By the time this article is on your desk, you are probably thinking about back to school time or how to most enjoy the last few weekends of summer.  We don’t expect that you are thinking about taxes.  However, there have been significant tax law changes, both recent and not so recent, that will significantly affect many taxpayers in 2013.  Now is the time to start thinking about these changes and how best you can plan for your own changing tax situation.

2013 Tax Increases

We’ve shared this information with you before, but as we are planning with our clients this summer we are seeing exactly how and to what extent these tax increases are playing out. Certain taxpayers who previously enjoyed a maximum 15% tax rate on qualified dividends and long term capital gains now face the prospect of a new 20% income tax rate on this same income in 2013. Beginning in 2013, the new 20% top rate does not include the new 3.8% surtax on investment income, which applies to taxpayers with investment income and more than $200,000 (single) and $250,000 (joint filers) in adjusted gross income. So actually, the top rate for capital gains and dividends beginning in 2013 will be 23.8% - an increase of over 58% over 2012.  Ordinary income will also be subject to higher tax rates for certain high income taxpayers.

We are planning with our clients by first understanding where we think their 2013 income will be in relation to these various thresholds.  We are paying particularly close attention to the new business assets acquired in 2013 to determine to what extent bonus depreciation and/or Section 179 expense provisions should be utilized.  This analysis also must consider that as of today, bonus depreciation may only be available through December 31, 2013; Section 179 expense provisions may also be limited.  For those individuals with significant investments, we are watching 2013 capital gain income closely.  Finally, those same individuals may consider utilizing tax-free investments as a greater part of their portfolio, as these investments will not be subject to the surtax.

Above all, whatever strategy is discussed for 2013, you need to look beyond just the tax ramifications.  Meaning, does our 2013 strategy consider changes that may occur with our business clients in 2014?  Is it best to actually consider not being as aggressive with depreciation in 2013 in order to allow for greater depreciation deductions in 2014?  While tax-free investments will avoid these higher tax rates, is it prudent to shift our investment holdings at this time?  Certainly, any decisions to be made by the individual investor and business owner cannot be undertaken without considering much more than only the tax ramifications.

Defense of Marriage Act

In one of its most highly anticipated decisions, the Supreme Court has struck down section 3 of the Defense of Marriage Act (DOMA), which required same-sex spouses to be treated as unmarried for purposes of federal law. Although DOMA is not primarily viewed as a tax law, it carries significant tax consequences for same-sex couples, as it did in this case. Many tax provisions beyond the marital deduction at issue in this case would be affected. Same-sex couples would be required to file as couples, either jointly or separately, and would likely be subject to a “marriage penalty” or “marriage bonus” (i.e., higher or lower tax liability), depending on the particular couple's earnings. The estate plans of affected couples should be reviewed and possibly amended as a result of the ruling.

Employer Mandate

The Obama Administration recently announced that the employer mandate contained in the Affordable Care Act would be delayed by one year.  However, the employer mandate was the only portion of the law that was delayed; therefore, the other provisions and effective dates remain unchanged.  Employers should be seeking out information and assistance from their insurance providers and tax advisors to ensure compliance.

Cook County Non-Titled Personal Property Use Tax

A controversial new tax imposed by Cook County beginning April 1, 2013 has been overturned.  The tax would have required every person operating in Cook County and acquiring non-titled personal property from locations outside of Cook County to pay an additional tax based upon the value of the items purchased.  A preliminary injunction was issued on July 24, 2013; meaning that the affected taxpayers no longer need to file and pay the tax on a monthly basis.  However, it remains uncertain whether taxes paid prior to the injunction can be refunded to taxpayers.

Tax planning for 2013 will be a challenge as many of the thresholds have changed along with the tax rates.  As you plan for your final summer vacation with your family, follow up on your tax plan for 2013.  Starting the process now before the leaves begin to fall will allow you more time to make the necessary business and individual decisions and enable you to execute them before year end.

If you’d like to discuss and of the above mentioned tax law changes and its effect on your situation, please contact Deanna Salo or Karen Snodgrass from Cray, Kaiser Ltd. www.craykaiser.com , a strategic partner with the Chicago Family Business Council.

Deanna Salo CPA
Karen Snodgrass CPA

Cray, Kaiser Ltd.

1901 S. Meyers Road
Suite 230
Oakbrook Terrace, IL 60181
Phone: (630) 953-4900 x210
Fax: (630) 953-4905

Email: dsalo@craykaiser.com
Email:  ksnodgrass@craykaiser.com

We are a full-service accounting and business advisory service with three offices in the Chicagoland area. With over 25 professionals on staff serving clients across the Midwest, we have the size to meet your needs and the personal service to exceed your expectations.

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