfortunately, as we provide this 2015/2016 planning guide to you, we still do not know the final status of these tax extenders for Many bills have been introduced in the House of Representatives, with some of those addressing the permanency of certain tax extender items. Also the Senate Finance Committee has passed legislation that extended more than 50 lapsed provisions from January 1, 2015 through December 31, 2016, but at this point nothing has been finalized. So although we expect that something will be done before the end of 2015, it is still important to consider these lapsing extenders into your tax planning. Some key tax extenders currently scheduled to expire are: 50% bonus depreciation, for eligible property placed in service Increased and expanded section 179 deduction, including expensing for qualified leasehold improvements, retail, and restaurant property Research and Development Credit Above-the-line deduction for qualified higher education expenses Income exclusion for discharge of qualified personal residence indebtedness of up to $2,000,000 Accelerated depreciation of qualified leasehold improvement, restaurant, and retail improvement property 5-year waiting period for S-Corp s to avoid built-in gains tax Tax-free direct contribution, for persons 70 ½ or older, up to $100,000 from IRA, to qualified charitable organization Alternative fuels and alternative fuel mixture excise tax credit Teachers classroom expense deduction, $250 of qualified expenses State and local sales taxes itemized deduction Mortgage insurance premiums itemized deduction Information for Everyone - 1 -

5 Information for Everyone Tax planning information for all (Continued) Enactment of the American Taxpayer Relief Act of 2012 ( ATRA ) avoided the so-called fiscal cliff and permanently extended the reduced Bush-era income tax rates for lower and middle-income taxpayers. It also increased the top rates on earned income, investment income, and estates and gifts for more affluent taxpayers. ATRA also indexed the individual Alternative Minimum Tax ( AMT ) for inflation. ATRA permanently left in place the six individual income tax brackets ranging from 10% to 35% for unmarried taxpayers earning taxable income at or below $400,000 and married taxpayers earning taxable income at or below $450,000. For taxpayers above these thresholds, an additional 39.6% tax bracket was added. These thresholds are indexed for inflation. Updated tax rate schedules are included on Page 12 of this guide. American Taxpayer Relief Act of 2012 The top tax rate on long-term capital gains and qualified dividends was similarly changed related to the thresholds indicated above. The 15% rate for taxpayers below these thresholds is the top tax rate for this type of income, but for taxpayers above these thresholds, the top tax rate is 20%. ATRA reinstated the personal exemption phase out and limitation on itemized deductions, indexed for inflation, for single taxpayers with AGI above $258,250, Head of Household filers with AGI above $284,050, and joint filers with AGI over $309,900. For taxpayers with AGI below these thresholds, the phase out and limitation do not apply. ATRA also created a 0.9% Medicare surtax on earned income in excess of $200,000 ($250,000 for married couples filing jointly, $125,000 if filing separately). The Medicare surtax applies to both the employed and self-employed. Depending on your earned wages, your employer may be required to withhold this additional amount. If your employer is not required to withhold and your earned income (and spouse s earned income, if applicable) is more than the above threshold, you will be liable for the additional tax on your return Tax Legislation With the passing of the Surface Transportation and Veterans Health Care Choice Improvement Act of 2015 ( Act ), the due dates and extended due dates of various entity, individual, fiduciary, and exempt organization returns will be changed for years beginning after December 31, 2015 (2016 Calendar year, 2017 filing year). These due date changes are expected to provide greater consistency in reporting pass-through income. Important Due Date Changes on the horizon for the 2016 tax year: Partnerships - Will move forward from April 15th to March 15th. C Corporations - Will move back from March 15th to April 15th. Fiscal year C Corporations will get an additional month to file after their year end. June 30th year end C Corporations are not affected by this law change. Individual FBAR (Foreign Bank Account Reporting) - Will move forward to April 15th from June 30. An extension will be allowed until October 15th. Information for Everyone (Continued) - 2 -

