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YEAR END TAX PLANNING

TUESDAY, DECEMBER 8, 2015PRESENTED BY: JOE CAWLEY, CPA, PRINCIPAL-JOECAWLEY@BSSF.COM

JOHN WEIDMAN, CPA, PRINCIPAL-JOHNWEIDMAN@BSSF.COM

PHONE NUMBER-(717)761-7171

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THE AGENDAPart I: Individual Planning IssuesPart II: Retirement Planning Issues Part III: Business Planning IssuesPart IV: Affordable Care Act UpdatePart V: Estate Planning and Tax Deferral Strategies

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PART I INDIVIDUALPART I: INDIVIDUAL PLANNING ISSUES

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2015: NO NEW TAX BRACKETS!

RATE SINGLE MARRIED (JOINT) HEAD OF HOUSEHOLD( )

10% $0–$9,225 $0–$18,450 $0–$13,150

15% $9,226–$37,450 $18,451–$74,900 $13,151–$50,200

25% $37,451–$90,750 $74,901–$151,200 $50,201–$129,600

28% $90,751–$189,300 $151,201–$230,450 $129,601–$209,850

33% $189,301–$411,500 $230,451–$411,500 $209,851–$411,500

35% $411,501–$413,200 $411,501–$464,850 $411,501–$439,000

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39.6% $413,201 and up $464,851 and up $439,001 and up

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DIVIDEND AND CAPITAL GAINS RATES

UNCHANGED

The top tax bracket for dividends and capital gains is 20% (23 8% if net in estment income applies)is 20% (23.8% if net investment income applies). Here’s the breakdown:

0% for taxpayers in 0–15%

tax brackets

15% for taxpayers in middle-income

tax brackets

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20% for taxpayers in the highest tax bracket (39.6%)

LONG TERM CAPITAL GAIN RATES

The long term capital gain rate is 20% if theThe long term capital gain rate is 20% if the taxpayer’s taxable income exceeds $464,851 for a

married couple filing jointly or $413,201 for a single filer (marginal rate of 39.6%). The tax rate on dividends is also 20% for taxpayers in this tax

bracket.

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LONG TERM CAPITAL GAIN RATES

The long-term capital gain rate is 0% for gain that would be taxed at 10% or 15%for gain that would be taxed at 10% or 15% based on the taxpayer’s marginal ordinary-

income rate

TIP: If you have adult children in one of these tax brackets, consider transferring appreciated or dividend-producing assets

TIP: If you have adult children in one of these tax brackets, consider transferring appreciated or dividend-producing assets

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consider transferring appreciated or dividend producing assets to them so they can enjoy the 0% rate

consider transferring appreciated or dividend producing assets to them so they can enjoy the 0% rate

QUICK REVIEW OF NET INVESTMENT

INCOME TAX (NIIT)Additional 3.8% tax

Affects individuals, estates and trusts withestates and trusts with income above certain thresholds

Capital gains, interest and dividends

Rental and royalty income

Medicare surcharge gof 0.9% may also apply to wages, compensation and self-employment income

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NET INVESTMENT INCOME TAX (NIIT)

3.8% percent tax on net investment income when a taxpayer’s modified adjusted gross income (MAGI) exceeds a threshold of $200 000 (single filer) or $250 000 (married filing jointly)of $200,000 (single filer) or $250,000 (married filing jointly). The tax is on the lesser of the taxpayer’s net investment income or the amount of the taxpayer’s MAGI exceeds the threshold.

Real estate that is rented at a profit to a related party is deemed to be a non-passive activity (self rental) and the profit is not subject to the NIIT.

The taxpayer should look for ways that they can materially participate in an activity or elect to group certain activities toparticipate in an activity or elect to group certain activities to increase the amount of time that they spend in the grouped activities.

Net investment income in a trust is also subject to this tax at significantly lower thresholds.

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MEDICARE SURCHARGE

A .9% surcharge applies to earned income where earned income is over $200,000 for awhere earned income is over $200,000 for a single filer or $250,000 for joint filers.

The employer is required to withhold this surcharge when an employee reaches $200,000 of Medicare wages.

The income thresholds are not indexed for inflation so it is likely that more taxpayers will become subject to this tax.

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EDUCATION TAX CREDITS American Opportunity credit

Covers 100% of first $2,000 of tuition and related expenses; 25% of next $2,000 of expenses

M i dit i $2 500 fMaximum credit is $2,500 per year for first four years of college

Extended through 2017

Ratable phase-out's between $80,000 to $90,000 for single filers and $160,000 to $180,000 for joint filers

Lifetime Learning credit Lifetime Learning credit Up to $2,000 per tax return for college expenses

beyond first four years

Ratable phase-out's between $55,000 to $65,000 for single filers and $110,000 to $130,000 for joint filers

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EDUCATION TAX CREDITS

A dependent child with taxable income can elect to claim the credit even though theelect to claim the credit even though the parents would otherwise lose the credit due to income limitations. The parents do not claim the child (personal exemptions are subject to phase out rules in 2015) while the child can file and claim the credit (limited to the lesser of the amount of the credit or the amount of income tax due-NO REFUND OF EXCESS CREDIT).

