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PostHeaderIcon Tax News – July 28, 2013

I missed the past couple of days so lets call this the weekend edition of Tax News.

Japan had planned on raising its countries’ sales tax in one of the biggest reforms to date but with the tax coming up soon, it looks like there’s some backtracking. Now it looks like it’s either going to be delayed or watered down.  While not relevant to what’s happening in the US, there have been some moves towards a national sales tax or a value added tax in the US so it’s interesting to see how other countries are handling, or in Japan’s case not handling, things with regard to their sales tax.

Obamacare strikes again when a new tax will begin this week.  It’s a $1 per employee excise tax on companies that employ Flexible Spending Accounts or Health Reimbursement Accounts.  Next year the tax goes up to $2 per employee and the money will go to fund the Patient-Centered Outcomes Research Institute.  It was created under Obamacare to study treatments and systems that work best at keeping people healthy.

CPAs have their own times and ways for keeping tabs on their clients.  If you don’t have someone helping, this article talks about some of the changes you might be facing with the year half way through.  The changes to the home office deduction are particularly interesting.

I’ve been saying this from day one but this Forbes article talks about why tax reform is impossible. In case you’re confused about how politics works, it comes down to money.

Finally, and also on tax reform, we have the blow back from Harry Reid’s comments about tax reform raising taxes.  It’s not going to fly in the house, which is another reason tax reform won’t even get off the ground.

 

PostHeaderIcon Tax Planning for 2013 – Medicare Tax on Unearned Income

While we have a number of expiring tax provisions, we also have a few new ones.  This one is courtesy of the 2010 Health Care bill (Obamacare) and it puts into place a medicare tax on unearned income which starts 1/1/2013.  The tax rate is 3.8% and it’s on the lower of the persons’ net investment income or their modified adjusted gross income over a certain limit.  Investment income includes interest, dividends, capital gains, annuities, royalties, rents and pass through income like income from K-1′s from S-Corporations and partnerships.

The modified AGI limits are $250,000 for married filing jointly and qualified widows or widowers, $200,000 for head of household and single tax payers and $125,000 if you file married filing separately.  Finally, if you’re an employee and your salary is over those threshold amounts, you get hit with an additional medicare tax of 0.9% which brings it up to the tax on unearned income of 3.8%.

What’s interesting is they’re creeping into making S-Corporation income subject to payroll taxes.  You have to be over the threshold but once you’re over, it makes the difference between a salary and a distribution a little bit less enticing.