6 Investing Help in making tax-smart investment decisions Attention to Detail Investment Taxes 3.8% Net Investment Income Tax The 0% Rate Principal Residence The tax treatment of investments varies dramatically based on several factors, including the type of investment, the nature of income it produces, how long it has been held, and if any special limitations or tax breaks apply. If you don t pay attention to the details, the tax consequences of an investment may be different than you expect. So before you make any investment decisions, consider the potential tax consequences under the different possible scenarios. The top tax rate on income from qualified dividends and long-term capital gains is unchanged from the increases put in place by ATRA. The top rate on income from both sources increases from 15% to 20% for unmarried taxpayers with taxable income over $413,200 and married taxpayers with taxable income over $464,850. For taxpayers with taxable income below these thresholds, the 15% rate for both long-term capital gains and qualified dividends remains in place. Additionally, investment income is potentially subject to the 3.8% Net Investment Income Tax, depending on whether you meet certain income thresholds (see 3.8% Net Investment Income Tax below). If you have unrealized capital gains, it may be better to hold on to those gains instead of liquidating them so as to limit the amount of potential impact from the increased tax rates and the Net Investment Income Tax. If you have substantial capital loss carryforwards, now may be a good time to harvest those previous capital losses against current capital gains so as to minimize any future tax impact and limit your exposure to the Net Investment Income Tax. Continuing in 2015, a surtax of 3.8% is imposed on net investment income, which includes all unearned income, such as income from interest, dividends, capital gains (including otherwise taxable gain on the sale of a personal residence), annuities, royalties, rents, and passive activity investments. The tax is applied against the lesser of the taxpayer s net investment income or modified AGI in excess of the thresholds. These thresholds are set at $200,000 for singles and $250,000 for joint filers; these thresholds are not indexed for inflation. Income not subject to this tax includes distributions from qualified plans, income derived in the ordinary course of a trade or business that is not treated as a passive activity, and tax exempt income from municipal bonds. It is also important to note that taxpayers subject to an AMT liability would be liable for any 3.8% Net Investment Income Tax in addition to the AMT liability. Taxpayers in the 10% or 15% tax brackets qualify for the 0% tax rate on long-term capital gains and qualified dividends. For example, a married filing jointly couple can have up to $74,900 of taxable income ($37,450 for single taxpayers) and still qualify for the 0% rate. Factoring in the standard deduction and personal exemptions allows a married filing jointly couple to have $95,500 of adjusted gross income ($47,650 for single taxpayers) and still qualify for the 0% rate. The gain on sale of a principal residence may be subject to capital gains tax if the residence was used as other than a principal residence after 2008, even when the total gain doesn t exceed the normal home sale exclusions. Investing - 3 -

7 Businesses Losses/ Built-in Gains Important information for those with business ownership interests Insufficient tax basis limits the amount of losses you are allowed to use to offset other income, which could potentially increase your tax liability. So it may be wise to review your partnership and S-Corporation investments for the need to increase your tax basis prior to year end. You may also want to consider disposing of passive investments to free up current year or prior year suspended losses from those investments. Suspended losses may arise from passive losses, such as those derived from rental real estate or businesses you are not actively involved in, since these types of losses usually can only be deducted against passive income. The ten-year waiting period (recognition period) for an S-Corporation to avoid the built-in gains tax was reduced to five years for tax years beginning in 2012 through This is expected to be extended through 2015 as well. Employee Health Reimbursement Plans For non shareholder-employees and shareholder-employees that own less than 2%, reimbursements for accident and health insurance premiums for more than one employee are no longer allowed under the Affordable Care Act ( ACA ) as these reimbursements would constitute a group plan which would not meet the market reform requirements of ACA. The