This presentation includes an overview of tax changes from 2012 and what's new in 2013. For more information about our tax services, visit www.cbiz.com

1. 2012 & 2013 Tax Update Highlights
Presented by
Zandra O’Keefe, CPA
CBIZ MHM, LLC

2. Circular 230 Notice and Disclaimers
To ensure compliance with requirements imposed by the IRS, we inform you that-
unless specifically indicated otherwise-any tax advice in this communication is
not written with the intent that it be used, and in fact it cannot be used, to avoid
penalties under the Internal Revenue Code, or to promote, market, or
recommend to another person any tax related matter. This educational seminar
is provided with the understanding that CBIZ is not rendering legal, accounting
or other professional advice. The reader is advised to contact a tax professional
prior to taking any action based upon this information. CBIZ assumes no liability
whatsoever in connection with the use of this information and assumes no
obligation to inform the reader of any changes in tax laws or other factors that
could affect the information contained herein.
CBIZ MHM is the brand name for CBIZ MHM, LLC, a national professional services
company providing tax, financial advisory and consulting services to
individuals, tax-exempt organizations and a wide range of publicly-traded and
privately-held companies. CBIZ MHM, LLC is a fully owned subsidiary of
CBIZ, Inc. (NYSE: CBZ)
2

3. 2013 Tax Law Changes
AGENDA
• New for 2013 part of Health Care Act and Proposed Regs.
– Change in Tangible Property Rules (businesses)
– Medicare Surtaxes: earned income and net investment income
– Medical expenses
– New qualified plan tax credit
• American Taxpayer Relief Act of 2012 – First step in
adverting ―the fiscal cliff‖
3

4. New for 2012 and forward
Change in Tangible Property Rules
• New regulations change what should be capitalized versus deducted
• IRS allowing for automatic method changes for 2 years
• New rules significantly impact building owners by giving them the ability to
deduct losses on replaced structures
- this includes individual owners of rental properties
• Taxpayers with large repair & maintenance expenses also will be impacted
• A new de minimis rule may apply for some taxpayers; policy in place 1/1/13;
―applicable financial statement‖ (audit, potentially review FS)
• IRS audit / compliance to increase
• Tip: Consider cost segregation studies and 3115 Change in Accounting
Method, (accelerate timing of tax deductions), consult your tax advisor
4

5. New for 2013 and forward
Additional Medicare Tax .9%
• Additional .9% Medicare Surtax on earned income of higher-income
individuals after 12/31/12. Subject to MAGI thresholds
• Employer withholding required and any difference paid / accounted
for on personal tax return
• Increases estimated tax due for self employed
• http://www.irs.gov/Businesss/Small-Businesses-&-Self-Employed/Questions-
and-Answers
5

6. 2013 3.8% Medicare Surtax - Net Investment
Income Tax
• Individuals http://www.irs.gov/uac/Newsroom/Net-Investment-Income-Tax-
FAQs
– 3.8% of the lesser of:
• Net investment income, or
• Excess of Modified AGI over the threshold amounts below
– Modified AGI = AGI + foreign earned income exclusion
Filing Status Threshold
Married Filing Jointly $250,000
Single/Head of Household $200,000
Married Filing Separately $125,000
6

7. 2013 3.8% Medicare Tax – Trusts and Estates
• 3.8% of the lesser of:
– Undistributed net investment income, or
– AGI over the amount at which the highest tax bracket is
applicable ($11,950 for 2013)
• Does not apply to simple trusts since, by definition, all income is
distributed annually (but would apply to income distributed to
beneficiaries)
• Does not apply to grantor trusts since they are disregarded for
income tax purposes (but would apply to income reported by
grantor)
7

8. 3.8% Medicare Tax – Net Investment
Income
• Net Investment Income – Defined as investment income less
otherwise allowable deductions properly allocable to such income
• Includes three categories:
– Gross income from interest, dividends, annuities, royalties and
rents (other than such income derived in the ordinary course of
an active trade or business)
– Other gross income from any passive trade or business or
business in the trading of financial instruments or commodities
– Net gains attributable to the disposition of property (other than
property held in an active trade or business)
• Less:
– Deductions properly allocable to such gross income or net gain
8

9. 3.8% Medicare Tax – Key Points
• Taxpayer’s must have both NII and gross income over the
applicable thresholds in order to be subject to the tax
• The thresholds are NOT adjusted for inflation
– This may cause a problem similar to the AMT in the future
• The inclusion of passive activities in NII represents a huge shift in
traditional tax planning
– more emphasis will be placed on treating profitable activities as
active instead of passive to avoid the 3.8% surtax, however
• Passive losses may go unused
• Net income from an active trade or business may be subject
to self employment tax
9

