CBIZ & MHM Executive Education Series™ Individual Year-End Tax Planning Tips for 2014 and Beyond

Presented by: Naomi Ganoe and David Levi November 18 and December 3, 2014

2 #CBIZMHMwebinar #CBIZMHMwebinar

To view this webcast in full screen mode, click on view options in the upper right hand corner.

Click the Support tab for technical assistance.

If you have a question during the presentation, please use the Q&A feature at the bottom of your screen.

Before We Get Started…

3 #CBIZMHMwebinar #CBIZMHMwebinar

This webcast is eligible for CPE credit. To receive credit, you will need to answer periodic participation markers throughout the webcast.

External participants will receive their CPE certificate via email immediately following the webcast.

CPE Credit

4 #CBIZMHMwebinar

Today’s Presenters

David Levi, CPA Senior Managing Director, CBIZ MHM 612.376.1208 | dlevi@cbiz.com David Levi is based in our Minneapolis, MN office and specializes in providing services to companies in the financial service, law, hospitality, and their owners, as well as tax and estate planning to individuals. David joined the organization over 30 years ago.

Naomi Ganoe, CPE Senior Manager, CBIZ MHM 330.668.6500 | nganoe@cbiz.com Naomi is a senior manager with CBIZ and has over 16 years of focusing her practice on providing advisory services to individuals and closely held businesses on estate, fiduciary, gift, business and personal tax planning matters. She is a trusted advisor to CEOs and high net worth individuals. She is an active member of CBIZ’s Private Client Service technical community and presenter at the CBIZ National Level Training.

5 #CBIZMHMwebinar

Today’s Agenda

Income Tax Provisions for Individuals Investments Business Deductions Estate and Gift Tax Provisions Discussion of potential future legislative changes Planning Checklists/Suggestions

6 #CBIZMHMwebinar

Current Income Tax Rates Ordinary Income

Maximum rate 2014 – 39.6% Long-term Capital Gains & Qualified Dividends—

Favored Tax treatment is now permanent

2014 - 15%/20% Medicare Surcharge

3.8% on unearned income in 2014 0.9% on earned income

Individual Provisions

7 #CBIZMHMwebinar

2014 Individual Income Tax Rate Schedules Tax Rate Single Married Filing Jointly 10% $ 0 - $ 9,075 $ 0 - $ 18,150 15% $ 9,076- $ 36,900 $ 18,151 - $ 73,800 25% $ 36,901- $ 89,350 $ 73,801 - $ 148,850 28% $89,351 - $186,350 $ 148,851 - $ 226,850 33% $186,351-$405,100 $ 226,851 - $ 405,100 35% $405,101-$406,750 $ 405,101 - $ 457,600 39.6% Over $ 406,750 Over $457,600

Individual Provisions

8 #CBIZMHMwebinar

2014 Alternative Minimum Tax Rate Schedules

Tax Rate Single Married Filing Jointly

26% $0 - $ 182,500 $ 0 - $ 182,500

28% Over $182,500 Over $ 182,500

Exemption $52,800 $82,100

Phase out $117,300 - $328,500 $ 156,500 - $484,900

Individual Provisions

9 #CBIZMHMwebinar

Planning for Alternative Minimum Tax Separate tax system that further limits some deductions and doesn’t permit

others such as: State and local taxes Property tax deductions Miscellaneous itemized deductions subject to 2% AGI floor Interest home equity debt not used for home improvements

Preferences added back Certain tax exempt interest % depletion in excess of basis Accelerated depreciation Appreciation on Incentive Stock Options exercised but not sold

Individual Provisions

10 #CBIZMHMwebinar

Planning for Alternative Minimum Tax

Spread preferences over two or more years Speed up or put off the payments of state and local taxes Strategically manage exercise of ISO’s and/or sale of

shares acquired via the ISO exercise Manage payment of State/Local/Real Estate Taxes Could be an opportunity to accelerate the recognition of

ordinary income

Individual Provisions

11 #CBIZMHMwebinar

3.8% Medicare Surtax

Overview Starting back in 2013, a new 3.8% Medicare “surtax” applied to all taxpayers

whose income exceeds a certain “threshold amounts”. $200,000 (single) / $250,000 (married)

Applies to the lesser of Net Investment Income or Modified AGI

This “surtax” will, in essence, raise the marginal income tax rate on certain types of income for affected taxpayers

Thus, a taxpayer in the 39.6% tax bracket (the highest marginal income tax rate in 2014) would have an effective marginal rate of 43.4% on investment income!

