Transcript Enterprise Worldwide Annual Symposium

Enterprise Worldwide
Annual Symposium - 2012
Federal Tax Update
June 14, 2012
Mark Luscombe
Principal Analyst
CCH, a Wolters Kluwer business
2012 Federal Tax Updates
• Sunset of 2001 and 2003 Tax Cuts
• Extension of Expired Provisions
• Supreme Court Ruling on Health Care
Reform
• Expiration of Payroll Tax Cut
• Regulations on Capitalization of Tangible
Assets
• Supreme Court Holding in Home Concrete
Sunset of 2001 and 2003 Tax Cuts
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Individual rates
Capital gain and dividend rates
Marriage penalty relief
Phase-out of itemized deductions and personal
exemptions
Earned income credit
Child Tax Credit
Adoption Credit/Adoption assistance programs
Child and Dependent Care Credit
Education provisions
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Coverdell Education Savings Accounts
Educational assistance exclusion
Federal scholarships
Student loan interest deduction
Some Special Sunset Cases
• AMT relief
• Higher education deduction
• American Opportunity Tax Credit
Business-related Sunsets
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Dividends from RICs and REITs
Collapsible corporations
Accumulated earnings tax
Personal Holding Company tax
Small business stock
Employer-provided Child Care Credit
Tax-exempt bonds
Estate/Gift/GST Sunsets
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Rates
Exclusion amounts
Portability
State death tax credit/deduction
Gift tax
GST Tax
Qualified family owned business deduction
Qualified conservation easements
Installment payment of estate tax for closelyheld businesses
Other Expired Provisions
Individual
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State and local sales tax deduction
Teacher’s classroom expense deduction
Exclusion for charitable contribution of IRA proceeds
Parity for transit benefits
Mortgage insurance premium deduction
Cancellation of mortgage indebtedness exclusion for
personal residence
• Nonbusiness energy credit for qualified energy efficient
home improvements
• IRA distributions directly to charity for people over 70 1/2
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Other Expired Provisions
Business
100 percent bonus depreciation
Enhanced Code Sec. 179 expensing
Research credit
100 % exclusion for Code Sec. 1202 small
business stock
Work Opportunity Tax Credit
15-year recovery period for qualified leasehold
improvements, qualified restaurant property and
qualified retail improvement property
Reduction in the S Corp recognition period for
built-in gain
Basis adjustment to stock of an S Corp making
charitable contributions of property
Other Expired Provisions
Business
• Contributions of conservation real
property, food inventory, book inventory, or
computer equipment
• Energy tax incentives
• Employer-provided child care credit
Tax Provisions in Health Care
Reform
• Individual mandate credit and penalty
• Small business health care credit; business
penalty
• Medicare contribution tax
• Hospital services insurance tax
• Economic substance doctrine
• Medical insurance deduction for young adult
children
• AGI threshold for medical expense deduction
• FSAs, HSAs, and HRAs
– FSA contribution limit, non-prescription drugs
– Penalty for unrelated withdrawals
Tax Provisions in Health Care
Reform
• Tax on use of indoor tanning salons
• Excise tax on “Cadillac” health plans
• Tax on manufacturers and importers of branded
prescription drugs
• Tax on manufacturers and importers of medical devices
• Credit for developers of therapeutic projects
• Black liquor excluded from cellulosic biofuels production
credit
• Additional requirements imposed on not-for-profit
hospitals
• IRS sharing information with HHS and SSA
• Reporting employer-provided health insurance on Form
W-2
Tax Provisions in Health Care
Reform
• Exclusion of health benefits provided by Indian Tribes
• No tax on student loan forgiveness for health care
professionals serving underserved areas
• Increased credit and amount for adoption assistance
• No tax on free choice vouchers applied to health
premiums
• Deduction limit on compensation by health insurance
providers
• Code Sec. 833 deduction requires 85% of premium to go
to clinical services
• Fee on sponsors of self-employed health plans
• Payroll deduction for CLASS program
• Business deduction to consider retiree drug subsidy
Payroll Tax Reduction
• Started in 2011
• Replaced Making Work Pay Credit
• Sunsetting at the end on 2012
Regulations on Capitalization of
Intangible Assets
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Generally effective for tax years beginning on or after January 1, 2012
Materials and Supplies
– Expanded definitions
– De minimis rule
– Rotable and temporary spare parts
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Acquisitions
– Transactions costs
– Costs before placed in service date
– De minimis rule
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Improvements
– Unit of property
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Functional interdependent standard