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SAVING FOR EDUCATION Section 529 college savings plans

Plan assets grow tax-deferred

Distributions used to pay qualified expenses i t f f f d l & t tare income-tax-free for federal & state

purposes

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JUMPSTARTING A 529 PLAN

To avoid gift taxes, limit contributions to $14,000 annual exclusion amount or use part of

f fyour lifetime gift tax exemption

Front-load five years’ worth of annual exclusion gifts in one year per beneficiary $70,000 per beneficiary

$140,000 per beneficiary

with gift-splitting

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PART II RETIREMENTPART II: RETIREMENT PLANNING ISSUES

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2015 QUALIFIED RETIREMENT PLAN

LIMITATIONS401(k)/403(b):$18 000 + $6 000$18,000 + $6,000

for over 50

IRA:$5,500 + $1,000

for over 50

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No changes for 2016!

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IRA CONTRIBUTIONS

Contributions to an IRA are due no later than April 15th for the preceding year. ExtendingApril 15 for the preceding year. Extending the return does not extend the contribution date.

Remember, the taxpayer must have EARNED income equal to or greater than the amount of the annual contribution includingamount of the annual contribution, including any amounts contributed for a non-working spouse.

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2015 IRA ROLLOVER RULES

A taxpayer may only do ONE nontaxable IRA rollover within a one-year period on anrollover within a one-year period on an aggregate basis to all of a taxpayer’s IRA’s. Prior law allowed one rollover per year on an IRA-by-IRA basis. Direct trustee to trustee transfers are not subject to this limitation.

A taxpayer has 60 days from the date of p y ydistribution to deposit the amount distributed into another qualifying retirement plan to ensure the rollover is nontaxable.

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ROTH IRAS Qualified distributions are tax-free (held account for

5 years), but aren’t required during your life (no RMD)

Contributions don’t reduce current year Contributions don’t reduce current-year taxable income

Roth conversions Tax on conversion

Tax-free distributions

AGI limit on conversion eliminated

O t it t t bli h R th Opportunity to establish Roth

accounts for high income earners

(including spousal IRA)

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ROTH IRAS FOR HIGH INCOME

EARNERS This is a planning opportunity using non-deductible

contributions to a traditional IRA. Current law allows a taxpayer to convert a traditional IRA into a Roth IRA and paytaxpayer to convert a traditional IRA into a Roth IRA and pay tax on the deferred income.

Non-deductible contributions to a traditional IRA provide tax basis to the taxpayer. Upon conversion, the taxable income is the fair market value (FMV) of the IRA at conversion less the tax basis.

With proper planning, a taxpayer can convert the traditional IRA when the FMV is close the tax basis.

CAUTION Thi t t d t id th t CAUTION: This strategy does not provide the same tax benefit if the taxpayer has other traditional IRAs funded with pre-tax dollars. In this case, the taxable income calculation takes into account the deferred income and tax basis of the IRAs in the aggregate.

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ROTH IRAS FOR TEENS 2015/2016 contribution limit

Lesser of $5,500 or 100% of earned income, reduced by any traditional IRA contributionsIRA contributions

Contributions aren’t deductible If child earns no more than $6,300

in 2015 and has no unearned income, he or she will pay zero federal income tax

Provides gift opportunities for parents and grandparents

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EXPIRED TAX BREAKS

Deduction for state and local sales taxes

Above-the-line deduction for certain expenses incurred by a grade K through 12 teacher, principal, etc.

Above-the line deduction for qualified tuition and related expenses

Non-taxable distribution of IRA funds directly to a charity in order to satisfy the required minimum distribution rules

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LAST-MINUTE PLANNING TIPS

Pre-pay deductible expenses before Dec. 31

T ition d e in Jan ar Tuition due in January

4th quarter state estimates

Harvest capital losses

Maximizing retirement deferrals

Gift appreciated stock

Don’t forget your flexible spending t (FSA)

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account (FSA)

PART III BUSINESSPART III: BUSINESS PLANNING ISSUES

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EMPLOYING YOUR CHILDREN

Business owners can hire their kids and deduct their pay Children can earn $6,300 in 2015 and pay zero federal income tax Children can earn an additional $5,500 without paying tax if they

contribute it to a traditional IRA Combine with annual gifting from parents or grandparents to fund

Roth IRA Education credits for college bound students

Keep in mind: Children must perform actual work and be paid Keep in mind: Children must perform actual work and be paid

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p p pin line

with what you’d pay nonfamily employees

p p pin line

with what you’d pay nonfamily employees

CHANGES TO DEPRECIATION-RELATED

TAX BREAKS Bonus depreciation

The 50% bonus depreciation EXPIRED at the end of 2014.