12 #CBIZMHMwebinar

3.8% Medicare Surtax

Important terms associated with the 3.8% Medicare Surtax: Threshold Amount

Net Investment Income

Modified Adjusted Gross Income (MAGI)

Threshold Amount: key factor in determining the “lesser of” formula for purposes of calculating the surtax

Threshold Amounts:

Single taxpayers - $200,000

Married taxpayers - $250,000

Estates/Trusts - $12,150 (i.e. top income tax bracket in 2014)

12

13 #CBIZMHMwebinar

Includes: • nterest • Dividends • Annuity Distributions • Rents • Royalties • Income derived from passive

activity • Net capital gain derived from the

disposition of property

Does NOT Include:

• Salary, wages, or bonuses • Distributions from IRAs or qualified

plans • Any income taken into account for self-

employment tax purposes • Gain on the sale of an active interest in

a partnership or S corporation • Items which are otherwise excluded or

exempt from income under the income tax law, such as interest from tax-exempt bonds, capital gain excluded under IRC 121, and veterans benefits

3.8% Medicare Surtax

Includes: • Interest • Dividends • Annuity Distributions • Rents • Royalties • Income derived from passive

activity • Net capital gain derived from the disposition of property

14 #CBIZMHMwebinar

Take advantage of installments sale treatment to spread income over several years

Review investment strategies – consider tax exempt bonds, deferred annuities, insurance products

Timing of estate/trust distributions Shifting the annual Distributable Net Income of a

complex trust which has a very compressed income tax bracket to individual beneficiaries in a lower tax bracket

Planning Around the Medicare Surtax

15 #CBIZMHMwebinar

Consider timing for required minimum distributions from qualified plans and IRA’s. Investment income doesn’t include distributions from tax-

favored retirement plans, but MAGI does include taxable distributions

For taxpayers turning 70 ½ in 2014, consider delaying initial withdrawal until 2015 in order to avoid 2014 Medicare Tax.

For 2014, taxpayers who are age 70 ½ or older may be able to reduce this year’s taxable RMD , and thereby reduce MAGI, by making a qualified charitable distribution. Provision expired in 2013, but is expected to be part of “Extender

Legislation” that may get through Congress

Planning Around the Medicare Surtax

16 #CBIZMHMwebinar

Beginning in 2013, taxpayers must pay an additional .9% Medicare tax on FICA wages and self-employment income exceeding $200,000 per year ($250,000 for joint filers).

Employers are obligated to withhold the additional tax beginning in the pay period when wages exceed $200,000 regardless of an employees filing status.

0.9% Payroll Surtax on Earned Income

17 #CBIZMHMwebinar

Individual Provisions - Deductions

Itemized Deductions in 2014 3% of AGI Itemized Deduction Phase-outs return in 2014 For returns of single taxpayers, the level is $254,200 For filers of joint returns, the level is $305,050

Personal Exemptions in 2014 $3,950 per exemption but are phased out for taxpayers at a

rate of 2% for each $2,500 or fraction of $2,500 by which the

taxpayer’s AGI exceeds the above levels Note: If a taxpayer is subject to AMT, the phase-out of the

exemptions and the reduction in the itemized deductions will be less important since personal exemptions and many itemized deductions are not allowed for AMT purposes

18 #CBIZMHMwebinar

Many different ways to donate. Cash/Checks usually deductible up to 50% of AGI Consider giving appreciated stock held more than 1 year. Donation allowed at value as of date of gift Gift deductible up to 20% of AGI (to foundation) or 30% of AGI (to

public charity) . Appreciation won’t be taxed. Consider for assets that will have forced taxable event (MDT, etc.)