violation of these market reform requirements could subject the business to a $100 per day, per employee penalty (potentially, $36,500 per employee). The imposition of this penalty was delayed by the IRS when it released Notice on February 18, Notice provides transition relief from the excise tax penalties indicated above for failure to satisfy the market reforms in certain circumstances. Under the notice, small employers with employer reimbursement plans get relief for all of 2014 and through July Small employers are employers that are not Applicable Large Employers (generally less than 50 full time employees). If you have a reimbursement plan in place in 2015, it is important that as of July 1st, any reimbursements for health insurance are included as wages for the employee, with payroll taxes withheld and remitted. This can be adjusted through payroll through the end of the year, so please contact us with any questions you may have regarding your health insurance plan. The enactment of the 2012 ACA, created confusion as to an S-Corporation s ability to deduct medical insurance premiums paid directly to or reimbursed to more than 2% shareholder-employees that are not using an employer sponsored group plan. Shareholder/ Partner Insurance Notice also clarified that S Corporations may continue to report reimbursements of health insurance of 2% shareholders-employees pursuant to Notice Until further guidance is issued and in any event through the end of 2015, the excise tax indicated above will not be asserted for any failure to satisfy the market reforms by a 2% shareholder-employee healthcare arrangement. Businesses - 4 -

8 Shareholder Salaries Businesses (Continued) Salaries for shareholders active in S-Corporations remain a hot issue for the IRS. Currently, S-Corporations have an advantage over all other types of business entities in that only salaries are subject to Social Security and Medicare taxes (15.3% of the first $118,500 of salaries in 2015), whereas the distribution of profits to the shareholders are not subject to these taxes. Active shareholders should receive a reasonable salary. Whether a shareholder-employee's compensation is reasonable depends on the facts and circumstances of each case. Some of the factors the IRS will consider include: (1) whether the salary is unusually higher or lower than those ordinarily paid for similar services; (2) whether the salary is reasonable in relation to the services rendered to the S-Corporation; (3) comparison of the salary with the gross and net income of the S-Corporation; and (4) whether the salary of the shareholder-employee corresponds or bears a close relationship to the stock ownership of such employee. The IRS continues to audit returns based on this issue and reclassify distributions as salaries subject to employment taxes. Please call if you have any questions or concerns related to this matter. Succession Planning When your business is a significant part of your portfolio, it is essential that you formulate a well thought out exit plan to pass responsibility, transfer ownership, and extract your hard earned money from the business. There are different tax consequences related to the use of a buy-sell agreement, succession within the family, non-family succession, or sale to an unrelated party. Additionally, as the recent tax increases have significantly increased the tax rates for high income taxpayers, transfer of ownership interests in S-Corporations and partnerships to family members who are in lower tax brackets could result in significant tax savings. This planning should be done well in advance of your anticipated transition. We will be happy to discuss your succession planning with you so you are adequately prepared. Tangible Property Regulations In last year s Tax Guide, we noted that businesses were finally preparing to adopt the Tangible Property Regulations passed in September The regulations provided long sought after clarification of expenditures that must be capitalized and expenditures that can be deducted as repairs. As taxpayers grappled with the new rules and reporting for their capitalization policies, the IRS granted relief in February 2015 to small taxpayers, defined as those with less than $10 million in assets or $10 million or less in average annual gross receipts. The relief eliminated the requirement for small taxpayers to calculate the impact on historical taxable income. However, small taxpayers are required to apply the regulations prospectively. While the regulations require documentation of policies and procedures and the understanding of new, more complex capitalization vs. repair rules, they also provide greater clarity. It should also be noted that some changes are very taxpayer friendly, so there may be additional expensing opportunities for assets that would have been capitalized under the old rules. Since 2015 is the first full year after implementation, now is a great time to review your policies and procedures to ensure that you are maximizing the available deductions Businesses