10. 3.8% Medicare Tax – Key Points
• Only property sold that was not held in a trade or business is
included in net investment income
– In the case of sales of interests in a partnership or S corporation
we have to do some calculations in order to determine how
much of the gain or loss is attributable to an active trade or
business
– The Proposed Regulations include a complex four step process
to achieve this
• The surtax also applies to income attributable to ―working capital‖
10

11. 3.8% Medicare Tax – Key Points
• Net investment income is determined by taking into account the
gross income or net gain from the three categories and reduced by
allowable deductions that are ―properly allocable‖
– Examples include, investment interest expense, investment fees,
expenses related to rents, trade or business deductions and
state and local income taxes
– The allocation of state and local taxes between net investment
income and other income can be determined under ―any
reasonable method‖
– The proposed regs. provide a safe harbor method of allocating
state and local taxes based on the ratio of NII to gross income
11

12. 3.8% Medicare Tax – Key Points
• The 2% limitation for miscellaneous deductions and the overall
deduction limit of certain itemized deductions will apply in calculating
the NII
• Capital loss carryovers from years prior to 2013 can be used to
offset gains
• Investment interest expense carryover from years prior to 2013 can
be used in calculating NII
• Unused passive losses from years prior to 2013 can be used in
calculating NII
12

13. 3.8% Medicare Tax – Key Points
• The 3.8% Medicare tax does not apply to distributions from qualified
retirement plans
• However, those distributions still increase MAGI which could either
– raise the taxpayer’s MAGI over the threshold amount, thus
subjecting the taxpayer to the tax, or
– increase the amount subject to the tax by increasing the spread
between MAGI and the threshold amount
• The 3.8% Medicare tax does not apply to investment income
excludible from taxable income (e.g. municipal bond interest)
13

14. 3.8% Medicare Tax – Case Study
Assume the following income (Total $325K):
Interest income from various corporate bonds and bank $10,000
accounts
Tax-exempt interest income from various municipal bonds $8,000
Qualified dividend income from various mutual funds and stock $12,000
investments
Net long-term capital gains from the disposition of various $40,000
mutual funds and stock investments
Regular IRA distribution $100,000
Net rental income from a building that Joe owns $15,000
Distributive ordinary trade or business income from an LLC in $20,000
which Joe does not materially participate
Distributive net Section 1231 gain from the same LLC $10,000
Distributive ordinary trade or business income from an S $60,000
corporation in which Joe materially participates
Distributive net Section 1231 gain from the same S corporation $50,000
14

15. 3.8% Medicare Tax – Case Study
Net investment income is calculated as follows:
Interest income from various corporate bonds and bank accounts $10,000
Qualified dividend income from mutual funds and stock $12,000
investments
Net long-term capital gains from the disposition of investments $40,000
Net rental income $15,000
Ordinary trade or business income from LLC in which Joe does $20,000
not materially participate
Net Section 1231 gain from the LLC $10,000
Net investment income $107,000
15

16. 3.8% Medicare Tax – Case Study
Modified adjusted gross income is calculated as follows
(doesn’t include $8K tax exempt inc):
Interest income from various corporate bonds and bank accounts $10,000
Qualified dividend income from mutual funds and stock $12,000
investments
Net long-term capital gains from the disposition of investments $40,000
Regular IRA distribution $100,000
Net rental income $15,000
Ordinary trade or business income from the LLC $20,000
Net Section 1231 gain from the same LLC $10,000
Ordinary trade or business income from the S corporation $60,000
Net Section 1231 gain from the same S corporation $50,000
Modified AGI $317,000
16

17. 3.8% Medicare Tax – Case Study
The 3.8% Medicare contribution tax is calculated as follows:
Modified AGI $317,000
Less Threshold $200,000
Modified AGI in Excess of Threshold $117,000
Lesser of Net Investment Income and Modified AGI in Excess of $107,000
Threshold
Medicare Tax Rate 3.8%
Medicare Contribution Tax $4,066
17

18. Planning Strategies to Reduce 3.8%
Medicare Tax
• Convert to a Roth IRA so future qualified retirement plan
distributions don’t increase MAGI
– Although regular IRA distributions are not subject to 3.8% tax,
they are included in modified AGI
– In prior example, if IRA distribution was from Roth IRA, modified
AGI would have been reduced to $217,000, so the maximum
subject to 3.8% tax would be reduced to $17,000
– If modified AGI (minus threshold amount) is greater than net
investment income even without IRA distributions, no benefit to
switching to Roth
18

