Thomson Reuters released their list of major tax developments for 2013. We’ve placed it on our website for your convenience but you may also check it out at their website – Thomson Reuters.
Taxable & Exempt Income
- IRS concludes that an incentive to health care professionals and hospitals for using electronic records is income to recipients.
- IRS delayed to 2014 implementing FICA guidance on employers’ treatment of tips and service charges.
- A district court held that a parsonage allowance was unconstitutional.
- The maximum fair market value (FMV) for 2013 for which the fleet-average valuation method can be used is $21,200 ($21,300 for 2014) for a passenger auto and $22,300 ($22,600 for 2014) for a truck or van.
- The maximum FMV for 2013 for which the cents-per-mile valuation method can be used is $16,000 (for 2014, as well) for passenger autos and $17,000 ($17,300 for 2014) for a truck or van.
- For 2013, an employee may exclude up to $245 a month of employer-provided qualified parking, transit, and vanpooling benefits. For 2014, an employee can exclude up to $250 a month of employer-provided qualified parking benefits, and $130 for the combined value of transit passes and transportation in a commuter highway vehicle.
- For 2013, the maximum exclusion for employer-provided adoption assistance is $12,970 ($13,190 for 2014).
- IRS modified the “use-or-lose” rule for health FSAs to allow employees to carry over up to $500 of unused amounts remaining at year-end.
- IRS provided guidance on the $2,500 limit on health FSAs that applies in 2013 and 2014.
- For 2013, top dividend rate rose to 20% for certain higher-income taxpayers.
- IRS provided a safe harbor accounting method for calculating OID on a pool of credit card receivables.
- Regs provide that Treasury Inflation-Indexed Securities (TIPS) issued with more than a de minimis amount of premium are subject to the coupon bond method.
- IRS provided the 2013 and 2014 income threshold ($115,000) for the definition of a “highly compensated employee.”
- The per-diem dollar threshold in computing the limits for the exclusion of benefits from long-term care insurance is $320 for 2013 ($330 for 2014).
- Regs were issued on elective deferral of cancellation of debt income from the reacquisition of debt instruments.
Deductions & Expenses of a Business
- New reliance regs provide definitions, exceptions, etc. regarding the $500,000 limit for certain remuneration paid by health insurers.
- For 2013, a high deductible health plan (HDHP) for Archer medical savings account (MSA) purposes is a health plan with an annual deductible of at least $2,150 and not more than $3,200 for individual coverage ($4,300 and not more than $6,450 for family coverage); in addition, the maximum out-of-pocket expenses can’t exceed $4,300 for individual coverage ($7,850 for family coverage). For 2014, an HDHP for MSA purposes is a health plan with an annual deductible of at least $2,200 and not more than $3,250 for individual coverage ($4,350 and not more than $6,550 for family coverage); in addition, the maximum out-of-pocket expenses can’t exceed $4,350 for individual coverage ($8,000 for family coverage).
- For 2013 and 2014, a HDHP for HSA purposes is a health plan with an annual deductible that is not less than $1,250 for individual coverage and $2,500 for family coverage. Maximum out-of-pocket expenses can’t exceed $6,250 for individual coverage for 2013 ($6,350 for 2014) and $12,500 for family coverage for 2013 ($12,700 for 2014). The maximum annual HSA deductible contribution is the sum of the monthly contribution limits, based on eligibility and health plan coverage on the first day of the month. The monthly limit is 1/12 of the indexed amount for self-only coverage ($3,250 for 2013 and $3,300 for 2014) and for family coverage ($6,450 for 2013 and $6,550 for 2014).
- The standard mileage rate for business travel is 56.5¢ for 2013 (56¢ for 2014).
- Under the simplified (high-low) per diem rates for post-Sept. 30, 2013 travel, a payor may reimburse up to $251 for high-cost localities ($186 for lodging and $65 for M&IE) and $170 for other localities ($118 for lodging and $52 for M&IE).
- Puerto Rico is treated as included in the U.S. for purposes of calculating domestic production gross receipts (DPGR) through 2013.
- An optional safe harbor method of calculating a home office deduction is available starting with the 2013 tax year. The safe harbor—$5 × square feet of qualified use (up to 300 square feet)—provides an alternative to the calculation, allocation, and substantiation of actual expenses that would otherwise be required.
- Taxpayers using their car to move to a new home because of a change in their work location may claim a 24¢ per-mile moving expense deduction for 2013 (23.5¢ for 2014).