9 Charitable Giving Provide support and save taxes Donation Basics Arizona Credits Military Non-Cash Property Cash There are a wide variety of types of donations you may make to charitable organizations to receive a tax break. These types include cash, investment property, personal property, and certain costs related to services you provide. However, your deductions may be limited if they exceed certain AGI limits. Your deductions may also vary based on the type of donation, the type of charity, and any benefit you receive related to the donation. Donate to a qualifying organization by December 31 to qualify for an Arizona tax credit. Each $1 donated lowers your Arizona tax by $1 (subject to certain limits) and may give you a federal charitable deduction as well. The maximum 2015 Public School Credit is $200/$400 for single/married filing jointly returns. The maximum 2015 Qualifying Charitable Organization Credit is $200/$400 for single/married filing jointly returns. This limit can be, at most, doubled to $400/$800 for single/married filing jointly returns, if a donation is also made to a Qualifying Foster Care Organization. The maximum 2015 Private School Tuition Tax Credit is $535/$1,070 for single/married filing jointly returns. Arizona taxpayers will also have the opportunity to donate an additional $532/$1,064 for single/married filing jointly returns under the guidelines of the PLUS Tax Credit program, bringing the total maximum credit to $1,067/$2,134. This credit can potentially be directed to a specific student, subject to certain limitations, if one of the independent tuition organizations is used. Contributions for the Private School Tuition Credit can be accepted through April 15th for credit in the previous calendar year. For a list of qualifying charities, please call us or visit the ADOR website at The Arizona tax credit for contributions made to the Military Relief Fund is in effect through Arizona allows $1,000,000 in total credits each year. The maximum credit is $200 for single taxpayers and $400 for married taxpayers filing a joint return. Get all unwanted household goods to a charity before the end of the year. Keep in mind that these non-cash donations must be in good used condition or better to claim a deduction. You are responsible for keeping track of what was given and determining the value. Substantiation requirements vary depending on the value assigned to the property being donated. Please call us for specifics if you are donating property valued at $250 or more. All donations will require the name of the organization, the date and location of donation, a reasonably detailed description of the donated property, the fair market value, and the method of valuing the property. Consider donating appreciated property to charity. Doing so avoids the capital gains tax you would incur if you sold the property. However, do not donate depreciated property that may qualify for a loss on your personal tax return. Instead, sell the property and give the proceeds to charity. Then you can take the capital loss and the charitable deduction. While donations of any size require some sort of receipt or written acknowledgement from the charity, the date and amount of cash donations over $250 must be substantiated in writing and received from the charitable organization by April 15, Charitable Giving

10 Retirement Tax information to help you create and preserve your wealth Roth IRA Conversion IRA Contributions for High Income Individuals Required Minimum Distributions Retirement for Business Owners Catch-Up Contributions Avoid Penalties If you believe a Roth IRA is better than a traditional IRA and intend to remain in the market for the long-term, consider converting some traditional IRA funds into a Roth IRA. Conversions will automatically be included in income in the year of conversion. In deciding whether or not a conversion is an effective tax planning strategy for your specific situation, it is important to consider a number of relevant variables, such as your age, your current and expected future tax brackets, and whether you can afford to pay the tax on the conversion. Additionally, taxpayers may convert any portion of their balance in an employer-sponsored 401(k) account into a Roth 401(k) under that plan, provided that employer plan sponsors this feature. If