19. Planning Strategies to Reduce 3.8%
Medicare Tax
• Realign Investment Strategies
– Shift investments to growth securities that don’t produce
dividends, i.e. tax-exempt bonds, insurance (with cash buildups)
and annuities
– Take advantage of installment sale treatment to spread passive
income over several years
– Time gains and losses to offset
• Be careful of wash sale rules on loss positions
• Gains not subject to wash sale rules
– Shift investments to children
• Avoid 3.8% tax if MAGI less than threshold
• Kiddie tax may tax income at parents’ marginal rate (under
19 or under 24 and full time student)
19

20. Planning Strategies to Reduce 3.8%
Medicare Tax
• Passive Activities
– Evaluate profitable passive activities to see if changes could be
made to reach to the level of material participation.
– Watch self-employment income from partnerships and LLC’s
– Review passive activity rules to see if passive activities can be
grouped with non passive activities to avoid passive income
– Factors to consider, similarities, common ownership,
geographical locations, interdependence of operations
• Consider Passive Loss investment opportunities to offset Passive
Income (be aware of self-rent rules)
20

21. Health Care Act - Medical expenses
• 2012 AGI floor 7.5%
• 2013 AGI floor 10%
• Eligible expenses: Medical and dental services, prescription
drugs, co pays not reimbursed by H.S.A. or F.S.A. Out of pocket
medical insurance premiums not deducted as self employed in via
cafeteria plan on W-2. (Don’t double dip)
• H.S.A. limit 2013 self only $3,250; family $6,450 (advantage: keep it
even if didn’t use it; grows tax deferred)
• FSA employer determines limit for 2013 can’t exceed $2,500
(disadvantage: use it or lose it)
• Tips: Time medical expenses if possible and for family members with
lower AGI who can benefit
21

22. Adopt A Qualified Retirement Plan – Tax
Credit
• Part of general business tax credit: equals 50% cost to set up and administer plan
maximum of $500 maximum per year for each of the first 3 years
• 100 or fewer employees who received at least $5,000 in compensation for the
preceding year
• At one participant must be non-highly compensated employee
• Generally employee cannot be the same for whom contributions were made in the
3 year period before the first year of the credit
• Form 8881 Credit for Small Employer Pension Plan Startup Costs
• Age weighted, cross tested, illustration that optimizes contributions for owners
• Tip: Can help reduce owners’ AGI threshold, earnings grow tax deferred,
potential personal tax savings
22

23. H.R.8 the American Taxpayer Relief Act of 2012
“ATRA”
Signed into law in January 2, 2013 by President
Obama
23

24. H.R.8 the American Taxpayer Relief Act of 2012
“ATRA”
• ATRA adds nearly $4 Trillion to federal deficits over a decade
compared to the debt reduction envisioned in the extreme scenario of
―the fiscal cliff‖.
• Extends low income tax rates for nearly every American except the
relative handful above the $400,000 threshold
• Puts off (for at least two months) the automatic budget cuts that were
part of ―the fiscal cliff‖ and would have saved about $109 Billion in
federal spending on defense and non-defense programs alike
• Sets up a more heated fight in late February when Treasury must come
to Congress to seek an increase in the government’s borrowing limit
(raising federal debt ceiling above $14.5 Trillion)
• Consideration of effect on economic recovery and job creation
24

25. H.R.8 the American Taxpayer Relief Act of 2012
“ATRA”
―The AICPA is pleased that Congress has reached an agreement,‖ said
Edward Karl, vice president–Tax for the AICPA. ―The uncertainty of
the tax law has unnecessarily impeded the long-term tax and cash
flow planning for businesses and prevented taxpayers from making
informed decisions. The agreement should also allow the IRS and
commercial software vendors to revise or issue new tax forms and
update software, and allow tax season to begin with minimal delay.‖
25

26. ATRA American Tax Relief Act of 2012 –
Key Tax Provisions
• Individuals
• Business
• Provisions not addressed
26

27. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001
EGTRRA and 2003 JGTRRA were permanently extended including:
• Lower 10/15/25/28/33/35% tax rate structure for individuals
(except high income individuals – upcoming slide)
• Lower 15% tax rate on long-term capital gains and qualified dividends
(except high income individuals – upcoming slide)
27

28. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001
EGTRRA and 2003 JGTRRA were permanently extended including:
• Marriage penalty relief: expanded 15% bracket and standard deduction
for married taxpayers filing jointly to twice that of single taxpayers
• Increase in refundable child tax credit to $1,000
– Regardless of number of children
– To the extent of 15% of the taxpayer’s earned income in excess of $3,000 threshold
amount thru 2017
28

29. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001
EGTRRA and 2003 JGTRRA were permanently extended including
(continued):
• Increase in maximum dependent care credit and eligible expenses. IRC
21, 2012 Taxpayer Relief Act §101(a)(1)
http://www.irs.gov/publications/p503/index.html
– Maximum credit is $1,050 (35% of up to $3,000 of eligible expenses) if one qualifying
individual;
– $2,100 (35% of up to $6,000 of eligible expenses) if two or more qualifying individuals;
– 35% credit rate is reduced, but not below 20%, by one percentage point for each
$2,000 (or fraction thereof) of adjusted gross income (AGI) above $15,000
29

30. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001
EGTRRA and 2003 JGTRRA were permanently extended including
(continued):
• Increase in non refundable adoption credit to $10,000 (inflation adjusted)
and related provisions
– increased to $10,000 for all adoptions; MAGI phase out from $75K-$150K
– Code Sec. 36C, 2012 Taxpayer Relief Act §101(a)(1 http://www.irs.gov/Individuals/Adoption-Benefits-FAQs
• The adoption assistance exclusion Code Sec. 137, 2012 Taxpayer Relief Act
§101(a)(1)
– increased to $10,000 for all adoptions, inflation adjusted to $12,170 for 2012;
increased AGI phase out $182,520 - $222,250. IRS yet to come out with 2013 inflation
adjusted figures
30

31. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001
EGTRRA and 2003 JGTRRA were permanently extended including
(continued):
• $5,250 income exclusion from employer-provided educational
assistance, restoration of the exclusion for graduate level courses
– Separate written employer plan subject to notification requirements, cannot provide
employees with a choice between this benefit and additional taxable income, courses
need not be related to employee’s job.
– IRC 127, 2012 Taxpayer Relief Act §101(a)(1)
http://www.irs.gov/publications/p970/ch11.html
• Personal Nonrefundable Credits May Offset AMT and Regular Tax for All
Tax Years. IRC 26(a), as amended by Act Sec. 104(c)
31

32. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001 EGTRRA and 2003 JGTRRA
were permanently extended including (continued):
• Increase maximum in annual Coverdell education savings account (CESA) contributions to
$2,000 and related provisions, http://www.irs.gov/uac/Coverdell-Education-Savings-Accounts, IRC 25A, 530
as amended by Act Sec 101(a)(1)
– Individuals or corporations can make non-deductible cash contributions, max $2K per
beneficiary, individual is subject to MAGI phase out (MFJ $190K-$220K) or 6% excise tax
applies to excess funded.
– Beneficiary must be under age 18, unless exempted as special needs
– Contributions can be made until April 15 of the following year
– Non taxable if spent on qualified education expenses, includes elementary, secondary
school and higher education.
– Earnings could be taxable upon withdraw if not used for qualified expenses and additional
10% tax may apply
– After age 30 must distribute or rollover to another beneficiary
– Other rules may apply including coordination with other education credits
32

33. ATRA– Individual Tax Key Provisions
Generally all of the individual income tax provisions from 2001
EGTRRA and 2003 JGTRRA were permanently extended including
(continued):
• No Phase-Out of Personal Exemptions Except for Higher-Income Taxpayers
– Phase out (PEP)) by 2% for each $2,500 (or portion thereof) by which the taxpayer's
AGI exceeds the applicable threshold
– starting threshold of $300,000 for joint filers; $250,000 single filers
• Waiver of 60 month limit on the above the line deduction for student loan
interest deduction. IRC 221, 2012 Taxpayer Relief Act §101(a)(1)
– Tax years after 12/31/12
– Deduction is lesser of amount paid or $2,500,
– Subject to AGI limitations e.g. $60K-$75K married filing joint
– http://www.irs.gov/taxtopics/tc456.html
33

34. ATRA– Individual Tax Key Provisions
Higher Income Taxpayers Definition New for 2013:
• Highest marginal tax rate will increase to 39.6% up from 35%
• Capital gains and qualified dividends tax rate will increase to 20% for married
taxable income in excess of $450,000( $400,000 for single filers)
• Note: above tax increase is in additional to the 3.8% Medicare tax on net
investment income of higher income taxpayers that went into effect January 1
2013.
• Overall limitation on itemized deductions and phase-out of personal exemptions
will be reinstated beginning in 2013 for couples with AGI in excess of $300,000
($250,000 for single filers).
– Indexed for inflation beginning in 2014
• Tip: Determine if you have capital loss carry forwards that can be utilized
• Tip: Consider optimizing qualified retirement plan contributions to decrease AGI
34

35. ATRA– Individual Tax Key Provisions
AMT Patch Permanently Extended:
• Retroactive to 2012
• AMT exemption for 2012 increases for married couples from $45,000 to
$78,750 and for single filers from $32,000 to $50,600
• Indexed for inflation beginning in 2013
• AMT Triggers: state and local tax deductions, real estate and personal
property tax deductions, interest on home equity loan or lie of credit not
used to buy build or improve residence; Misc itemized 2% deductions,
LTCG and dividend income, tax-exempt interest on certain private-activity
municipal bonds, ISO exercise, etc
• Tip: Customized tax planning with your tax professional before year end to
determine optimal timing of payment for certain deductions
35