Care is needed to make sure donation qualifies Can replace the position and eliminate embedded gain if you don’t

want to dispose of the stock

Charitable Deduction Planning

19 #CBIZMHMwebinar

Consider Charitable Remainder Trusts/ Lead Trusts CRT-Combines charitable contribution deduction, annual

payments back to donor and future benefit to charity. CLT-Combines charitable contribution deduction, current

annual payments to charity and long term return of funds to family.

Can be effective in years with significant sales of assets/gain

to be recognized.

Charitable Deduction Planning

20 #CBIZMHMwebinar

IRA SEP Keogh 401(k) Roth IRA / Roth 401(k) Other

2014 Retirement Plan deductions

21 #CBIZMHMwebinar

To defer or not to defer…THAT is the Question!

The conventional wisdom is to defer income and accelerate deductions.

Not so fast ! When rates creep up in following year - - - Income

Accelerating Ordinary Income Harvesting and /or Accelerating Capital Gain Income

Deductions State/Local Taxes – Beware of AMT Real Estate Taxes - Beware of AMT Miscellaneous itemized deductions – Bunch them together, but beware of AMT Charitable Deductions Home mortgage and investment interest

22 #CBIZMHMwebinar

Capital Gains and Losses Careful handling of capital gains and losses can save taxes

For married taxpayers filing jointly, the long-term capital gains rates are as follows: Income up to $73,800 0% Income $73,801-$457,600 15% Income in excess of $457,600 20% May also be subject to the 3.8% Medicare surtax Thus, federal tax on long term capital gains could vary from 0% to 23.8%.

This significant difference may make it advantageous to harvest capital gains if the taxpayer expects a higher rate in future years.

Investments

23 #CBIZMHMwebinar

Capital Gains and Losses 2014 will see a return to significant long term capital gain

distributions from many mutual funds. Consider taking those dividends in cash, rather than reinvesting so

you have cash to pay the tax, rather than having to sell additional shares, which could create additional tax costs.

Manage loss harvesting to your best advantage. Long term losses can offset short and long term gains. When harvesting losses, always be careful of Wash Sale rules

(repurchasing shares within 30 days before or after sales that generate losses.

Another area where reinvestment of capital gain distributions from mutual funds can foil strategic investment planning.

Investments

24 #CBIZMHMwebinar

Capital Gains Tax and Timing If cash flow is needed in a very short time horizon, gain

harvesting will almost always be favorable because the benefit of tax deferral is small

Consider transferring appreciated assets to loved ones in the 15% ordinary tax bracket to enjoy the 0% capital gains rate

Consider swapping bonds. Generally can take a loss and then immediately buy another bond of similar qualify and duration from a different. (Generally avoids wash sale rule as bonds are considered substantially identical)

Investments

25 #CBIZMHMwebinar

Capital Gains Tax and Timing Review mutual fund selection. Funds with high turnover rates

can create income that’s taxed at ordinary rates. Choosing funds that provide primarily long term gains can save tax

Master Limited Partnerships—Gain on sale may be more ordinary than capital gain. Holding them may create other state filing requirements and will add

complexity to your filing. Corporate inversions and other reorganizations

You may have already incurred a taxable event even though you never “sold” anything. (e.g. Medtronic (not until 2015), Kinder Morgan, etc.)

Investments

26 #CBIZMHMwebinar

Roth IRA Conversions Taxpayers who have favorable tax attributes such as

charitable deduction carry-forwards, investment tax credits, net operating losses, etc.

No required minimum distribution at age 70 ½ Taxpayers who can pay income tax with funds other than

from IRA enjoy greater tax free yields Reduces overall estate Post-death distributions to beneficiaries are tax free Have ability to ‘undo’ conversions that were not

advantageous Even those with income over the contribution limits can

effectively contribute to a Roth.

Investments

27 #CBIZMHMwebinar

Several Education Credit calculations to consider. Even if parent’s income exceeds limits, child may be

able to benefit from credit. If child does not qualify as a dependent, could generate

a refundable credit.