you are an upper-income taxpayer with modified AGI of at least $200,000 if you are single or $250,000 if you are married filing jointly, converting to a Roth IRA could trigger the 3.8% surtax on unearned income. Withdrawals from an IRA are not subject to the surtax, but they are included in AGI and could push your other income above the threshold. Now that the AGI limit for Roth conversions has been eliminated, the opportunity exists for additional taxpayers with income too high to make a Roth IRA contribution to make a nondeductible traditional IRA contribution in one year (i.e., 2015), then convert the traditional IRA to a Roth IRA in the next year (i.e., 2016). It is important to note, though, that the IRS does not allow taxpayers who convert to specify which dollars are being converted. The IRS considers a taxpayer s non-roth IRA money to be a single, co-mingled sum. So if you have other untaxed money in traditional IRA accounts, please consult a Barry & Moore tax professional before converting to a Roth IRA, as you will likely end up with an unintended tax burden from this type of conversion. Once you reach age 70 ½, you must take annual required minimum distributions from defined contribution plans and IRA accounts. If you fail to comply, you could owe a penalty equal to 50% of the amount you should have withdrawn. Usually, your broker will advise you as to the required minimum distribution amount. If not, please be sure to call us and we will compute the amount for you. Also, call us to discuss when it makes sense to take distributions between ages 59 ½ and 70 ½. If most of your money is tied up in your business, retirement can be a challenge. So if you do not already have a tax-advantaged retirement plan set up, consider setting one up this year. You have many options such as 401(k), 403(b), 457, Traditional IRA, Roth IRA, SIMPLE IRA, and SEP IRA. See page 13 for the maximum contributions limits for each different type of plan. Many retirement accounts allow for extra catch-up contributions if you are age 50 or over. There are many aspects to consider when determining how much you should be contributing to your retirement and which type of account is best to use. Please contact us to discuss which option is best for you. See page 13 for contribution limits for persons age 50 or over. Most withdrawals from retirement plans before age 59½ will incur a 10% penalty. However, there are a few exceptions. Make sure you fully understand the tax consequences of any early withdrawals beforehand. To avoid penalties when you change jobs, make sure you either keep your funds in your old employer s plan, roll them over into your new employer s plan, or roll them over into an IRA. Retirement - 7 -

11 Family & Education Ways to minimize your taxes while maximizing your family s benefit Kiddie Tax Roth IRA A child is subject to the kiddie tax if the child does not file a joint return for the tax year and (1) the child hasn't reached age 18 before the close of the tax year or (2) the child's earned income doesn't exceed one-half of his or her support and the child is age 18 or is a full time student age If you think this may affect you, be sure to talk with us about how to best transfer your investments to your children without surpassing the $2,100 unearned income limit for 2015 and 2016, which is where the kiddie tax kicks in. Consider starting a Roth IRA for your children or grandchildren. Just keep the potential gift tax in mind. For 2015 and 2016, Roth IRA contributions are limited to the lesser of $5,500 or the individual s earned income for the year. If they don t have earned income and you own a business, consider hiring them. Just keep in mind they must perform actual work and be paid in line with what you would pay non-family employees. The American Opportunity Tax Credit was previously extended through 2017 with the following modifications: American Opportunity Credit Increasing the amount of the credit (now a maximum of $2,500) Extending the credit to cover four years of schooling Raising the income limits to determine eligibility for the credit Allowing up to 40% of the credit to be refunded Expanding the nature of expenses eligible for the credit Please consult your Barry & Moore tax professional to determine whether your family will receive a greater benefit by having the parents claim the credit or foregoing the dependency exemption and having the child claim the credit. 