36. ATRA– Estate and Gift Tax Key
Provisions
• Permanently extends the $5M lifetime gift and estate tax exemption as amended
by Act Sec 101
• Raises the maximum gift and estate tax rate from 35% to 40%
• 2013 exemption is projected to be $5.25M up from $5.12M in 2012
• Exemption will be indexed for inflation and is projected to increase to $7.5M by
2020.
• Other estate and gift tax provisions from 2010 act permanently extended
including the ability to carryover any unused estate tax exemption to the
surviving spouse IRC 2010 (c)(2)(B) etc as amended by Act Sec 101
• Tip: Time to meet with professional advisors if you believe you have a taxable
estate, minimize overall tax, avoid probate, living will, life and disability
insurance, etc. $13K and annual exclusion other gifts; consider funding
working child’s ROTH IRA to extent of earned income limit
36

37. ATRA– Individual Tax Key Provisions
Other Individual Tax Extenders set to expire end 2011 and were
retroactively reinstated for 2012 and 2013:
• Above the line deduction for tuition and fees IRC 222(e) as amended by
Act Sec 207;
– $4,000 for an individual whose adjusted gross income (AGI), with certain modifications,
doesn't exceed $65,000 ($130,000 for a joint return),
– $2,000 for an individual whose modified AGI exceeds $65,000 ($130,000 for a joint return),
but doesn't exceed $80,000 ($160,000 for a joint return),
– or zero for other taxpayers.
– For taxpayer, spouse and dependents and used for higher qualified education expenses.
– Maximum amount to be reduced by other tax free assistance and other educational
assistance programs e.g. CESAs
– Tips: expenses for an academic term beginning as late as Mar. 31, 2014 may qualify for the
deduction, if the taxpayer pays these expenses before 2014. Consider paying some tuition
for the 2014 term at the end of 2013—namely, the dollar amount equal to the maximum
allowable deduction
37

38. ATRA– Individual Tax Key Provisions
Other Individual Tax Extenders set to expire end 2011 and were
retroactively reinstated for 2012 and 2013:
• Deduction for state and local sales taxes IRC 164(b)(5)(l) as amended by Act
Sec 205;
– (e.g. new car or boat) election to deduct general state and local sales tax paid
e.g. on high ticket items, in lieu of total state and local income taxes e.g. state
withholding and estimated tax paid
• $250 above the line deduction for teacher classroom expenses. IRC
62(a)(2)(D) as amended by Act Sec 201;
• Exclusion of cancellation of indebtedness income from the
discharge of qualified personal residence indebtedness (originally
expired at the end of 2012) IRC 108(a)(1)(E) as amended by Act Sec 202
– Same rules as prior, see IRS form 982
38

39. ATRA– Individual Tax Key Provisions
Other Individual Tax Extenders set to expire end 2011 and were
retroactively reinstated for 2012 and 2013 (continued):
• Deduction for qualified mortgage insurance premiums IRC 163(h)(3)(E)
as amended by Act Sec 204;
– Paid or accrued before 1/1/14 not applicable to any period after 12/31/13.
• Exclusion for employer provided mass transit and parking benefits
IRC 132(f)(2) as amended by Act Sec 203
– $240 / month 2012 and $245 / month estimated for 2013 excludable from
employee income
39

40. ATRA– Individual Tax Key Provisions
Other Individual Tax Extenders set to expire end 2011 and were
retroactively reinstated for 2012 and 2013 (continued):
• Charitable deduction for contributions of real property for
conservations purposes IRC 170(b)(1)(E)(vi) as amended by Act Sec 206(a);
– 50% charitable contribution limitation; 100% for qualified ranchers and farmers made in 2012
or 2013.
– Illustration
• In 2013, an individual with a contribution base of $100 makes a qualified conservation
contribution of property with a fair market value of $80 and makes other charitable
contributions subject to the 50% limitation of $60.
• Allowed a deduction of $50 in 2013 for the non-conservation contributions (50% of the
$100 contribution base) and is allowed to carry over the excess $10 for up to five years.
• No current deduction is allowed for the qualified conservation contribution, but the entire
$80 qualified conservation contribution may be carried forward for up to 15 years
40

