A current summary of upcoming tax law changes

1. Gary Fox, CPA

2. Key Issues
 Bush Tax cuts
 Bonus Depreciation
 Section 179 Expensing
 S Corporation Built-in Gains Tax
 Start-Up Expense Deduction
 Self-Employed Health Insurance
 1099 requirements
 Obamacare
 Expiring Tax Benefits

3. Expiration of Bush Tax Cuts
 Will they be extended?
 Current rates range from 10% to 35%
 New rates range from 15% to 39.6
 Dividends now subject to ordinary rates
 Capital Gains rate up to 20% from 15%
 Tax for Married filing joint with $ 100,000 of taxable
income from $ 17,369 in 2010 to $ 18,895 in 2011

4. Bonus Depreciation
 50% Bonus depreciation for 2011
 Only Automobiles and real estate are excluded
 Equipment
 Qualified Leasehold improvements
 Can be used to generate a taxable loss

5. Section 179 Expensing
 Increased 179 expensing in 2011
 Maximum is now $ 500,000
 Phase out begins at $ 2,000,000
 Qualified leasehold property can be expensed up to $
250,000 (Code section 168(e))

6. S-Corp Built-In Gains Tax
 BIG tax is 35% of appreciation on assets
 Only applies to C Corps that convert to S Corp
 Only assessed if S Corp assets are sold within 10 years
(old law)
 New law reduces holding period to five years

7. Cell Phones
 Cell Phones (and similar devices) are no longer “Listed
Property”
 Relieved of strict substantiation requirements
 Personal use of primarily business cell phone now
excluded from Gross Income
 Relic from the days of expensive phones

8. Start-Up Expense Deduction
 Costs related to creating or investigating the creation
or acquisition of an active trade or business
 Old law allowed $ 5,000 deduction
 New law increase this to $ 10,000
 If more than $ 60,000 is spent, the deduction gets
reduced dollar for dollar

9. Self-Employed Health Insurance
 No change in tax deduction
 Now deductible for self-employment tax purposes
 Self-employment tax starts at 15.3% and drops to 2.9%
about $ 110,000 for 2011
 For self-employed with income of $ 110,000 and health
insurance of $ 12,000, the savings is $1,836
 For self-employed with income of $ 200,000 and
health insurance of $ 12,000, the savings is $ 348

10. 1099 Requirements
 Individuals who receive rental income must issue
1099’s to all service providers paid over $ 600

11. Patient Protection and Affordable
Care Act (aka Obamacare)
 Devil is in the details
 Small employer health insurance credit.
 35% of employer contributions
 Must pay at least half of the cost
 No more than 25 full-time employees
 Employee wages average no more than $ 50,000
 Full credit available only to employer with 10 or fewer
employees with wages under $ 25,000
 Self-employed not treated as employees

12. Patient Protection and Affordable
Care Act (aka Obamacare)
 Health coverage for employee’s children under 27 is tax
free
 Adoption credit is increased to a maximum of $ 13,170
per child
 Credit is now refundable
 10% excise tax on tanning services
 W-2 must include cost of employer-provided health
insurance (optional in 2011) Benefits not taxable (Yet)
 Over the counter medicine no longer allowed in FSA

13. Patient Protection and Affordable
Care Act (aka Obamacare
 Information reporting requirements in 2012
 1099’s must be filed for any entity paid over $ 600
during the year.
 Individuals (same as current law)
 Partnerships and LLC’s (same as current law)
 Corporations (This is new)

14. Patient Protection and Affordable
Care Act (aka Obamacare)
 2013
 Increased tax on high-earning workers and self-
employed
 0.9% Hospital insurance tax on wages or self-employed
income
 Over $ 250,000 for married filing joint
 Over $ 125,000 for single
 Over $ 200,000 for others
 This is called “Foot in the door tax”

15. Patient Protection and Affordable
Care Act (aka Obamacare)
 Surtax on “Unearned” income of higher-income
individuals
 Medicare tax will apply to investment income
 Tax is 3.8% of lesser of Net investment income or
excess of modified AGI over $ 250,000 MFJ or $ 125,000
for single
 Net investment income includes interest, dividends,
royalties, rents, passive activity GROSS income and
net gain from disposition of property

16. Patient Protection and Affordable
Care Act (aka Obamacare)
 Higher threshold for medical expense deduction
 10% of AGI from 7.5% of AGI
 Flexible Spending Arrangements capped at $ 2,500
compared to $ 5,200

17. Patient Protection and Affordable
Care Act (aka Obamacare)
 2014 changes
 Individuals must pay penalty if they don’t maintain
minimum essential coverage
 Large employers must pay penalty if any employee
purchases insurance through state exchange

18. Patient Protection and Affordable
Care Act (aka Obamacare)
 Changes for 2018
 Cadillac Tax
 40% excise tax on high-cost employer sponsored
health coverage

19. Expiring Tax Benefits
 Exclusion of unemployment compensation ($ 2,400)
 Tax-free distributions from IRA’s to charities ($ 100k)
 Deduction for educator expenses ($ 250)
 Tuition and fees deduction
 Itemized deduction for sales tax on new motor vehicle
 Research credit
 Alternative motor vehicle credit (golf cart credit)
 Estate tax Exemption down to $ 1,000,000 tax at 55%
 15-year depreciation on leasehold improvements

20. Expiring Tax Benefits
 Shareholder basis adjustment for stock of S
Corporations making charitable contributions
 Environmental cleanup cost deduction
 Marriage penalty is back
 Child tax credit reduced from $ 1,000 to $ 500
 Dependent care credit reduced to $ 720

21. Conclusion
 I expect some of the Bush tax cuts to be extended for at
least two years
 For practice owners, the bonus depreciation and
section 179 expensing can be used to offset any tax
increases
 If you are considering buying, building or selling a
practice, now is the time sit down and map out a
strategy.