Anderson ZurMuehlen Blog

Will your exec comp be subject to expanded Medicare taxes?

Maybe. The following types of executive compensation could be subject to the health care act’s 0.9% additional Medicare tax:

• Fair market value (FMV) of restricted stock once the stock is no longer subject to risk of forfeiture or it’s sold

• FMV of restricted stock when it’s awarded if you make a Section 83(b) election

• Bargain element of nonqualified stock options when exercised

• Nonqualified deferred compensation once the services have been performed and there’s no longer a substantial risk of forfeiture

And the following types of gains will be included in net investment income and could trigger or increase exposure to the act’s new 3.8% Medicare contribution tax:

• Gain on the sale of restricted stock if you’ve made the Sec. 83(b) election

• Gain on the sale of stock from an incentive stock option exercise if you meet the holding requirements

We’d be happy to help you determine the best strategy for your exec comp. With smart timing, you may be able to reduce or avoid exposure to the expanded Medicare tax.

Copyright ©Thomson Reuters

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Why you should max out your 2013 401(k) contribution

Contributing the maximum you’re allowed to an employer-sponsored defined contribution plan, such as a 401(k), 403(b) or 457 plan, is likely a smart move:

• Contributions are typically pretax, reducing your modified adjusted gross income (MAGI), which can also help you reduce or avoid exposure to the new 3.8% Medicare tax on net investment income.

• Plan assets can grow tax-deferred — meaning you pay no income tax until you take distributions.

• Your employer may match some or all of your contributions pretax.

For 2013, you can contribute up to $17,500 — plus an additional $5,500 if you’ll be age 50 or older by Dec. 31.

If you participate in a 401(k), 403(b) or 457 plan, it may allow you to designate some or all of your contributions as Roth contributions. While Roth contributions don’t reduce your current MAGI, qualified distributions will be tax-free. Roth contributions may be especially beneficial for higher-income earners, who are ineligible to contribute to a Roth IRA.

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Family Enterprise Montana Forum on October 18th in Missoula

The inaugural 2013 Family Enterprise Montana Forum, hosted by the Missoula Economic Partnership and The University of Montana’s School of Business Administration, is designed to provide unique learning experiences to those involved with family business throughout Montana.

The Forum is scheduled for Friday, October 18th at the Holiday Inn, Missoula Downtown and the cost is $45.

Find out more.

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Will your investment income be subject to the new 3.8% NIIT?

Under the health care act, starting in 2013, taxpayers with modified adjusted gross income (MAGI) over $200,000 per year ($250,000 for joint filers and $125,000 for married filing separately) may owe a new Medicare contribution tax, also referred to as the “net investment income tax” (NIIT). The tax equals 3.8% of the lesser of your net investment income or the amount by which your MAGI exceeds the applicable threshold.

Many of the strategies that can help you save or defer income tax on your investments can also help you avoid or defer NIIT liability. And because the threshold for the NIIT is based on MAGI, strategies that reduce your MAGI (such as making retirement plan contributions) can also help you avoid or reduce NIIT liability.

The rules on what is and isn’t included in net investment income are somewhat complex, so please contact us for more information — and to find out what tax-saving strategies may be effective in your particular situation.

Copyright ©Thomson Reuters

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Anderson ZurMuehlen Participates in UM School Of Business Administration Employer Fair

Rick Reisig, Shareholder, Appointed to National Auditing Standards Board

Rick Reisig, a certified public accountant and shareholder in the Great Falls office, was appointed to the American Institute of CPAs Auditing Standards Board. The Auditing Standards Board is the senior technical committee of the AICPA that develops, updates, and communicates auditing, attestation, and quality control standards for the CPA profession to follow in providing auditing and attestation services to non-public company clients. It consists of 19 members representing various industries and sectors, including public accountants and private, educational, and governmental entities.

Read the Great Falls Tribune Business Brief

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Start Planning Now If You’d Like To Deduct Medical Expenses

Medical expenses that aren’t reimbursable by insurance or paid through a tax-advantaged account (such as a Health Savings Account or Flexible Spending Account) may be deductible — but only to the extent that they exceed 10% of your adjusted gross income.

Before 2013, the floor was only 7.5% for regular tax purposes. (Taxpayers age 65 and older can still enjoy that 7.5% floor through 2016. The floor for AMT purposes, however, is 10% for all taxpayers, the same as it was before 2013.)

By “bunching” nonurgent medical procedures and other controllable expenses into alternating years, you may increase your ability to exceed the new 10% floor. Controllable expenses might include prescription drugs, eyeglasses and contact lenses, hearing aids, dental work, and elective surgery.

If it’s looking like you’re close to exceeding the floor this year, consider accelerating controllable expenses into this year. But if you’re far from exceeding it, to the extent possible (without harming your health), you might want to put off medical expenses until next year, in case you have enough expenses in 2014 to exceed the floor.

Have questions about the 10% floor or exactly what expenses are deductible? Ask us!

Copyright ©Thomson Reuters

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IRS makes more same-sex couples eligible for federal tax treatment as a married couple

In response to the U.S. Supreme Court’s June decision regarding same-sex marriage, the IRS recently clarified that married same-sex couples will be treated as married for all federal tax provisions in which marriage is a factor, such as filing status, dependent exemptions and child credits, and gift and estate tax breaks.

Significantly, the Supreme Court decision extended federal marriage-related benefits only to same-sex married couples in states recognizing their union; the IRS ruling expands eligibility for marriage-related federal tax benefits to same-sex married couples in all states, as long as they were married in a jurisdiction recognizing their marriage.

In light of the ruling, same-sex married couples should:

• Evaluate how changing their filing status to “married” will affect their 2013 tax liability, and factor that into their year end tax planning

• Determine whether they can receive a tax refund for previous years if they file amended returns as a married couple

• Decide whether any changes to their estate plans are warranted to take advantage of the federal gift and estate tax benefits available to married couples

These are only some of the tax areas requiring attention. Please contact us for more information on the impact of the IRS ruling.

Copyright © Thomson Reuters

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Affordable Care Act Update: Deadline Looming On Insurance Marketplace Availability

By Mike Combo, CPA, Shareholder

Notice of “Insurance Marketplace Availability” deadline is looming. The Affordable Care Act requirement obligates businesses to distribute these notices to employees by October 1, 2013. Employees hired after October 1, 2013 must receive the notices within 15 days of the date of hire. Employers, regardless of whether they provide health coverage, are required to provide a notice if they have revenue of at least $500,000 and have one employee.

The notice needs to include information that:

  • Inform employees about the existence of the Marketplace
  • Notify employees whether their plan meets the minimum essential coverage and if it doesn’t that the employee is eligible for a premium tax credit
  • If the employee purchases a qualified plan through the Marketplace, the employee may lose the employer contribution to any health plan offered by the employer and a portion or all of the company’s contributions to the health plan may be excluded from taxable income.

The Department of Labor has two standard notices employers can use. One version is for employers who offer health coverage and one for employers who do not. Businesses may use the DOL’s samples or create their own as long as it meets the requirements listed above. For more information visit, www.dol.gov/ebsa/healthreform.

If you have any questions regarding this requirement, please call 406-721-7800 or email Mike Combo.

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A Closer Look at Home Office Deductions

Home office deductions can save taxpayers a bundle, if they meet the tax law qualifications. However, claiming expenses for a home office has long been a red flag for an IRS audit since many people don’t qualify. But don’t be afraid to take a home office deduction if you’re entitled to it. You just need to pay close attention to the rules to ensure that you’re eligible — and that your recordkeeping is complete.

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