41. ATRA– Individual Tax Key Provisions
Additional items expired and retroactively reinstated for 2012 and 2013:
• Tax-free distributions from IRAs for charitable purposes IRC 408(d)(8)(F) as
amended by Act Sec 208
– Maximum $100,000, must be trustee to trustee transfer, qualifies as RMD.
– Qualified distributions from IRAs for charitable purposes made prior to
2/1/2013 may be deemed as made in 2012.
– Cash distributions taken from IRAs after 11/30/12 and transferred to charity
prior to 2/1/13 may qualify as tax-free distributions in 2012 (assuming the
distributions otherwise qualify for the exclusion)
– Note: no taxable income (no increase to AGI) and no corresponding
charitable deduction
• Tip: Work with professionals now to meet Feb. 1 2013 deadline for 2012; part of
overall estate plan and lifetime family financial plan; to benefit charities and their
missions that you care about
41

42. ATRA– Individual Tax Key Provisions
Additional items benefitting lower and middle-income taxpayers
extended thru 2017 (5 years):
• More generous American Opportunity Tax Credit (AOTC) for higher
education expenses;
– maximum $2,500 qualified education expenses (e.g. tuition, course materials,
fees) paid per eligible student
– non refundable personal credit can be claimed against AMT liability
– for first 4 years of post- secondary education degree or certificate program
– MAGI phase out between $160,000 and $180,000 for married joint filers
– Code Sec. 25A(i) ; 2012 Taxpayer Relief Act §103(a)(2)
– http://www.irs.gov/uac/American-Opportunity-Tax-Credit
42

43. ATRA– Individual Tax Key Provisions
Additional items benefitting lower and middle-income taxpayers
extended thru 2017 (5 years):
• Expansion of the refundable child tax credit (CTC) IRC 24 and 32(n) as
amended by Act 101(a)(1) http://www.irs.gov/publications/p972/ar02.html
– $1,000 max per child, no limit on # of children.
– to the extent of 15% of the taxpayer's earned income in excess of a threshold
amount e.g. $3,000
• Expansion and modifications to the Earned Income Credit (eligible
taxpayers with 3 or more qualifying children); $5K increase threshold
and phase outs See Act 103(c)(2); 101(a)(1)
43

44. ATRA– Individual Tax Key Provisions
Payroll Tax Holiday Expires:
• During 2011 and 2012:
– OASDI tax (Medicare tax) reduced from 6.2% to 4.2% for W-2 employees
(2%)
– Rate on self employment income was reduced from 12.4% to 10.4% (2%)
• For 2013 3.8% increase in total:
– OASDI wage limit base $113,700 times 2% equals $2,274 tax increase in
2013 for both employees and self employed taxpayers
– This tax is in addition to the 0.9% Medicare tax on earned income of higher
income taxpayers that went into effect 1/1/13.
Tip: Self employed taxpayers should consider increasing their
estimated tax payments accordingly (safe harbor rules)
44

45. ATRA– Business Tax Key Provisions
Retroactively reinstated for 2012 and 2013 but not extended
permanently:
• Cost Recovery Provisions Extended and Expanded –
– IRC Sec 179 immediate deduction restored to $500K for qualified
tangible personal property. (subject to $2M phase out and net
income provisions). 2013 was $25K max and $200K phase out –
same for 2014 if no further extension in future law.
– Reinstated provision that allows IRC Sec 179 immediate deduction
of up to $250K qualified leasehold restaurant and retail
improvement property;
– Extends the 50% bonus depreciation provision placed in service
before 1/1/2014 (original use). Extended election to accelerate
AMT credits in lieu of bonus depreciation.
45

46. ATRA– Business Tax Key Provisions
Retroactively reinstated for 2012 and 2013 but not extended
permanently:
– First-Year depreciation cap for 2013 automobiles and trucks
boosted by $8,000
• Passenger auto as qualified property IRC 168(k), not subject
to the election to decline bonus depreciation and AMT
depreciation relief
• Placed in service by 12/31/13; by 12/31/14 for aircraft and
long production period property IRC 168(k)(2)
• Example: $40K cost passenger auto, $3,160 first year plus
$8,000 potential total deduction $11,160
46

47. ATRA– Business Tax Key Provisions
Expired at the end of 2011 and were retroactively reinstated for 2012
and 2013 but not extended permanently:
• Work opportunity tax credit (WOTC) (employer hiring certain targeted
groups e.g. veterans an income tax credit against their 1st and 2nd year
earnings; non profit employers can also benefit). IRC 51(c)(4)(B) as amended
by Act Sec 309.
• Indian Employment Credit Reinstated and Extended IRC 45A(f) as amended
by Act Sec. 304
• New markets tax credit (credit for qualified equity investments to
acquire stock in a community development entity $3.5B cap no
carryover) IRC 45D(f) as amended by Act Sec 305;
• 15-year straight line cost recover for qualified leasehold, restaurant and
retail improvements IRC 168(e)(3)(E) and IRC 168(3)(8)(E) as amended by Act Sec
311;
47

