Income included in net investment income:

• Interest
• Dividends
• Annuities
• Royalties
• Rents
• Income derived from a trade or business that is passive
• Income from a business trading financial instruments or commodities.
• Net capital gains (except gains on property held in a trade or business)

The income items above are then reduced by allowable deductions.  Please contact us for information about these deductions.

To calculate your Net Investment Income Tax:

1. Calculate by how much modified adjusted gross income exceeds the relevant threshold.
2. Calculate net investment income for the year.
3. Take the lesser of the amounts in step 1 or in step 2.
4. Multiply the amount in step 3 by 3.8%.

Applicable thresholds:

Married filing jointly                                                       $250,000

Married filing separately                                               $125,000

Single                                                                                    $200,000

Head of Household                                                         $200,000

Qualifying widow(er) with dependent child         $200,000

If you think you may be subject to the Net Investment Income Tax, please contact us to appropriately plan for the cash flow implications this tax may have on you and your family.

Payroll and Additional Medicare Tax – what you need to know

All W-2 wages that exceed $200,000 will have additional withholdings to account for the Additional Medicare Tax.   Withholding additional amounts from W-2 wages is the responsibility of the employer.   While this is a good planning technique for individuals, if you are married and you and your spouse together exceed wages, compensation, and self-employment income of $250,000 (but individually do not exceed $200,000 for the year), this planning technique may not save you from unexpected tax liabilities for the year.  If you and your spouse expect to come close to this threshold for 2013, please contact us to appropriately plan for the Additional Medicare Tax.

Note that while additional withholding is required for employers on W-2 wages over $200,000; whether you will be subject to the Additional Medicare Tax will be determined at the time you file your tax return.  For this reason, if you have additional W-2 withholdings and are determined not to be subject to the Additional Medicare Tax, you will be refunded these additional withholdings.  Please contact us for additional information.

Highlights include the following:

• The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500.
• The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500 or SIMPLE for individuals aged 50 or over remains unchanged at $2,500
• The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500.
• The additional catch-up contribution limit on IRAs for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000.
• The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013.  For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000.  For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000.

The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,000.

IRS Newswire

Issue Number: IR-2013-87

In 2014, Various Tax Benefits Increase Due to Inflation Adjustments

WASHINGTON — For tax year 2014, the Internal Revenue Service announced today annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes.Revenue Procedure 2013-35 provides details about these annual adjustments.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

• The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
• The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
• The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
• The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly.)
• The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly). The 2013 exemption amount was $51,900 ($80,800 for married couples filing jointly).
• The maximum Earned Income Credit amount is $6,143 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $6,044 for tax year 2013. The revenue procedure has a table providing maximum credit amounts for other categories, income thresholds and phaseouts.
• Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000, up from a total of $5,250,000 for estates of decedents who died in 2013.
• The annual exclusion for gifts remains at $14,000 for 2014.
• The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains unchanged at $2,500.
• The foreign earned income exclusion rises to $99,200 for tax year 2014, up from $97,600, for 2013.
• The small employer health insurance credit provides that the maximum credit is phased out based on the employer’s number of full-time equivalent employees in excess of 10 and the employer’s average annual wages in excess of $25,400 for tax year 2014, up from $25,000 for 2013.

Details on these inflation adjustments and others not listed in this release can be found in Revenue Procedure 2013-35, which will be published in Internal Revenue Bulletin 2013-47 on Nov. 18, 2013.

Personal use of your business vehicles?  The IRS wants to know!

Many business owners purchase vehicles through their businesses.  This allows them to deduct actual expenses, for example, fuel, repairs, licensing, etc., in addition to depreciating the purchase price.

In recent years, the IRS has put more emphasis on the proper reporting of vehicles owned by businesses.  Specifically, they want to be sure that all personal use (miles driven for commuting and non-business uses) is being reported.  Examples of personal use miles are:

• Commuting miles – are any miles driven between your home and your office/business are commuting miles. These miles are personal use and are not deductible.
• Any personal use of a company vehicle must be reported. This includes driving for personal errands, vacations, etc.

What do I need to do?

A mileage log is the best way to keep track of the commuting and personal miles. Simply record the date and total commuting/personal miles driven.  In December, call us with this personal use detail and we will help you properly report this personal use.

Calling us in December is especially important if your business is an S-corporation.  As a shareholder in an S Corporation, this personal use must be included in your payroll.