Category: Legislative Update – Impact of Health Care Changes on Business Owners

How the 2013 Tax Law Change Impacts You and Your Business

With the signing of the American Taxpayer Relief Act of 2012 in January 2013, we avoided a trip over the Fiscal Cliff – Right?  I mean this only impacts the wealthiest 2% of Americans – Right?

Well not entirely, especially for those of us that own a business.  Actually, almost every American’s tax bill will go up in some degree.  In reality, this was a fairly large piece of legislation with hundreds of provisions that will no doubt have an impact on every business owner – especially those business owners that have not been and are currently not proactive with their strategic tax planning.  These tax law changes coupled with the additional taxes, complexities, and costs associated with Obamacare, make 2013 a critical time for business owners to take their tax planning seriously.  You can’t afford not to!  The Tax Act will impact your personal income, your ability to build wealth, retirement planning, and the planning, timing, and tax impact of your exit from the business.

The following is a breakdown of the main provisions of the 2012 Tax Act and a brief explanation of how they will impact you and your business:

  1. The Payroll Tax Holiday is over – Anyone with earned income will see their payroll taxes increase by 2%.  This tax will be felt immediately by almost everyone.
  2. Additional Medicare Tax Under Obamacare – This additional .09% tax kicks in for individuals with wages or self-employment income of $200,000 or $250,000 combined income for married couples.
  3. Tax Rates Increase for High Income Earners – Tax rates will permanently increase for individuals making more than $400,000 or families earning more than $450,000.  For these tax payers we have a return to the Clinton-era top rate of 39.6%.  It’s important to remember that this increase will hit business owners with pass though business PROFITS exceeding the threshold regardless if they pay themselves less.
  4. Obamacare Affordable Care Act Surcharge – This new 3.8% net investment income tax on individuals or families earning more than $200,000 or $250,000 respectively. [NOTE: Items 1 through 4 illustrate why a comprehensive tax plan that diversifies various income streams specifically designed to reduce the potential impact of these tax rate increases is critical.]
  5. Capital Gains / Dividends Tax Increase – Taxpayers with income of more than $400,000 individually, or $450,000 for a family will pay 20% tax on capital gains.  For taxpayer with income under the threshold, the 0% and 15% capital gain rates still apply.
  6. Estate Tax Exemption is now Permanent – As in 2011 and 2012, estates valued at less than $5.0 million will be exempt from estate taxes.  The current Tax Act makes permanent the $5.0 million gift, estate, and Generational Skipping Tax Exemption.  In 2013 the exemption for couples will be $10.0 million.  It’s important to note the actually amount will be higher because the $5.0 million and $10.0 million figure will be adjusted up annually for inflation.
  7. Estate Tax Exemption is now “Portable” for Couples – Again, similar to 2011 and 2012, the Act now makes permanent the “portability” concept whereby the unused estate tax exemption amount of the first spouse to die can be passed to the surviving spouse for future use either during their life or at death.  For example, if the first spouse dies in 2013 with $2.0 million of assets, that deceased first spouse will have a $3.0 million (again adjusted for inflation) unused estate tax exemption, which can be passed to the surviving spouse.  This would give surviving spouse a total of $8.0 million gift and estate tax exemption going forward.  Additional analysis would be necessary if surviving spouse remarries.
  8. Tax Exemption Limitations – The Tax Act phases out both itemized deductions and personal exemptions for higher income taxpayers.  Itemized deductions and exemptions are reduced for individuals when income reaches – $300,000 for couples or $250,000 for individuals.
  9. Temporary Business Tax Breaks for 2013 – If applicable, these should be incorporated into your planning before they expire at the end  of 2013:
  • $500,000 limit on the Section 179 depreciation deduction on equipment
  • 50% bonus depreciation deduction on certain acquisitions
  • Research and Development Credit
  • 100% tax-free capital gains on the sale of small business stock
  • 15 year depreciation schedule for certain leasehold improvements
  • Work Opportunity tax credits

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email:
tfoster@wetaxplan.com

Health Care Update – An Overview for Business Owners

Health Care Update – An overview for business owners …………

The Patient Protection and Affordable Care Act was enacted on the March 23, 2010, and was amended on March 30, 2010 by the Health Care and Education Reconciliation Act of 2010.

Important effective dates are staggered from the enactment date to January 2014.  It’s important to note that new health care plans must comply with all requirements.  Grandfathered plans are exempt from some of these requirements.

What is a Grandfathered Plan?

Plans that were in existence on the enactment date, March 23, 2010, and have not made changes to the plan.  Caution must be exercised for grandfathered plans because changes to the plans may cause a loss of status.  Although specific guidance has not been issued, changes to coverage, employee contribution or cost should be avoided.