Could mitigate impact of “Kiddie Tax”.

Tax Incentives for Education Costs

28 #CBIZMHMwebinar

Depreciation/Section 179 Currently no Bonus Depreciation and $25,000 limit on

Section 179 Watch for “Extender Legislation”

New Tangible Property Rules Two primary subject areas covered –

Capitalizing and expensing Improvements to tangible property The deminimus safe harbor election Material & supplies

Dispositions of Tangible Property New rules may provide biggest opportunity for tax savings May be able to write off losses form prior years dispositions

Business Deductions

29 #CBIZMHMwebinar

Business Structure Considerations • Under current tax rates – top individual rate of 39.6% (43.4%

for passive investors) is higher than top corporate rate of 35% • S Corporations – may be able to reduce payroll taxes through

distributions which generally won’t be subject to the new 3.8% Medicare contribution tax or .9% Medicare tax on wages.

• Pass-Through entities still provide only one layer of tax, however non pass through structures still should be periodically reviewed for appropriateness.

Business Deductions

30 #CBIZMHMwebinar

Estate tax rate – for 2014 the top estate tax rate is 40%. Estate tax exemption for 2014 - $5.34 million (up from

$5.25 million in 2013) Gift tax exclusion – can exclude most current gifts of up

to $14,000 per recipient Pay tuition and medical expenses. You may pay these expenses without the payment being

treated as a gift, as long as the payment is made directly to the provider

Estate and Gift Tax Provisions

31 #CBIZMHMwebinar

Consider “in the family” banking Senior generation can provide younger generations favorable

rate loans for homes/businesses/investments. Can aid younger generations in “getting started”. With proper structuring interest paid can be deductible. Can be a meaningful alternative in an environment of lower

rates and tough times for younger people to qualify for loans.

Intrafamily Planning

32 #CBIZMHMwebinar

Summary/Key Takeaways

Tax Planning Suggestions – Income Tax Tax bracket management including timing of income,

deductions, charitable gifts to avoid higher tax brackets and the net investment income surtax

Consider conversion to a Roth IRA—or a contribution to a Roth.

Maximize contributions to retirement plans Engage in various strategies to reduce net investment income

and avoiding the 3.8% surtax Income shift with various transfer techniques to shift to

individuals in lower tax brackets Purchase and place in service needed equipment additions to

take advantage of potentially advantageous Sec. 179 and bonus depreciation provisions—watch for legislation.

33 #CBIZMHMwebinar

Summary/Key Takeaways - continued

Tax Planning Suggestions – Estate and Gift Tax Use annual exclusion gift of $14,000 per donee Remember extra education and medical cost

opportunities Consider outright gifts to children, LLC and partnership

gifts, distributions from existing trusts to avoid higher tax brackets and net investment income surtax

Use of a charitable lead trust can offset net investment income against charitable deductions in a tax efficient manner, avoiding the net investment income tax

Create charitable remainder trusts (CRT) with appreciated securities rather than selling. May reduce both income tax and the net investment income tax

34 #CBIZMHMwebinar #CBIZMHMwebinar

Questions?

35 #CBIZMHMwebinar #CBIZMHMwebinar

Join us for these upcoming courses: 12/4 & 12/10: Key Tax & Compensation Complexities Facing Not-for-

Profit Organizations 12/9 & 12/17: Terms and Inherent Risks of Retirement Plan

Investments 12/11 & 12/16: Fourth Quarter Accounting and Financial Reporting

Issues Update

Read these related publications: Year-End Strategies: Creating Pathways for Tax Savings by Individuals

and Businesses Inflation-Adjusted Figures Released for 2015

If You Enjoyed This Webcast…

36 #CBIZMHMwebinar #CBIZMHMwebinar

Connect with Us

linkedin.com/company/ mayer-hoffman-mccann-p.c.

@mhm_pc

youtube.com/ mayerhoffmanmccann

slideshare.net/mhmpc

linkedin.com/company/ cbiz-mhm-llc

@cbizmhm

youtube.com/user/BizTipsVideos

slideshare.net/CBIZInc

MHM CBIZ