2. Tax Effects: what does 2014 have in store for business owners
PRESENTED BY
John woodrich, CPA, CGMA
CARLSON ADVISORS
7101 NORTHLAND CIRCLE, SUITE 123
Minneapolis, MN

3. Table of contents 2013 Year in Review 2014 Tax Extenders
Extenders that will affect FSEA / IADD members the most
Affordable Care Act
Recent changes
Coverage planning

4. 2013 year in review Many new taxes
Higher marginal federal tax rate
New 3.8% tax net investment income
New 20% capital gains tax rate
Personal exemption phase-out
PEASE limitation - itemized deductions limited
New .9% additional medicare tax
2013 was not a favorable year for business owners

5. The Jones Family Mike – father, W-2 income of $180,000.
Debra – wife, owns foil stamping company which made $120,000 after deducting an officer wage of $160,000 for the year.
Both Debra and Mike own an LLC which collects rent from the company which made $60,000 during the year.
They sold some stock during the year which they have owned the last three years at a gain of $30,000.
Two children named Bert and Ernie who are dependents.

6. Tax Impact Related to 2013 Changes
Summary of the Jones
Tax Impact Related to 2013 Changes
Removing the Payroll Tax Holiday
$ 4,548
Personal Exemption Phase-Out Reinstated
$ 6,100
Pease Reinstatement
$ 2,900
3.8% Tax on Net Investment Income
$ 3,420
Additional Medicare Tax $
20% Capital Gains Tax
$ 1,500
39.6% Marginal Fed Rate
$ 3,565
9.85% MN Tax Rate
$ 5,500
$ 28,343

7. What does 2014 have in store?
2014 Tax extenders
Affordable Care Act

8. 2014 Tax extenders 55 items expired at the end of 2013
Budget concerns – keeping these as temporary items vs. making them permanent

9. Extenders: Deduction for sales and general taxes
Alternative fuel credits
Plug-in elect vehicles
Biofuel producer credit
Renewable diesel
Research & Development tax credits
Low income housing credits
Indian coal production
Indian employment
Credit maintain railroad tracks
Construction energy efficient homes
Energy efficient appliances
Mine rescue team train
Wage credit for activated military reservists
School teacher expenses
Cancellation of debt exclusion for principal residence
Mass transit and employer parking benefits
Deductibility of mortgage insurance premiums
15yr depreciation for leasehold improvements
Work Opportunity Tax Credit
Election to accelerate AMT credits in lieu of bonus depreciation
Enhanced Section 179 expensing limits
Energy efficient commercial building deduction
Tuition and fees deduction
Basis adjustment for S-Corporation charitable contributions
Reduced s-corp built-in-gains tax periods
Empowerment zone tax incentives

10. Extenders: Deduction for sales and general taxes
Alternative fuel credits
Plug-in elect vehicles
Biofuel producer credit
Renewable diesel
Research & Development tax credits
Low income housing credits
Indian coal production
Indian employment
Credit maintain railroad tracks
Construction energy efficient homes
Energy efficient appliances
Mine rescue team train
Wage credit for activated military reservists
School teacher expenses
Cancellation of debt exclusion for principal residence
Mass transit and employer parking benefits
Deductibility of mortgage insurance premiums
15yr depreciation for leasehold improvements
Work Opportunity Tax Credit
Election to accelerate AMT credits in lieu of bonus depreciation
Enhanced Section 179 expensing limits
Energy efficient Commercial building deduction
Tuition and fees deduction
Basis adjustment for S-Corporation charitable contributions
Reduced s-corp built-in-gains tax periods
Empowerment zone tax incentives

11. Research & Development Tax Credit
It is a government and state incentive for companies conducting research and development in the US.
Any US company that designs, develops or improves products, processes, techniques, formulas or software may be eligible.
Companies may be eligible for a federal tax credit up to 6.5% of “qualified expenses”.
Many state tax credits and some are refundable.