48. ATRA– Business Tax Key Provisions
Expired at the end of 2011 and were retroactively reinstated for 2012
and 2013 but not extended permanently:
• Expensing Election for Costs of Film and TV Production incurred in
certain qualified US areas. IRC 181(f) as modified by Act Sec 317
• Differential wage payment credit for eligible small employers when their
employees are called to US active duty. IRC 45P(f) as amended by Act Sec
736
• 100% exclusion of gain from sale of qualified small business stock (IRC
Sec 1244 QSB generally engaged in active trade or business and not
have assets that exceed $50M; held stock at least 5 years) IRC 1202(a)(3)
and IRC 1202(a)(4) as amended by Act Sec 324(b); (PSCs not eligible)
• 5-year recognition period for built-in gains of S-corporations (conversion
C to S-corporation) IRC 1374(d)(7)(C) as amended by Act Sec 326(a)(2);
48

49. ATRA– Business Tax Key Provisions
Expired at the end of 2011 and were retroactively reinstated for 2012
and 2013 but not extended permanently:
• Basis adjustment to stock of S Corporations making charitable
contributions of appreciated property, shareholder adjusts basis euqal
to pro rata share of the adjusted basis of the property contributed. IRC
1367(a)(2) as amended by Act Sec 325;
• Subpart F exception for active financing income. IRC 953(e)(10) and IRC
954(h)(9) as amended by Act Sec 322;
• Enhanced charitable deduction for contributions of ―apparently
wholesome‖ food inventory by C Corporations. IRC 170(e)(3)(C)(iv) as
amended by Act Sec 314
49

50. ATRA– Business Tax Key Provisions
Expired at the end of 2011 and were retroactively reinstated for 2012
and 2013 but not extended permanently:
• Research Credit Reinstated and Liberalized IRC 41 as amended by Act Sec
301
• Empowerment Zone Tax Breaks Reinstated and Extended IRC 1391,
1394, 1397 as amended by Act Sec 327
50

51. ATRA– Other Tax Key Provisions
Energy incentives expired at the end of 2011 and were
extended for 2012 and 2013:
• Residential energy property non-refundable personal credit
located in the US. IRC 25C(g)(2) as amended by Act Sec 401(b);
• Credit equal to sum of:
– (1) 10% of the amount paid or incurred by the taxpayer for qualified energy
efficiency improvements (i.e., energy-efficient building envelope components)
installed during the tax year, and
– (2) the amount of residential energy property expenditures (i.e., expenditures
for advanced main air circulating fans, for qualified natural gas, propane, or
oil furnace or hot water boilers, and for ―energy-efficient building property,‖
including heat pumps, water heaters, and central air conditioners, paid or
incurred by the taxpayer during the tax year.
– Lifetime credit limit of $500 ($200 for windows and skylights)
51

52. ATRA– Other Tax Key Provisions
Energy incentives expired at the end of 2011 and were
extended for 2012 and 2013:
• Energy efficient new homes credit for eligible contractors.
$2K or $1K. IRC 45L(g) as amended by Act Sec 408;
• Energy efficient appliances manufacturers credit
(dishwashers and clothes washers) IRC 45M(b) as amended by Act
Sec 409;
52

53. ATRA– Other Tax Key Provisions
Energy incentives expired at the end of 2011 and were
extended through 2013:
• Credit for 2- or 3-wheeled plug-in electric vehicles IRC
30D(g)(3)(E), as amended by Act Sec. 403
– Credit equal to the lesser of 10% of its cost or $2,500.
• Non-hydrogen qualified alternative fuel vehicle (QAFV)
refueling property credit is retroactively restored and
extended to property placed in service before Jan. 1, 2014.
IRC 30C(g)(2) as amended by Act Sec 402(b)
– 30% income tax credit for cost of installation not to exceed $30K/year
per location
– Used in taxpayers trade or business or installed at principal residence
53

54. ATRA– Other Tax Key Provisions
Energy incentives expired at the end of 2011 and were
extended through 2013:
• Renewable electricity production credit IRC 45(d)(a) as amended
by Act Sec 407;
– e.g. Wind, closed-loop biomass, open-loop biomass, municipal solid
waste (which consisted of landfill gas and trash facilities), hydropower
and marine and hydrokinetic facilities construction to begin before
1/1/2014.
• Credit for biodiesel and renewable diesel used as fuel. IRC
40A(g) as amended by Act Sec 405.
– Income and excise tax credit and refund provisions
– IRS Forms 720, 8849, 4136, 8864 and 3800
54

