The MHEDA Journal - Second Quarter, 2013 - (Page 34)

MONEY TA X PL ANNING MATTERS The Parachute Congress Made BY BART A. BASI AND MARCUS S. RENWICK A t the stroke of 12:01 a.m., New Year’s Day, this country officially fell off the fiscal cliff (the combination of increased taxes and decreased spending which would have slowed the economy). Fortunately, Congress and the president agreed to measures that allowed us to glide to a soft landing. The president has signed the bill via autopen and it is now law. The issues in the law are outlined here. Capital Gains and Dividends tax rates generally remain where they were in 2012 for the majority of Americans in 2013 and beyond. For couples earning (in wages and salaries) over the 200/250, an additional 0.9 percent tax will apply under the Patient Protection and Affordable Care Act (PPACA) for Medicare For taxpayers earning 400/450, taxes are now 39.6 percent for upper income amounts in addition to the 0.9 percent increase under the PPACA, making the top effective rate 40.5 percent. Unemployment Insurance First, for those making less than $200,000 individually/$250,000 per couple (200/250 taxpayers), the capital gains rates stay the same, at 15 percent. Taxpayers making more than the 200/250 threshold pay an additional 3.8 percent on investment amounts under the Patient Protection and Affordable Care Act (PPACA). For those making $400,000 individually and couples making $450,000 (400/450 taxpayers), the capital gains tax rate is now 20 percent plus 3.8 percent. This makes the effective capital gains tax rate 23.8 percent on high income 400/450 taxpayers. Unfortunately, capital gains occur when most small business owners try to sell their businesses. It is our recommendation that tax planning be engaged in not at the point of a final deal, but when the business owner first decides to sell the business. Unemployment continues to be high. As of February 1, the Unemployment rate remains at 7.9 percent, ticking up slightly from 7.8 percent in January. Fortunately, Unemployment Insurance has been extended for the year of 2013. Without the extension, two million people would have lost their benefits in January 2013. While the economy has taken a hit, losing .1 percent in the fourth quarter of 2012, analysts expect unemployment to go down during the current 2013 year. Ordinary Tax Rates Section 179 The law permanently extends the lower income brackets to middle class families. This means that income Many business owners are familiar with Section 179 of the Internal Revenue Code, under which most 34 MHEDA | Child Tax Credit The law also continued the extended child tax credit and the earned income credit. These are substantial credits for many middle class families and have been extended for one year. These credits amount to between $1,000 and $8,000, providing a substantial boost for many of these families. equipment and other depreciable items are subject to this advanced depreciation. The purchaser purchases the equipment, then, rather than expensing it over years under conventional depreciation, the purchaser is entitled to an immediate expense. The result, lower income taxes. This is a popular Tax Code Section and is frequently used by business people. Being so popular, the Section 179 Deduction is $500,000 retroactive to January 1, 2012, and extends through 2013. Even though it is not permanent, it keeps the door open, this year to purchase more equipment and immediately depreciate the expenses. The deduction is subject to a $2,000,000 phase out, dollar for dollar, until $2,500,000. Bonus Depreciation It is important for the business owner to understand the distinction between Section 179 property and property eligible for bonus depreciation. Section 179 property can be brand new or used. Property eligible for bonus depreciation can only be original use/brand new property. If the equipment was previously titled or owned, it is not eligible for bonus depreciation, but may be eligible for Section 179 depreciation. Bonus depreciation is also popular with businesses. The 50 percent deduction on business investment on brand new (original use) equipment has been extended for 2013 for most purchases. However, for certain longterm assets and transportation equipment, the law is extended through the 2014 tax year.

Table of Contents for the Digital Edition of The MHEDA Journal - Second Quarter, 2013

President’s Perspective
From the Desk of Liz Richards
Ask Your Board
MHEDA Member Profile
At Work
The Next Economic Cycle
In Case of Emergency – Disaster-Proofing Your Supply Chain
Annual Convention
Convention Program
Exhibitors' Showcase Floor plan
Absorption Measures Performance and Sustainability
Exhibitors’ Showcase Product Guide
The Parachute Congress Made
Get Your Game On
An Expert, Advisor, Resource and Single Point of Contact
What Looks Good on Paper
Instilling Work Ethic in the Emerging Workforce
How to Get People to Do What You Want Them to Do
Search Engine Marketing Value Proposition
New Members
Spotlight on Association News
MHEDA University Calendar
MHEDA Milestones
New Products
Index of Advertisers by Product Category

The MHEDA Journal - Second Quarter, 2013