12. Common misconceptions clients have
We don’t have any scientists or people specializing in research.
Our company manufactures other people’s parts – we don’t perform any of our own research.
If I qualified for a large credit, my tax advisor would already be claiming it.
We don’t do anything innovative.
In general the credit is very broad

13. What is research and development?
Qualified Research Activities – 4 Part Test
Permitted Purpose
Eliminating an Uncertainty
Technological in Nature
Process of Experimentation / Evaluate Alternatives

14. Recent developments Credit expired 12/31/2013.
Bill passed by the Senate Finance Committee 4/3/2014 renews the R&D credit and expands it to offset AMT.
Many favorable changes.
Increased rate.
Make the credit more simple.
Benefit investors.
Allow shared credit in case of contract research.
NOT LAW YET.

15. Work Opportunity Tax credit
Federal tax credit incentivizing companies to hire employees belonging to targeted groups
Veterans
Ex-felons
Food stamp recipients
Social security income recipients
Summer youth employees
Long-term family assistance

16. WOTC Example
You hire Bob – a food stamp recipient at $10 per hour who works for you for 650 hours this year. At the end of the year you have paid him $6,500.
Since Bob worked over 400 hours the credit is 40% of his wage up to $2,400. The tax credit for the company is $2,400.
This credit can be up to $9,600 depending on the worker you hire.
If over 125 but under 400hrs 25% credit

17. WOTC Developments
Right now this credit has expired but it is expected to get renewed.
Must get employee certification post marked within 28 calendar days!
Although the credit may not be in place right now it doesn’t extend the 28 days.
This credit is often overlooked.

18. Section 179 & bonus depreciation
2013 Section 179: Expense up to $500,000 of additions up to $2,000,000 of capital expenditures. Bonus depreciation: Write off up to 50% of the capital expense in 2013.
$250k die cutter

19. Section 179 & bonus depreciation
2014 Section 179: Expense up to $25,000 of additions up to $200,000 of capital expenditures. Bonus depreciation: No bonus depreciation.

20. Section 179 & bonus depreciation
Expectation Section 179: Expense up to $14X,000 of additions up to $2,000,000 of capital expenditures. Bonus depreciation: No bonus depreciation.
Amendment to the bill passed by the senate finance committee to make the 500k / 2M permanent – offset to be provided.
R&D credit - good outlook depreciation incentives are looking bad.

21. 2014 extenders
R&D credit would be a GREAT improvement for your industry.
Accelerated depreciation is up in the air right now.

22. “Affordable care act” Updates:
Final regulations clarify 90-day waiting period limit.
Postponed required coverage
for midsized businesses (50-
99 ft employees) until 2016.
-health insurance issuer offering employer group health insurance cannot apply any waiting period (for employee coverage) that exceeds 90 days -

23. “Affordable care act”

24. “Affordable care act” Most plan premiums increased under ACA.
2014
Most plan premiums increased under ACA.
Many “healthy groups” decided to renew their plan before 2014 hit to lock in lower rates and not be subject to 2014 ACA changes.
Government exchanges – State and Federal.
Penalty for not having insurance - $95 per adult and $47.50 per child or 1% of taxable income.
20-35%
Bigger hit for healthy groups - No pre-existing condition and minimum coverage requirements – 11 months to defer
States setup or use healthcare.gov
Greater – up to national bronze plan costs

25. “Affordable care act”
Planning 1. Use the exchange as your health plan? 2014 – groups 0 – 50 employees can use the exchange as their health plan – groups of 0 – 99 employees can use the exchange as their health plan. 2. Discontinue insurance and pay possible penalty?? *Worth consulting with an outsider on this topic.
Example: Group plan vs. exchange
Important to consider what your industry is doing
“business reason” to offer insurance
- Individual circumstances - may not owe penalty

26. Conclusion
There are a lot of unknown’s right now with the 2014 tax extenders and this can be favorable or unfavorable for your business.
Couple of good updates from the ACA legislation and small / medium sized businesses have more time to make a decision.

27. Contact
John Woodrich, CPA, CGMA - Presenter John Reineck, CPA 7101 Northland Circle, Suite 123 Minneapolis, MN

28. Circular 230 disclosure
To ensure compliance with requirements imposed by the IRS, we inform you that, unless specifically indicated otherwise, any tax advice contained in this communication (including any attachments) was not intended or written to be used, and cannot be used, for the purpose of (i) avoiding tax-related penalties under the Internal Revenue Code, or (ii) promoting, marketing, or recommending to another party any tax-related matter addressed herein.

29. Thank you