Section 179 expensing For 2015, you can expense up to $25,000 of qualifying assets

acquired in 2015. The deduction begins to phase out dollar for dollar once fixed asset purchases during the year exceed $200,000. In 2014, the 179 deduction maximum was $500,000 with a $2 million phase out threshold.

Accelerated depreciation The shortened recovery period of 15 years for qualified The shortened recovery period of 15 years for qualified

leasehold-improvement property and restaurant and retail-improvement property EXPIRED at the end of 2014. The depreciable life reverted back to 39 years for 2015.

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VEHICLE-RELATED TAX BREAKS

Purchases of new or used vehicles Listed Property or SUV (6,000 pound GVW)

Depreciation limit for Listed Property was p p y$3,160 for autos placed in service in 2015

Sec. 179 expensing of SUV up to $25,000

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OTHER EXPIRED TAX BREAKS

R&D (research & development) credit

Energy efficient commercial building deduction

Employment related credits-Work Opportunity Employment related credits Work Opportunity Credit

Reduction in S corporation recognition period for built-in-gains tax

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PART IV: AFFORDABLE CAREPART IV: AFFORDABLE CARE ACT UPDATES

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INDIVIDUAL MANDATE

Beginning in 2014, an individual who is not t t h h lth iexempt must purchase health insurance

that meets the minimum coverage requirement, qualify for an exemption or pay a penalty.

Penalty exemptions apply in certain cases.Penalty exemptions apply in certain cases.

Form 1095-A (Health Insurance Marketplace Statement)

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EMPLOYER MANDATE

For calendar year 2015, employers with 50 f ll ti i l t l50 or more full time equivalent employees (FTEs) must begin to report on their workers and the coverage offered. (Applicable Large Employer)

Determination of Employer Size

INDIVIDUAL MANDATE REPORTING6055 – Individual Mandate Reporting

• Insurers required to provide individuals and the IRS with information about minimum essential coverage (MEC) to g ( )see if the individual satisfied his or her obligation under the Individual Mandate.

Self-funded vs. Fully-insured: • Self-funded groups will have to report • Insurance company will have to report for fully insured-

groups.

The Forms:The Forms: • Form 1094-B and 1095-B to the IRS • Form 1095-B to the covered individuals

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INDIVIDUAL MANDATE REPORTING

Forms 1094-B and 1095-BThese forms are utilized by health insurance

issuers, self-insured group health plans that are NOT sponsored by applicable large employers and providers of government –sponsored coverage.

Th 1094 B th t itt l f fThe 1094-B serves as the transmittal form for the 1095-B’s that are given to each covered employee.

1094-B FORM1094 B Form ( Transmittal Form)

Due Date - On or before February 28 (March 31 if filed electronically) of the year following31 if filed electronically) of the year following the calendar year of coverage

Information Required • Name, address, and employer identification number (EIN) of the

provider • Name and telephone number of the person to contact who is

ibl f i tiresponsible for answering questions • Total number of Forms 1095-B that are transmitted with Form

1094-B

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1095-B FORM

Due Date - on or before February 28 (March 31 if fil d l i ll ) f h f ll i h l dfiled electronically) of the year following the calendar year of coverage

To the “responsible individual” (primary insured, employee, former employee) on or before January 31 of the year following the calendar year in which minimum essential coverage is provided

Name and Social Security Number is required for each covered individual including covered d d tdependents

EMPLOYER MANDATE REPORTING6056 – Employer Mandate ReportingProvide individuals and the IRS with

information about the Employer’s compliance: p y p• Offering MEC • Minimum Value (Adequate Coverage) • Affordability (9.56%)

The Forms: • 1094-C and 1095-C to the IRS • 1095-C to Full-Time Employees

All Applicable Large Employers have to report dl f h th f ll i d lfregardless of whether fully insured or self-

funded!

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EMPLOYER MANDATE REPORTING

Forms 1094-C and 1095-CF l d 2015 l ith 50 lFor calendar year 2015, employers with 50 plus

FTEs need to complete 1094-C and 1095-C.

1094-C reports whether minimal essential coverage was provided and the number of FTEs by month. It also serves as the form for an employer with 50 to 99 FTEs to apply for the p y pp y2015 transition relief from the mandate. Finally, it serves as the transmittal form to report the number of 1095-C’s issued.

