Lowrance Law, LLC

irs_logo_5      Our friends, the IRS,  modified the “use-or-lose” rule for health flexible spending arrangements (health FSAs) so that at the plan sponsor’s option, participating employees may carry over up to $500 of unused amounts remaining at year-end. Previously, any amounts that weren’t used by year-end would be forfeited. Certain plan sponsors may be eligible to take advantage of this option as early as plan year 2013.

Health Flexible Spending Accounts

Health FSAs are benefit plans that many employers provide to employees to reimburse employees for health care expenses. The great deal for employees is that qualifying contributions to and withdrawals from FSAs are tax-exempt. Contributions to these FSAs are tax exempt–no tax paid.

Unused FSA contributions left over at the end of a plan year have historically been forfeited to the employer under the so-called “use-it-or-lose-it rule.” With the new changes if you have money left at the end of the year, you can now carryover $500 to the next year and use it in addition to the maximum contributions allowed by your employer’s plan. See all the boring “technical details” right here IRS Notice.

Annual Tax Inflation Adjustments

For tax year 2014, the Internal Revenue Service announced  annual inflation adjustments for more than 40 tax provisions, including the tax rate schedules, and other tax changes.

The tax items for tax year 2014 of greatest interest to most taxpayers include the following dollar amounts.

  • The tax rate of 39.6 percent affects singles whose income exceeds $406,750 ($457,600 for married taxpayers filing a joint return), up from $400,000 and $450,000, respectively. The other marginal rates – 10, 15, 25, 28, 33 and 35 percent – and the related income tax thresholds are described in the revenue procedure.
  • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly, up from $6,100 and $12,200, respectively, for tax year 2013. The standard deduction for heads of household rises to $9,100, up from $8,950.
  • The limitation for itemized deductions claimed on tax year 2014 returns of individuals begins with incomes of $254,200 or more ($305,050 for married couples filing jointly).
  • The personal exemption rises to $3,950, up from the 2013 exemption of $3,900. However, the exemption is subject to a phase-out that begins with adjusted gross incomes of $254,200 ($305,050 for married couples filing jointly). It phases out completely at $376,700 ($427,550 for married couples filing jointly).

See all the boring details: Here

All this wonderful information brought to you by Lowrance Law LLC, an experienced tax controversy/resolution law firm.

Call us to assist you with IRS and State tax issues. We help resolve your problems. Call 703 506 1600.

Bill Lowrance
Attorney

No legal advice or client relationship here!

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In my last blog post, I briefly introduced the new reality – that high income taxpayers will face additional taxes, starting in 2013. Indeed, “sticker shock” is the phrase I see most often about what awaits certain taxpayers when preparing their 2013 return.

Higher Income Earners

So, what’s new? Higher earners, moving forward, now will be subject to a set of new taxes, higher rates, and new limitations on deductions. Who is a “higher income” taxpayer? As you will see below, this is a bit of a moving target. And, what does this mean for your 2013 taxes?

Tax Rate Changes

First, rates have changed. Under the American Taxpayer Relief Act of 2012, higher tax rates apply to ordinary income, capital gains, and dividends. The income tax rates for most individuals stay the same as in 2012 (i.e., 10%, 15%, 25%, 28%, 33% and 35%). A new 39.6% rate applies, however, for 2013 for income above $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately. Also, the top rate for capital gains and dividends rises to 20% for 2013 (up from 15% in 2012) for taxpayers with the same income levels noted above.

Limitations

Second, limitations are imposed on the use of the personal exemption and itemized deductions. There is a personal exemption phase out for 2013 with a starting threshold of $300,000 for joint filers and surviving spouses; $275,000 for heads of household; $250,000 for single filers; and $150,000 for married taxpayers filing separately. Under the phase out, the total amount of exemptions that can be claimed by a taxpayer is reduced by a certain percentage for every set amount the adjusted gross income exceeds the relevant threshold. Also, itemized deductions are limited for higher earners, using the same dollar amounts as for the personal exemption phase out.