Building and structural components
Plant and network assets
Leasehold improvements
– Betterments and Restorations
– Adaptations to new use
– Routine maintenance safe harbor
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General Asset Accounts
MACRS Dispositions
IRS directs hold-off on capitalization issues under audit
Supreme Court Decision in Home
Concrete
• Six-year statute does not apply in
overstated basis cases
• Based on prior Supreme Court decision in
Colony interpreting similar language under
1939 Code
• In determining enforceability of an IRS
regulation, still look to Mayo, Chevron, and
Brand X
Other 2012 Tax Developments
• IRS expands Fresh Start initiative
– Threshold for installment agreement without financial statement raised
to $50,000
– Unemployed individuals may be eligible for penalty relief
• FATCA
– Regulations issued in February
– Alternative reporting regime by agreement with certain countries
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Temporary transportation funding extension through June, 2012
Foreign tax credit guidance
Regulations on local lodging expenses
Expanded innocent spouse relief
Ninth Circuit – Roth IRA is an ineligible S Corporation shareholder
IRS final regulations of Code Sec. 104(a)(2) exclusion from gross
income for amounts received on account of personal physical
injuries or physical sickness
President Obama Tax Proposals
• Preserve Bush tax cuts for incomes under
$200,000/$250,000 for joint filers
• Eliminate Bush tax cuts for those over those income
limits
• Enact Buffet rule for those earning over $1 million
• Limit itemized deductions to 28%
• Estate tax at 2009 levels
• Cut corporate tax rate to 28% while eliminating corporate
tax breaks
• Tax carried interests as ordinary income
• Reform taxation of insurance products
• Repeal LIFO
• Several specific international tax proposals
Romney Tax Proposals
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Reduce individual tax rates by 20%
Preserve Bush tax cuts
Repeal estate tax
Corporate tax rate reduced to 25%
Territorial international tax system
Repeal health care reform
“Gang of Six” Proposals
• Reduce individual tax brackets to 8-12%, 1422%, and 23-29%
• Repeal AMT
• Reform tax expenditures for health, charitable
giving, homeownership and retirement, with a
net revenue increase of $1.5 trillion
• Retain Child Tax Credit and Earned Income Tax
Credit
• Corporate tax rate a single rate between 23 and
29%, eliminating tax expenditures to make it
revenue neutral
Deficit Reduction Commission
Proposals
– Tax reform that reduces rates, simplifies
Code, broadens tax base, and reduces the
deficit
• Option 1: The Zero Plan
– Three individual rates and one corporate rate
– Repeal AMT, Pease, and PEP
– Treat capital gains and dividends as ordinary
income
– Eliminate all $1.1 trillion of tax expenditures,
adding back any by increasing rates
– Keep Child Tax Credit and Earned Income Tax
Credit
Deficit Reduction Commission
Proposals
• Tax reform that reduces rates, simplifies Code, broadens
tax base, and reduces the deficit
• Option 2: Wyden-Gregg Reform
– Individual
» Three rates of 15%, 25%, and 35%
» Triple standard deduction to $30,000 ($15,000 for single
filers)
» Repeal AMT, PEP and Pease
» Capital gain and dividends tax as ordinary income
» Repeal state and local tax deduction, cafeteria plans, and
miscellaneous itemized deductions
» Limit mortgage deduction to exclude second residences,
home equity loans, and mortgages over $500,000
» Limit charitable deductions with 2% of AGI floor
» Cap income exclusion for employer-provided health care
Deficit Reduction Commission
Proposals
• Tax reform that reduces rates, simplifies Code,
broadens tax base, and reduces the deficit
• Option 2: Wyden-Gregg Reform
– Corporate
» Reduce rate to 26%
» Make R&D Credit permanent
» Eliminate or modify: 1. Domestic production
deduction, 2. LIFO, 3. Energy tax preferences for oil
and gas, 4. Depreciation rules
• Option 3: Tax Reform Trigger
Tax Planning for 2012
• Looks like no action on Bush tax cuts or expired
provisions at least until after election
• Election outcome could influence whether we have
higher tax rates, the same tax rates, or even lower tax
rates next year
• Should know Supreme Court ruling on health care
reform by end of June
• Accelerate income and postpone deductions?
• Realize capital gains
• Defer realization of capital losses
• Convert to tax-exempt income?
– Tax-exempt bonds
– Roth IRAs
• Shift from dividend paying to capital gain investments?
• Exercise stock options
Tax Planning for 2012
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Tax hit from getting married
Gifting in 2012?
Review trust distributions
Consider GST and Dynasty trusts in 2012
Consider buying life insurance
Rethink corporate vs. pass-through entities?
Review compensation vs. dividend strategies?
Declare dividends in 2012?
Reduce salary payments from S Corporations?
Do distribution of S Corporation built-in gain?
Look at 1031 exchanges?
Involve client in evaluating alternatives with advisor
Questions?
Thank You!