- Final regs were issued under Code Sec. 162(a) and Code Sec. 263(a) with respect to amounts paid to acquire, produce, or improve tangible property, that cover: deductible repairs and maintenance costs; timing for deducting materials and supplies; how to handle the cost of rotable, temporary and standby emergency spare parts; capitalization, generally; amounts paid to acquire property; and amounts paid to improve property.
Interest Expense, Taxes & Losses
- The treatment of mortgage insurance premiums as qualified residence interest is extended through 2013.
- IRS issued final regs on allocation of prepaid qualified mortgage insurance premiums.
- The election under Code Sec. 164 to deduct state and local sales taxes instead of state and local income taxes is extended through 2013.
- A co-op stockholder may be entitled to a casualty loss deduction for damage to the co-op’s premises if the taxpayer has a sufficient property interest under state law.
- Temporary regs provide that taxpayers can deduct amounts paid for repairs and maintenance to tangible property if the amounts paid do not otherwise have to be capitalized.
- Beginning during 2013, proposed reliance regs provide a regrouping “fresh start” under the passive activity rules for certain taxpayers subject to the 3.8% surtax on unearned income.
Depreciation & Expensing
- Proposed reliance regs modify rules for determining what transactions are dispositions of MACRS assets.
- Proposed reliance regs modify rules for accounting for MACRS depreciation using general asset accounts.
- 7-year MACRS depreciation for motorsports entertainment complexes is extended through 2013.
- 15-year MACRS depreciation for qualified leasehold improvement property, qualified restaurant property and qualified retail improvement property is extended through 2013.
- Open-air parking garages are characterized under MACRS as 39-year nonresidential real property.
- Faster MACRS depreciation for qualified Indian reservation property is extended through 2013.
- 50% bonus depreciation is extended to apply to property placed in service before 2014 (before 2015 for certain long-production-period property and aircraft).
- Another round of trading bonus and accelerated depreciation for certain otherwise-deferred credits is provided for property placed in service before 2014 (before 2015 for certain long-production-period property and aircraft).
- Federal sequester imposes limit on the amounts refundable for trading bonus and accelerated depreciation for certain otherwise-deferred credits.
- 50% bonus depreciation for certain property used in biofuel production is extended through 2013 and expanded.
- Code Sec. 179 expensing limit is set at $500,000, and the investment-based phase-out level for the expensing is set at $2,000,000, for tax years beginning in 2012 and 2013.
- S corporations aren’t subject to Code Sec. 179 limitations that apply to consolidated groups.
- Right to revoke or alter a Code Sec. 179 expensing election without IRS consent is extended to cover tax years beginning before 2014.
- Up to $250,000 of qualified real property is made eligible for Code Sec. 179 expensing for tax years beginning in 2012 and 2013.
- Eligibility of off-the-shelf computer software for Code Sec. 179 expensing is extended to cover tax years beginning before 2014.
- Enhanced Code Sec. 179 expensing for qualified zone property is extended generally through 2013.
- Autos, trucks and vans placed in service in 2013 are subject to revised auto depreciation and expensing dollar caps, as are vehicles eligible for bonus depreciation. The 2013 limits are the same as in 2012 for a passenger auto, while the limits (other than the first-year limits, which are the same) are $100 higher for a light truck or van. The first-year depreciation limit is $3,160 for autos and $3,360 for light trucks or vans first placed in service in 2013. However, if the bonus depreciation rules apply, these first-year limits are increased by $8,000 to $11,160 for autos and $11,360 for light trucks or vans.
- Autos, trucks and vans leased in 2013 are subject to revised income inclusion amounts.
- 50% expensing for qualified advanced mine safety equipment applies through 2013.
- Expensing for certain film and TV production costs applies through 2013.
Charitable Contributions & Medical Expenses
- Deductible amounts for insubstantial benefit to donors of charitable contributions increase. Items are fully deductible if: (1) the value of all benefits received isn’t more than $102 for 2013 ($104 for 2014); or (2) the amount contributed to the charity is at least $51 for 2013 ($52 for 2014) and the donor receives only token benefits (bookmarks, calendars, mugs, posters, tee shirts, etc.) generally costing no more than $10.20 for 2013 ($10.40 for 2014).
- Above-basis deduction rules retroactively extended for charitable contributions of food inventory by both non-corporate taxpayers and C corporations made before 2014.
- No qualified easement in property subject to mortgage unless mortgagee timely subordinates rights to those of charitable donee.
- No qualified easement if property can be substituted for property originally transferred subject to easement.
- Increased charitable deduction for qualified conservation easements contributed by individuals (including ranchers and farmers) retroactively extended for contributions made before 2014.