Key Points to the New Plan

  • Health Insurers cannot deny coverage to children with pre-existing conditions now and cannot deny adults with pre-existing conditions in 2014.
  • A temporary high risk pool will be established to cover adults with pre-existing conditions until 2014.
  • Businesses with fewer than 50 full time employees will get tax credits covering up to 50% of employee premiums.
  • Children of covered adults can be included in their parents health insurance until age 26, unless they are eligible to enroll in their employer sponsored plan.
  • Checkups and preventative care must be covered without a co-pay by all new plans and all plans by 2018.
  • New plans must implement an appeals process for coverage determinations and claims.

Important Dates

January 1, 2010

  • For informational purposes only, employers must include cost of employee’s health care on each employee’s W-2.  The cost is not included in employee’s taxable wages.  This mandatory reporting requirement has now been delayed until 2013 (2012 if employment is terminated in 2012.)  Reporting for the 2011 tax year will be optional.
  • Nondiscrimination requirements expanded to include fully-insured plans  (eliminating this discriminatory executive perk)
  • No reimbursement for non-prescription drugs for Flex Spending Accounts

January 1, 2013

  • Required  notice to employees of coverage options
  • Salary reduction contributions limited to $2,500 for Health Flexible Spending arrangements
  • 10% floor for itemized deductions for health expenses

January 1, 2014

  • Employers offering minimal essential coverage must offer free choice vouchers to eligible employees
  • An employee is an “eligible employee” if premiums paid are between 8% and 9.8% of employee’s household income, and such income does  not exceed 400% of the poverty line, and employee does not participate in the plan
  • Amount of voucher must be the highest cost for single coverage
  • Vouchers must be paid to an established health care Exchange (Exchanges will be set up on a State or Federal level to provide coverage)
  • Voucher is non-taxable to the extent it’s used to pay for coverage under the Exchange and are deductible by the employer.
  • Employers offering vouchers avoid penalties.

January 1, 2018

  • Excise tax on employer-sponsored high cost plans.  Tax is equal to 40% of “excess benefit”
  • Who pays the tax?

-         Health Insurance Issuer – Group health plans

-         Employers – Health savings accounts, and medical savings accounts

-         Plan Administrator – Any other type of coverage

  • Excess benefit calculation

Total annual cost of coverage MINUS $10,200 for single and $27,500 for family

Call us with questions, or to make sure your business realizes the full benefit of new and existing tax planning opportunities.  (1-888-WE-TAXPLAN)

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

Legislative Update: The Impact of Tax Law Changes for Business Owners – Health Care Tax Increase

Legislative Update:  The Impact of Tax Law Changes for Business Owners – Health Care Tax Increase

Washington’s vision of a new health care plan means many new taxes for businesses, business owners, and employees starting January 1, 2011.

Everyone’s W-2 form will now be increased to show the value of whatever health insurance that your company has provided to you.  The inclusion on your W-2 means you will be paying taxes on the health care benefit as if it were income.  Effectively, you will be paying income taxes on money that you never saw.  Pull out last year’s tax return and add $15,000 to $25,000 of additional income and see what that does for your taxes due.  Don’t forget about the increased tax brackets (ie HIGHER TAX RATES) that we discussed elsewhere in this BLOG!!

Here are just a few other examples of increased taxes:

  1. The “Medicine Cabinet” Tax – Taxpayers will not longer be able to purchase non-prescription, and over-the-counter medicines with PRE-TAX dollars by using health savings accounts (HSA), flexible spending accounts (FSA), or health reimbursement accounts (HRA).  This equates to higher payroll and income taxes for employees, including business owners, and higher payroll taxes for businesses.

  1. The “Health Savings Account” HSA Withdrawal Tax increase – By increasing the penalty / additional tax on withdrawals from HSA from 10% to 20%, Washington has disadvantaged them relative to IRAs and other such accounts.  Effectively discouraging pre-tax health care planning.

  1. The “Special Needs Kids Tax” – Proving that no one is safe, Congress has now imposed a cap on flex spending accounts “FSA” of $2500.  Currently no cap exists.  Flex Spending Accounts are a preferred method for special needs children that require special or additional education.  Instead of setting aside pretax dollars for these expenditures, the majority of the monies spent will be with after tax dollars.  This equates to, in this example, dramatically more expensive special needs educational cost that certainly will put them out of reach for many families.

Call us for help or with questions!

The Business Wealth Preservation Group is a professional services firm dedicated to providing superior individualized and custom service to individuals and their businesses in the areas of asset protection, tax planning, exit strategies, and wealth building. Simply put – we want to educate you on all relevant opportunities to put more dollars into your pocket, your business and your future.

We focus on leading edge, sophisticated, and safe business strategies that will help business owners structure, operate and maintain their business to take advantage of business and tax laws rather than being encumbered by them. We partner with the business, the accountant, and the attorney to ensure the business owners are capturing all available benefits that align with their business and personal goals.

www.BusinessWealthPreservation.com
Call Us Toll Free: (888) 938-2975 (888-WE-TAX PLAN)
Email: tfoster@wetaxplan.com


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