Beginning in 2013, provisions of the Affordable Care and 2012 Taxpayer Relief Acts adversely impact high-income taxpayers. First, the Affordable Care Act imposes two totally new taxes on high-income individuals. Next, the 2012 Taxpayer Relief Act significantly increases their tax rates. To make matters worse, their personal exemptions can now be phased-out and certain itemized deductions reduced. This Guide contains the strategies necessary to mitigate the adverse effects of the new 3.8% Net Investment Income and 0.9% Medicare Taxes, higher tax rates, and reduced write-offs on high-income individuals. This Guide also contains tax saving ideas regarding Section 179, education credits and deductions, stock options and restricted stock awards, the AMT, residences and vacations homes, retirement, charitable giving, divorce-related issues and much more.
This Guide will enable you and your staff to quickly and effectively respond to your individual client’s tax planning needs. It also contains a Roadmap that provides a method to quickly identify tax planning opportunities and grow your business by simply reviewing client’s or prospective client’s Form 1040. This Guide works extremely well with PPC’s 1040 Deskbook as a complete individual taxation library.
Here are some of the many key update features contained in the latest edition of PPC’s Guide to Tax Planning for High Income Individuals:
- 3.8% Net Investment Income Tax (3.8% NIIT). The 2010 Patient Protection and Affordable Care Act (2010 Health Care Act) imposes a 3.8% NIIT beginning in 2013 on certain high income individuals. The 3.8% NIIT is generally levied on income, above specific adjusted gross income thresholds, from interest, dividends, annuities, royalties, rents, and capital gains. The Guide includes a new section with guidance, examples, and strategies to deal with this entirely new tax regime. A client letter has also been added to explain this provision to affected clients.
- Additional 0.9% Medicare Tax on Earned Income (Additional 0.9% Medicare tax). Under the 2010 Health Care Act, beginning in 2013, individuals must pay an additional 0.9% Medicare tax on earned income (additional 0.9% Medicare tax) above certain adjusted gross income thresholds. This tax applies to both wage income and self-employment (SE) income. The Guide includes a new section with guidance, examples, and a client letter discussing this new additional tax on the earned income of high income individuals.
- Higher Ordinary Tax Rates and Higher Capital Gain Tax Rates. The 2012 Taxpayer Relief Act imposes a new 20% capital gain tax rate and a new 39.6% tax rate on ordinary income for taxpayers with taxable income above certain thresholds. The Guide has been updated throughout to discuss these new higher rates with strategies to minimize their effect.
- Restricted Stock and Risk of Forfeiture. Tax consequences are deferred upon the receipt of restricted stock until there is either no longer a substantial risk of forfeiture of the stock, or the stock is transferable. Newly released proposed regulations more narrowly define what constitutes a substantial risk of forfeiture for this purpose. The Guide incorporates this new guidance that will consequently make it more difficult to defer tax on the receipt of restricted stock.
- In-Plan Roth Rollovers. The 2012 Taxpayer Relief Act added a new provision that allows plan participants to transfer non-Roth plan account balances that are not otherwise distributable to a designated Roth account. A discussion has been added explaining this new provision and the tax consequences of making one of these transfers.
- Home Office Safe Harbor. The IRS announced a new simplified option for deducting certain home office expenses, effectively eliminating the substantiation of these expenses for taxpayers making the election. The Guide discusses this new option including the advantages, limitations, and planning strategies.
- Favorable Tax Provisions Reinstated or Extended. The 2012 Taxpayer Relief Act restored or extended many favorable tax provisions beyond 2012. The Guide has been updated with new examples and new tax planning strategies incorporating these changes, including higher Section 179 limits, claiming Section 179 on certain types of real property, shorter recovery periods for certain qualified real property, extending the 100% gain exclusion for sales of certain qualified small business stock, reinstating the tuition and fees deduction, favorable provisions for education credits, extending the higher limit for education savings account contributions, special carryover and limitation percentage for charitable conservation easements, ability to make direct IRA distributions to charities for certain older individuals, reinstating the deduction for mortgage insurance premiums, favorable provisions for the adoption credit, making permanent the 0% and 15% capital gain rates, making permanent the higher alternative minimum tax (AMT) exemption amounts and indexing them for inflation, and making permanent the ability for most nonrefundable personal tax credits to offset AMT.