Montgomery County Medical Society Newsletter
Media Type: Publication
The approaching New Year, as always, brings with it many changes and updates in the tax law and in IRS policy. Staying abreast of these developments can ensure avoidance of unnecessary taxes and penalties and, in some situations, can offer significant tax planning opportunities. Below are five key tax points to keep in mind as we head into 2014.
1. Significant Reduction in §179 Deduction for Tangible Business Property Set for 2014. If your practice is considering purchasing new medical equipment or software, it may be advantageous to do so before the end of the year. Under current law, purchases of qualified business property of up to $2 million in value can be taken as a deduction in the year of purchase, up to a total deduction of $500,000. Beginning in 2014, those limits are set to be reduced to $200,000 and $25,000 respectively, significantly reducing the amount that can be taken as an expense for business equipment purchased after the end of this year. There continues to be debate as to whether Congress will vote to extend the higher limitations for another year, however those wishing to guarantee the benefit of higher deduction thresholds for business equipment, should consider obtaining the equipment before the end of 2013.
2. Individual Insurance Mandate Set to Tax Effect in 2014. Effective January 1, 2014, the Affordable Care Act requires that most U.S. Citizens, subject to some limited exceptions, have health insurance or face a penalty. The penalty is calculated as the greater of a preset applicable dollar amount or a percentage of household adjusted gross income. The individual mandate is scheduled to take effect in spite of a delay in the mandate that most larger business provide health insurance to their employees.
3. Individuals and Employers Affected by Repeal of DOMA Should Review Implications. In the wake of the U.S. Supreme Court’s decision in U.S. v. Windsor to strike down the Defense of Marriage Act (DOMA), the IRS has issued several notices as to the implications (for federal tax purposes) for same-sex married couples who were previously treated as unmarried (for tax purposes) under DOMA. Revenue Ruling 2013-17 states that the IRS will treat legally married same-sex couples the same as heterosexual married couples for federal tax purposes, regardless of whether or not the state in which they reside recognizes their marriage. The Ruling goes on to state that couples that were legally married for tax years in which the statute of limitations period is still open (generally 3 years from the date of initial filing) may, but are not required to, amend back returns to file as married. Individuals in this situation should consult with a tax professional in order to make the decision as whether or not to amend, as in certain circumstances, amending to file as married may result in a higher tax liability.
Employers with same-sex married employees are similarly affected by the repeal of DOMA. Under prior law, employer-paid benefits to an employee’s same-sex spouse were treated as additional compensation to the employee, and subject to FICA taxes and withholding. The IRS recently issued Notice 2013-61, which outlines streamlined procedures for employers wishing to amend their employment tax returns to seek a refund of the employment taxes paid on same-sex benefits. Because the procedures offered by the IRS differ based on whether the employer refunds the withholding amounts to the effected employee prior to the end of 2013 or not, employers with this issue should seek assistance in determining the best course of action prior to year-end.
4. Offshore Reporting Compliance Efforts Will Continue to Increase in 2014. The IRS has continually increased its focus on discovering unreported offshore assets held by U.S. citizens and residents, and all signs indicate that the trend will continue in 2014. With recent agreements reached between the U.S. government and certain foreign banks, it will become increasingly difficult for offshore assets to escape detection. Failure to report (1) ownership interests in or signature authority over certain foreign bank accounts above a certain threshold; (2) interests in certain foreign entities and trusts; or (3) certain gifts from foreign individuals can result in draconian penalties, which in some cases can far exceed the value of the unreported asset or interest. The IRS’ Offshore Voluntary Disclosure Program (OVDP) remains an option for individuals who have failed to disclose such interest in prior years. In many cases, participation in the program can significantly reduce applicable penalties for nondisclosure. Because an increase in inter-governmental reporting between the U.S. and foreign countries is likely in 2014, a strategy of avoidance is quickly becoming untenable. Given the complexities in this area, it is important to consult with qualified counsel if undisclosed foreign assets are a potential issue as we head into 2014.
5. It’s Not Too Late to Plan for Increased Tax Rates. We saw significant tax increases come into effect this year. Not only did the tax rates increase on higher earning taxpayers, but additional Medicare surtaxes on investment income and wages for higher income earners went into effect in 2013 as well. These increased income taxes and surtaxes make asset titling and location more important than ever. Consulting with a tax professional regarding tax bracket management and planning may, in some cases, ensure that some of these higher taxes are mitigated in 2014. Additionally, physicians practicing as a partner through an S Corporation or LLC should review their current compensation structure to ensure that unnecessary Medicare surtaxes are not being paid on high wages in situations where a portion of those wages could otherwise be taken as flow-through income. Lastly, year-end is always an optimum time for estate planning review. Because of the increased estate tax rates that went into effect in 2013, certain pre-2012 estate plans may need to be revised.
Meg Manchester is an attorney with Stein Sperling Bennett De Jong Driscoll PC, a Rockville, Maryland-based law firm with offices throughout the Washington, D.C., metropolitan area. As a member of the firm’s tax law department, Meg assists clients with a variety of personal and business-related tax issues, including entity structuring and transactional planning, international asset reporting and compliance, as well as all aspects of tax controversy. In addition, Meg works with a variety of organizations to obtain and maintain federal tax exempt status.
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