Affordable Care Act

That was the new world according to the Taxpayer Relief Act. Now, in the context of the Affordable Care Act, See IRS site on all tax aspects of Affordable Care Act, Click Here , you are a higher income earner if you earn in excess of $250,000 if you file joint returns; more than $125,000 for married taxpayers filing separate returns; and over $200,000 in all other cases. First, starting in 2013, there is a higher payroll tax for high-earning workers and self-employed taxpayers. An additional 0.9% hospital insurance tax will be applied as a component of the Federal Insurance Contributions Act (FICA) payroll tax imposed on wages in excess of the $250,000; $125,000; and $200,000 noted above. The additional 0.9% tax also applies to self-employment income in excess of the above figures.

Oh No, Surtaxes

There will also be a new surtax on the unearned income of higher-income individuals. An unearned income Medicare contribution tax is imposed on individuals, estates, and trusts. For an individual, the new surtax is 3.8% of the lesser of either net investment income; or the excess of modified adjusted gross income over the threshold amount ($250,000 for a joint return or surviving spouse, $125,000 for a married individual filing a separate return, and $200,000 for all others). For surtax purposes, gross income doesn’t include certain excluded items (e.g., interest on tax-exempt bonds).
Those are a lot of changes that are arriving for 2013. Hopefully, you and your tax professionals kept up during the year. If not, year-end tax planning activity may be especially busy. And, 2014 is likely to be busy as the IRS mails out its first examination letters for returns completed under the new rules.

If you have problems or issues with the IRS or other tax authorities, please contact Lowrance Law LLC at 703.506.1600.

Cari Lyn B. Pierce
Attorney
(Licenses in North Carolina)

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Best Questions and Answers on IRS Shutdown

October 3, 2013

A comprehensive list of questions and answers on the impact of the current government shutdown on IRS and tax administration has been published by the American Institute of CPAs Tax Section. The Question & Answer page was created to help practitioners working to complete tax returns by the October 15 filing deadline. The organization said […]

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IRS Shutdown-What Happens?

October 1, 2013

 The IRS shutdown will impact most taxpayer services. Automated collection activity will continue. You will receive the computer generated letters advising that you owe the IRS tax, penalties and interest. Non-automated collection and other tax processing activities will stop. All IRS appointments related to examinations (audits), collections, Appeals or Taxpayer Advocate cases are cancelled. IRS […]

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Your Health and the IRS: The First of Important Dates Are Here

September 23, 2013

Love it or hate it, the Affordable Care Act’s implementation is here.  And, the IRS will be involved.  I have tried to outline a few of the key early dates that have tax implications for individuals and businesses, starting with the first, which truly is just around the corner. October 1.  The health insurance Marketplace […]

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IRS Not Increasing Mileage Rate Even With Higher Gasoline Costs

May 16, 2011

The IRS has spoken. It has has no current plans to increase the standard mileage rate of 51¢ per mile for business miles driven, despite the big boost in gasoline prices. Simplified deduction method. The optional mileage allowance for owned or leased autos (including vans, pickups or panel trucks) is 51¢ per mile for business […]

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April 15, 2011

The IRS issued a press release advising taxpayers of payment options when you file your income tax return. The release is IR 2011-42. I have placed it in the blog below. The most important thing for you to know is if you owe taxes but you cannot pay the full amount file your tax return […]

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Got A Letter From The IRS? What To Do?

April 13, 2011

The IRS just sent out IRS Tax Tip 2011-73. The notice gives you the IRS view of what to do if you receive a letter from the IRS. Read this over and do not panic. If you need assistance with the IRS, please contact me at 703 506 1600. I handle audits, examinations and litigation […]

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Divorce Tax 101 – What You Need to Know About Taxes & Divorce

March 31, 2011

On March 22, 2011 I gave a lecture for the Fairfax Bar Association (Fairfax Bar) Tax and Family Law Section at the Fairfax County Courthouse on key issues of Divorce Taxation that supplied Continuing Legal Education Credit for all Virginia attorneys present. The event was very well attended. My presentation on divorce taxes, which may seem […]

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Special Sales Tax Deduction for Car Purchases 2009

October 7, 2009

The IRS is reminding everyone that there are special, limited deductions for state and local sales and excise taxes paid on the purchase of new cars, light trucks, motor homes and motorcycles. The deduction is available on new vehicles purchased from Feb. 17, 2009, through Dec. 31, 2009. In states that don’t have a sales […]

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