529 College Savings Plan Education Tax Incentives Direct Payments The Arizona deduction for contributions made to a qualifying 529 College Savings Plan, which was scheduled to expire at the end of 2012, is now permanent. The deduction is limited to $2,000 for single taxpayers and $4,000 for married taxpayers filing a joint return. The IRS limits distributions to qualified higher education expenses in order to avoid a 10% penalty on plan earnings. There are several advantages and disadvantages of 529 College Savings Plans to consider before contributing. Expansion of education tax incentives enacted as part of EGTRRA are extended permanently under ATRA. These provisions include the following: The $5,250 annual employee exclusion for employer-provided educational assistance and its expansion to include graduate-level courses Expansion of the student loan interest deduction beyond 60 months and increased income phase-out range The increased Coverdell education savings account contribution limit (from $500 to $2,000) Expansion of the definition of qualified education expenses to include expenses most frequently and directly related to elementary and secondary school education Making payments directly to educational institutions or to any person who provides medical care on behalf of your child or grandchild are gift-tax free and will not count against the annual exclusion Family & Education

12 Estate Planning Dealing with legislative uncertainty Estate Tax Gift Tax Exclusion Annual Gift Tax Exclusion Other Trusts/ Planning For 2015, individual estates of more than $5.45 million ($10.9 million for married couples) will be subject to a 40% tax. Also during 2015, the executor of a deceased spouse s estate may elect for any of the $5.45 million exclusion amount not used by the estate of the first spouse to die to be used by the estate of the surviving spouse or by the surviving spouse during life to reduce otherwise taxable gifts made by the surviving spouse (aka portability ). This portability provision was permanently extended with the passage of ATRA and provides protection for taxpayers who failed to establish credit shelter trusts. The election to use the portability provision must be filed on a timely filed estate tax return for the first spouse, even though no taxes are due. A credit shelter trust may still be advisable for other non-tax reasons, such as keeping future appreciation out of the surviving spouse s estate. For 2014 and beyond, the estate tax exemption is permanently indexed for inflation, so if all or a portion of your exemption was used in 2012 or prior years, you may have the opportunity to take advantage of additional exemption amounts in the future. This is a complex area of taxation, so be sure to talk with us about steps you can take to minimize these taxes through proper planning. For gifts made in 2015, the estate tax exclusion amount is unified with the gift tax. In other words, the 2015 exclusion amount of $5.45 million is available to reduce taxable gifts during life and any unused amount is available to reduce the taxable estate upon death. Additionally, the annual indexed inflation increases will provide additional exclusion amounts to use against future taxable gifts in 2015 and beyond. You can save gift and estate taxes by making gifts each year using the annual gift tax exclusion. A taxpayer may give $14,000 to an unlimited number of individuals in Married couples can therefore transfer a combined total of $28,000 to a single recipient each year. As in past years, paying tuition and medical expenses directly to providers does not count toward the $14,000 limit. The limit will stay at $14,000 for A gift made by check is complete on the date the check is cashed or deposited at the recipient s bank. If you are interested in opening a 529 collegesavings plan for the benefit of a child or grandchild, you can make a one-time contribution equal to 5 years worth of gifts, or $70,000 in 2015 ($140,000 if you are gift splitting). This election would need to be made on a timely filed gift tax return for the year of the transfer. As the owner of the account, you can generally get your money back if you need it, whereas most gifting strategies require the donor to relinquish control of the asset. The amount excluded from your estate will be prorated if you die before the five year period is up. There are numerous other types of trusts that may prove to be beneficial additions to your estate plan. These include marital, credit shelter, qualified domestic, qualified terminable interest property, irrevocable life insurance, Crummey, qualified personal residence, charitable remainder, grantor-retained annuity trusts, and intentionally defective grantor trusts. All of these trusts have different benefits and risks, so feel free to talk with us to determine which trust may be right for you. Estate planning is an ongoing process, so you should make sure to review your plan periodically to ensure it fits with your current situation and the current and expected future tax laws Estate Planning

