Management / Strategy
Important Tax Implications - Business and Individual
By Paul Impellicceiri
A. F. McGervey & Co., LLC
While 2013 has been a relatively quiet year for new tax legislation, there are a number of regulations which were written into law in 2012 and prior, that took effect at the beginning of 2013. Several are set to expire at the end of the calendar year unless legislation is enacted to extend them. Don’t be caught off-guard by some of the new provisions. These regulations will impact businesses and individuals alike.
- The law extended the increased limit of $500,000 for new or used tangible property that may be expensed under section #179 in the year placed in service. The phase-out starts at $2 million of equipment placed in service and fully phases out at $2.5 million.
- 50 percent bonus depreciation for new equipment placed in service in 2013 was extended. This provision is set to expire as of January 1, 2014.
- The employer mandate related to the Affordable Care Act has been delayed for one year deferring the effective date until January 1, 2015. This deferral provides employers with additional time to deal with its implications.
- The IRS has issued final Repair/Capitalization regulations which will impact most businesses due to their broad applications. The regulations provide guidance on when taxpayers may capitalize or expense the costs of acquiring, maintaining, repairing or replacing tangible property. These regulations do not take effect until January 1, 2014, but provide the option to apply the temporary or final regulations to earlier years. In addition, business owners may want to establish systems to address the new regulations in future periods.
- A number of targeted business credits, extended through 2013, are set to expire after this calendar year such as the Work Opportunity Credit and Research Tax Credit.
- Earlier in 2013, the Supreme Court struck down provisions of the Defense of Marriage Act and issued rulings related to same-sex marriages. Business owners may need to review their policies and benefit plans related to these rulings to confirm they are in compliance with the law.
- For higher income taxpayers, the law increased the top tax bracket to 39.6% and re-imposed the phase-out of itemized deductions and personal exemptions.
- As part of the new healthcare law, an additional 3.8% tax will now be applied to the lower of net investment income or modified adjusted gross income. The income threshold for this provision is $200,000 for singles and $250,000 for married filing joints. This applies not only to interest, dividends and capital gains, but also to rents and trade or business income from an activity in which the taxpayer is a passive investor. Those business owners who own and lease a facility to their businesses could potentially face a higher tax rate due to these regulations.
- The new health care law also imposes a 0.9% tax on wages and self-employment income above $200,000 and $250,000. Employers with employees who reach this level of compensation are required to withhold this additional tax. This law may impact business owners who issue year-end bonuses for tax planning purposes.
- In 2013, the tax on capital gains and qualified dividends has been raised for certain higher income taxpayers to 20% from 15%. This will place more emphasis on year-end planning related to harvesting gains or losses in investment portfolios.
Remember, as these changes take effect, the timing of income and deductions will continue to be important as the income thresholds for several of these provisions vary. A spike in income due to increased profitability, or a “one-time” transaction can have a dramatic impact on an individual’s tax liability.
And before entering certain transactions, it is important to review the tax consequences. It will also be extremely important to review the status tax payments made for the year, as the new laws increase the tax rate on a number taxpayers who may find an unwelcome surprise when they finalize their tax returns.
Paul Impellicceiri is a partner at Pittsburgh-based accounting/auditing firm, A. F. McGervey & Company, LLC and can be reached for comment at (412) 653-6101 or firstname.lastname@example.org.