1094-C FORM1094 – C (Transmittal Form)

Due Date - on or before February 28 (March 31 if filed electronically) of the year immediately following the calendar year forimmediately following the calendar year for which the offer of coverage information is reported

Information Required Four Parts:

• Applicable Large Employer Member Information• Number of 1095-C’s Filed and Transition Relief Election • Offer of Coverage and Employee Counts (Monthly Full-Time and g p y ( y

Monthly Total)• Other ALE Members of Controlled/Aggregated ALE Group

• Each Member of the Controlled Group must report separately

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1095-C FORM

Forms 1095-CThe Form 1095-C needs to be completed forThe Form 1095 C needs to be completed for

each employee who was a full-time employee for any month of the calendar year. If the employer provides coverage through a self-insured health plan, then the 1095-C also needs to include the names of each individual, such as family members, who are enrolled in the self-insured plan.pEmployer required to report the offer of coverage

and the employee’s share of the premium for self-only coverage.

1095-C FORM

Due Date - On or before February 28 (March 31 if filed electronically) of the year immediately31 if filed electronically) of the year immediately following the calendar year for which the offer of coverage information is reported – An employer that files 250 or more Forms 1095-C must file electronically with the IRS

To the employee On or before January 31 ofTo the employee – On or before January 31 of the year following the calendar year for which the offer of coverage information is reported

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SUMMARY – REPORTING TIMELINEREPORT DUE DATE

Section 6055 Statement to Employees (1095 B)

1/31 of each year (2/1/16)

Section 6055 Report to IRS (1094 B)

2/28 (or 3/31 if electronic)

Section 6056 Statement to Employees (1095 C)

1/31 of each year (2/1/16)

Section 6056 Statement to IRS 2/28 (or 3/31 if electronic)

©2015 Gunn Mowery

Section 6056 Statement to IRS (1094 C)

2/28 (or 3/31 if electronic)

*250 or more returns – must file electronically

SUMMARY – WHO HAS TO REPORT?Under 50 Insured

Under 50 Self-funded

50-99 Insured

50-99 Self-funded

100+ Insured

100+ Self-funded

Form 1094-BIRC 6055 – MEC Reporting

Insurer Employer Insurer N/A Insurer N/A

Form 1095-BIRC 6055 – MEC Individual Statement

Insurer Employer Insurer N/A Insurer N/A

Under 50 Insured

Under 50 Self-funded

50-99 Insured

50-99 Self-funded

100+ Insured

100+ Self-funded

Form 1094-CIRC 6056 – Employer

N/A N/A Employer Employer Employer Employer

©2015 Gunn Mowery

Mandate Reporting

Form 1095-CIRC 6056 – Employer Mandate Reporting –Employee Statement

N/A N/A Employer –Parts I & II

Insurer – Part III

Employer Employer –Parts I & II

Insurer – Part III

Employer

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PREMIUM REIMBURSEMENT PLANS

Prior to 2014, employers were able to reimburse some or all of the cost of thereimburse some or all of the cost of the employee’s own individual (non-group) health insurance on a pre-tax basis.No longer eligible for pre-tax treatment and the

arrangementDoes not meet the requirements of an employer

sponsored plan. All non-group health insurance premium

reimbursements must be included in taxable wages.

PREMIUM REIMBURSEMENT PLANS

(CONTINUED)

Subject to $100/Day excise tax

Transition relief from tax through June 30, 2015Pending legislation in Congress to provide

permanent relief from excise taxpermanent relief from excise tax

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PART V: ESTATE PLANNING &

TAX DEFERRAL STRATEGIES

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ESTATE AND GIFT TAXES

2015 estate tax lifetime ti $5 430 000exemption: $5,430,000

Top rate is 40%

2015 gift tax annual

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gexclusion: $14,000

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ESTATE AND GIFT TAX EXCLUSION

The amount is indexed for inflation

For married couples, the unused exclusion of a deceased spouse is portable and can be used by the surviving spouse if an election is made on the estate tax returnelection is made on the estate tax return filed on behalf of the deceased spouse.

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PAY TUITION AND MEDICAL EXPENSES

You may pay tuition and medical f l d i hexpenses for a loved one without the payment

being treated as a taxable gift —as long as the payment is

made directly to the provider

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TAX-SMART GIVING Consider estate and income tax effects of gifts

To minimize your estate tax, gift property with greatest future appreciation potential

T i i i b fi i ’ i t ift t To minimize your beneficiary’s income tax, gift property that hasn’t appreciated significantly since you’ve owned it

To minimize your own income tax, sell property that has declined in value to take the tax loss and then gift the sale proceeds

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QUESTIONS?

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Please contact us for assistance:

THANK YOUFOR ATTENDING!

Please contact us for assistance:

717.761.7171 – Camp Hill717.581.1040 - Lancaster

www.bssf.com

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