13 Patient Protection and Affordable Care Act Individual Mandate/ Penalties Tax implications in 2014 and beyond The Patient Protection and Affordable Care Act (PPACA), enacted in 2010, was largely upheld by the Supreme Court (by a margin of 5-4) and became effective as of the 1st day of Individuals are required to obtain adequate coverage or face a penalty. This penalty is waived for low-income taxpayers. There are also tax incentives to help lowincome individuals obtain insurance. The monthly penalty for not having adequate coverage in 2015 is calculated as the greater of: 2% of the taxpayers income or $325 per person for the year ($ per child under 18)($975 per Family) The penalty increases each year, in 2016, the calculation is the greater of 2.5% of taxpayer income or $695 per person. In subsequent years, the penalty calculation will adjust for inflation. If you are uninsured for less than three months, then there will be no penalty. If you are uninsured for more than 3 months, then the penalty is prorated on a monthly basis. Forms 1094 & 1095 Employer Credits Employer Mandate/ Penalties Beginning in January 2016, for calendar year 2015, Applicable Large Employers ( ALE ) are required to provide Forms 1095-C to each full-time employee and file Form 1094-C with the IRS to demonstrate that the health coverage offered is compliant with the PPACA requirements. All employers that sponsor self-insured plans also have Form 1094-B and 1095-B requirements regardless of ALE status. Plan sponsors should work closely with their insurance carriers and benefit plan advisors to ensure proper preparation and reporting of these forms. As in prior years, businesses with 25 or fewer employees, average wages of $50,000 or less, and the employer contributing at least 50% of the premiums for employee health care are eligible for a credit. The credit amount for 2015 is 50% for small business employers and 35% for small tax-exempt employers of employer-paid premiums. Originally slated to start in 2014, the employer mandate, coverage requirements, and penalties for lack of compliance were delayed by the White House until Businesses with at least 50 employees will be subject to penalties for not providing adequate coverage. Penalties could be as much as $2,000 to $3,000 per employee. Coverage is deemed inadequate if the cost for an employee exceeds 9.5% of their household income or if the employee s share of allowed costs of benefits is over 40%. There are various other new requirements that go into effect over the next several years, some of which may carry substantial non-compliance penalties. Reporting Requirements Beginning in 2014, the PPACA provided that employers are required to report the annual aggregate cost of coverage under any group health plan provided to an employee on the employee s Form W-2. This is only an informational reporting requirement and will not change the tax-free treatment of employer-provided health coverage. In March 2011, the IRS issued a notice providing that the W-2 reporting of the cost of employee health coverage is not required for small employers filing fewer than 250 Form W-2s for the preceding year, this will continue unchanged until the IRS provides additional guidance. Patient Protection and Affordable Care Act

14 Energy Efficiency When it comes to tax time, it pays to be green Alternative Energy The 30% Federal credit for residential energy efficient property, including solar electric, solar hot water, fuel cell, small wind energy, and geothermal heat pumps, is still in effect through The credit applies to new and existing homes and includes the cost of installation. It is not required that the residence be the individual s principal residence. Additionally, these credits are allowed to offset the AMT as well as regular income tax. Please note that solar heat for swimming pools, hot tubs, or any other medium which has a function other than energy storage does not qualify for the credit. A credit may also be available through the Arizona Department of Revenue for Renewable Energy Production using a solar, wind, or biomass energy resource. For more information, please call us or visit the Arizona Department of Revenue website at: Plug-In Electric Vehicles Internal Revenue Code Section 30D provides a credit for Qualified Plug-in Electric Drive Motor Vehicles including passenger vehicles and light trucks. For vehicles acquired after December 31, 2009, the credit is equal to $2,500, for a vehicle which draws propulsion energy from a battery with at least 4 kilowatt hours of capacity, plus an additional $417 for each kilowatt hour of battery capacity in excess of 4 kilowatt hours. The total amount of the credit allowed for a vehicle is limited to $7,500. The credit begins to phase out for a manufacturer s vehicles when at least 200,000 qualifying vehicles manufactured by that manufacturer have been sold for use in the United States (determined on a cumulative basis for sales after December 31, 2009). For more information, please call us or visit the IRS website at: - Energy Efficiency