55. ATRA– Other Provisions
• Medicare service payment cuts made to physicians deferred for
one year
• Federal-long term unemployment benefits extended for one year
• Federal milk subsidy extended for one year
• Individual taxpayers may now transfer amounts from a qualified
retirement plan to qualified ROTH plan (e.g. ROTH 401(k)) without
paying an early withdrawal penalty. IRC 402A(c)(4)(E) as added by Act
Sec 1002
– Treated as in plan rollover, it is NOT tax-free, look for further guidance
– Conversion tax anticipated to offset half of the $24 Billion from next
slide, balance anticipated to be offset by future discretionary spending cuts
split equally between defense and non-defense spending
– Gets around AGI limitation for ROTH IRAs contributions
55

56. Items that remain to be addressed…
• Automatic spending cuts scheduled to go into effect on Jan 1 2013
deferred until 3/1/2013; projected cost $24 Billion
• Automatic spending cuts ―sequestration‖ expected to be addressed
this March; likely in conjunction with a negotiation on the debt ceiling
$14.5 Trillion.
• Long-term tax reform not yet addressed
• Debt reduction $16 Trillion not yet addressed
56

57. Obama Tax Plan – Individuals
• What did not get in the new law
– Cap certain deductions or exclusions at 28% for taxpayers in
the 36% and 39.6% brackets
– Eliminate the carried interest ―loophole‖ for hedge fund
managers and other similar service providers
– Eliminate a special depreciation ―loophole‖ for corporate jets (this
would increase the period for depreciation from 5 years to 7
years and would raise $2 billion over 10 years)
– Replace the AMT with the ―Buffett Rule‖ – taxpayers with income
over $1 million must pay an effective federal income tax rate of
at least 30%.
57

58. Top 5% Income Earners paid 58.7% of the Taxes
Category AGI Cut Off Number Share of
Income Tax
Top 0.1% $1,432,890 137,982 17.1%
Top 1% $343,927 1,380,000 36.7%
Top 5% $154,653 6,899,000 58.7%
Top 10% $112,124 13,798,000 70.5%
Top 25% $66,193 34,496,000 87.3%
Top 50% $32,396 68,991,000 97.7%
Bottom 50% <$32,396 68,991,000 2.3%
Source: Tax Foundation, based on IRS returns 2009

59. Potential for Corporate Tax Reform
• February 2012-The President’s Framework for
Business Tax Reform (the Framework)
– Rough blueprint for the President’s plan
• To cut corporate tax rates to internationally competitive levels
• Simplify the corporate tax rules
• Reduce or eliminate tax loopholes in the current system
59

60. Summary/Key Takeaways
Highlights of ATRA:
• Tax rates (top bracket, capital gains, qualified dividends, Medicare tax)
increases for high income taxpayers new for 2013
• AMT Patch permanently extended, planning opportunities
• Payroll tax holiday expired
• Business can deduct more of their qualified asset purchases; consider cost
segregation study for buildings and tenant improvements
• Estate tax rate increases 5%. Review your estate / gift tax plan with your
advisory professionals if you believe you will be subject to estate tax
• Consider tax free distributions from IRAs for charitable purposes
• Consider ROTH IRAs and taxable rollovers; coordinate with investment
advisor and tax professional; can gift to fund for working children
60

61. Summary/Key Takeaways
• 2013 planning with investment advisor for capital gains; any capital loss
carry forwards to offset gains?
• Optimize funding deductible retirement plans; can reduce AGI / tax liabilities
• Delay in tax legislation can delay filing. Affects IRS tax forms and tax
preparation software development. Result: potentially more individual
extensions (however note that tax liability due 4/15/13 regardless of filing an
extension or late payment penalties result).
• Optimal tax planning requires customized solutions; integrated /
coordinated with services of other professional advisors with your specific
needs in mind as part of a ―holistic approach‖.
61

62. Keeping you up to date…
• CBIZ / MHM weekly update (email database; sign up sheet) – Indiv/bus tax updates
• Upcoming events:
– Eye on Washington Quarterly Business Tax Update: Tuesday January 22, 2013
1-2pm CDT (Phoenix noon – 1:00 pm)
– Healthcare Reform Seminar for employers (having 50+ employees)
• Contact Angie Avers (602) 650-6260 direct aavers@cbiz.com
• Tucson - AZ Inn Jan 23 / Phoenix - Phoenix Art Museum Jan 24
• AZ CFO / CEO 2013 Economic Outlook for Phoenix – Guest speaker Barry
Broome, President & CEO of GPEC at Phoenix Art Museum. Jan. 30
• Contact Susan Alispahic to be added to our educational notification lists
– SAlispahic@cbiz.com; (602) 650-6245 direct
• Our CBIZ MHM Phoenix website http://www.cbiz.com/cbizmhm-phoenix/
62

63. Questions?

64. CBIZ MHM, LLC Contact Information
Zandra L. OKeefe CPA
Managing Director
 602.264.6835  zokeefe@cbiz.com
64

65. Thank You