- Increased charitable deduction for qualified conservation easements contributed by corporate ranchers and farmers retroactively extended for contributions made before 2014.
- Maximum premiums paid for a qualified long-term care insurance contract, deductible as a medical expense, increase.
- Mileage rate for use of a car for qualified medical transportation is set at 24¢ a mile for expenses paid or incurred in 2013 (23.5¢ for 2014).
Individual Tax Computation
- The wage base for computing the Social Security tax (OASDI) in 2014 increased to $117,000 from $113,700 in 2013.
- IRS issued final regs on the additional 0.9% Medicare tax on employee compensation and self-employment income.
- For 2013 and later years, the above-the-line deduction for self-employment tax is 50% of all self-employment tax.
- IRS released the standard deduction amounts for 2013 and 2014. For joint filers and surviving spouses, it is $12,200 for 2013 ($12,400 for 2014); for heads of household, it is $8,950 for 2013 ($9,100 for 2014); for singles, it is $6,100 for 2013 ($6,200 for 2014); and for marrieds filing separately, it is $6,100 for 2013 ($6,200 for 2014). For 2013 and 2014, the basic standard deduction of individuals who can be claimed as dependents by another taxpayer can’t exceed the greater of (a) $1,000 or (b) $350 plus the individual’s earned income; and, it can’t be more than the regular basic standard deduction amount shown above ($6,100 for 2013; $6,200 for 2014).
- For 2013 and later years, the overall limitation on itemized deductions (the “Pease” limitation) is restored. For 2013, it applies when AGI exceeds $300,000 for joint returns, $275,000 for heads of household, $250,000 for single filers, and $150,000 for married individuals filing separately.
- For 2013, the personal exemption amount is $3,900 ($3,950 for 2014).
- For 2013 and later years, the personal exemption phaseout (PEP) applies. For joint filers and surviving spouses, the phaseout begins to apply at $300,000 for 2013 ($305,050 for 2014) and is completed at $422,500 for 2013 ($427,550 for 2014). For heads of household, the phaseout begins to apply at $275,000 for 2013 ($279,650 for 2014) and is completed at $397,500 for 2013 ($402,150 for 2014). For single filers (other than surviving spouses and heads of household), the phaseout begins to apply at $250,000 for 2013 ($254,200 for 2014) and is completed at $372,500 for 2013 ($376,700 for 2014). For marrieds filing separately, the phaseout begins to apply at $150,000 for 2013 ($152,525 for 2014) and is completed at $211,250 for 2013 ($213,775 for 2014).
- The sunset of a favorable income tax rate structure for individuals and marriage penalty relief in the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA, P.L. 107-16) was eliminated.
- The tax rates on individuals’ incomes for 2013 and later years include a seventh, higher, tax bracket. The tax rates are 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.
- Under the kiddie tax, the parents’ highest tax rate applies to a child’s unearned income over $2,000 for 2013 and 2014.
- For 2013, the dollar thresholds for the optional methods of computing net earnings from self-employment are $4,640 and $6,960 ($4,800 and $7,200 for 2014).
- Final regs clarify application of the 3.8% net investment income tax that applies after 2012. IRS also issues proposed reliance regs on the 3.8% surtax, that deal with the computation of net investment income with respect to a number of specialized provisions and situations.
Corporate Tax Computation & S Corporations
- The American Opportunity Tax Credit for higher education expenses is extended through 2017.
- For 2013 and 2014, the Lifetime Learning credit phases out over higher levels of modified AGI.
- For Coverdell education savings accounts (CESAs), $2,000 contribution limit, higher phase-out ranges, and other enhancements are made permanent.
- Exclusion for employer-provided education assistance (including assistance for graduate-level courses) is made permanent.
- Exclusion for awards received under the National Health Service Corps and Armed Services Health Professions scholarship programs is made permanent.
- For student loan interest deduction, removal of 60-month limit and increased phase-out ranges are made permanent.
- Phaseout ranges are provided for the deduction for interest paid on qualified higher education loans in 2013 and 2014. For 2013, the deduction phases out ratably for taxpayers with modified AGI between $60,000 and $75,000 ($125,000 and $155,000 for joint returns). For 2014, the deduction phases out ratably for taxpayers with modified AGI between $65,000 and $80,000 ($130,000 and $160,000 for joint returns).
- Up-to-$250 above-the-line deduction for teachers out-of-pocket classroom-related expenses applies through 2013.
- Above-the-line deduction for qualified tuition and related expenses applies through 2013.