15 Tax Rates & Limits Schedules and more to answer your basic questions 2015 Individual Regular Tax Brackets Married Filing Joint & Surviving Spouses Head of Household Taxable Income: Calculated Tax is: Taxable Income: Calculated Tax is: Not over $18,450 10% of the taxable income Not over $13,150 10% of the taxable income $18,451 - $74,900 $1,845 plus 15% of the excess over $18,450 $13,151 - $50,200 $1,315 plus 15% of the excess over $13,150 $74,901 - $151,200 $10,313 plus 25% of the excess over $74,900 $50,201 - $129,600 $6,873 plus 25% of the excess over $50,200 $151,201 - $230,450 $29,388 plus 28% of the excess over $151,200 $129,601 - $209,850 $26,773 plus 28% of the excess over $129,600 $230,451 - $411,500 $51,578 plus 33% of the excess over $230,450 $209,851 - $411,500 $49,193 plus 33% of the excess over $209,850 $411,501 - $464,850 $111,324 plus 35% of the excess over $411,500 $411,501 - $439,000 $115,737 plus 35% of the excess over $411,500 Over $464,850 $129,997 plus 39.6% of the excess over $464,850 Over $439,000 $125,362 plus 39.6% of the excess over $439,000 Single (Unmarried Individuals) Married Filing Separately Taxable Income: Calculated Tax is: Taxable Income: Calculated Tax is: Not over $9,225 10% of the taxable income Not over $9,225 10% of the taxable income $9,226 - $37,450 $923 plus 15% of the excess over $9,225 $9,226 - $37,450 $923 plus 15% of the excess over $9,225 $37,451 - $90,750 $5,156 plus 25% of the excess over $37,450 $37,451 - $75,600 $5,156 plus 25% of the excess over $37,450 $90,751 - $189,300 $18,481 plus 28% of the excess over $90,750 $75,601 - $115,225 $14,694 plus 28% of the excess over $75,600 $189,301 - $411,500 $46,075 plus 33% of the excess over $189,300 $115,226 - $205,750 $25,789 plus 33% of the excess over $115,225 $411,501 - $413,200 $119,401 plus 35% of the excess over $411,500 $205,751 - $232,425 $55,662 plus 35% of the excess over $205,750 Over $413,200 $119,996 plus 39.6% of the excess over $413,200 Over $232,425 $64,998 plus 39.6% of the excess over $232,425 Wealth Transfer Taxes Year Gift & Estate Tax Exemption Tax Rate Tax Bracket 2014 Corporate Tax Brackets 2015 $5,430,000 15% $0 - $50, $5,450,000 25% $50,001 - $75,000 Expected Gift and Estate tax rate for 2014 and beyond: 40% 34% $75,001 - $100,000 39% $100,001 - $335, Individual AMT Brackets 34% $335,001 - $10,000,000 Tax Rate Tax Brackets 35% $10,000,001 - $15,000,000 26% $0 - $185,400 38% $15,000,001 - $18,333,333 28% Over $185,400 35% Over $18,333,333 The AMT tax bracket for Married Filing Separately is 1/2 of the amounts for Single, Married Filing Jointly, and Head of Household filers. Please note that the tax rates outlined above and the annual limits on the next page are the currently scheduled rates and limits and are subject to change. Tax Rates & Limits

16 Annual Limits Personal Exemption Per Person $4,000 $4,050 Standard Deduction: Single Married Filing Separately Head of Household Married Filing Jointly $6,300 $6,300 $9,250 $12,600 $6,300 $6,300 $9,300 $12,600 Maximum Retirement Plan Contributions: Traditional or Roth IRA Traditional or Roth IRA if 50 or older SIMPLE IRA SIMPLE IRA if 50 or older 401(k), 403(b), or (k), 403(b), or 457 if 50 or older Defined Contribution Plan or SEP IRA Defined Benefit Plan $5,500 $6,500 $12,500 $15,500 $18,000 $24,000 $53,000 $210,000 $5,500 $6,500 $12,500 $15,500 $18,000 $24,000 $53,000 $210,000 Standard Mileage Rates: Business Depreciation Medical/Moving Charitable 57.5 cents 22.0 cents 23.0 cents 14.0 cents 57.5 cents 22.0 cents 23.0 cents 14.0 cents Foreign Earned Income Exclusion $100,800 $101,300 Social Security tax rate is 6.2% (12.4% self employed rate) on wages up to $118,500 for 2015 and Medicare tax rate is 1.45% (2.9% self employed rate) with no wage limit for 2015 or Net Investment Income Tax rate is 3.8% on net investment income of higher income individuals for 2015 (see page 3 for additional information). Medicare Surtax rate is 0.9% on earned income of higher income individuals for 2015 (see page 2 for additional information) Tax Rates & Limits

17 B A R R Y & M O O R E, P. C. C E R T I F I E D P U B L I C A C C O U N T A N T S w w w. b a r r y a n d m o o r e. c o m