For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. Although this break hasn’t yet been extended to 2014, it is available for 2013.

It can be valuable if you reside in a state with no or low income taxes or if you purchase major items, such as a car or boat. So see if you can save more by deducting sales tax on your 2013 return. And if you’re contemplating a major purchase, keep an eye on Congress to see if the break will be revived for 2014. You may want to factor the deduction’s availability into your purchase decision.

For help determining whether deducting sales tax makes sense for you — and for the latest information on the status of the deduction for 2014 — please contact us.

Recently released IRS final regulations for the Affordable Care Act’s (ACA’s) employer shared-responsibility provision provide some short-term relief for midsize and large employers.

Under the ACA, the shared-responsibility provision (commonly referred to as “play-or-pay”) applies to “large” employers — those with the equivalent of 50 or more full-time employees. Play-or-pay had been scheduled to go into effect in 2014 but last year the IRS pushed that out to 2015. Now, under the final regs, eligible midsize employers that otherwise would be considered large employers under the ACA won’t be subject to the provision until 2016. To qualify for the midsize-employer relief, an employer must:

• Employ on average fewer than 100 full-time employees or the equivalent during 2014,
• Maintain its workforce size and aggregate hours of service,
• Maintain the health care coverage it offered as of Feb. 9, 2014, and
• Certify that it meets these requirements.

The final regs also provide some relief for large employers that don’t qualify for the midsize-employer relief: In 2015, they can avoid the penalty for not offering minimum essential coverage by offering such coverage to at least 70% of their full-time employees, rather than the 95% originally scheduled. The 95% requirement will apply in 2016 and beyond.

The final regs also clarify certain aspects of the play-or-pay provision. Please contact us if you’d like more information on the final play-or-pay regs or other ACA provisions.

If your use of a home office is for your employer’s benefit or because you’re self employed, you may be able to deduct a portion of your mortgage interest, property taxes, insurance, utilities and certain other expenses, as well as the depreciation allocable to the office space. Or you may be able to take the new, simpler, “safe harbor” deduction.

Beginning with 2013 tax returns, taxpayers can use the safe harbor deduction in lieu of calculating, allocating and substantiating actual expenses. Other rules — such as the requirement that the office be used regularly and exclusively for business — still apply. The safe harbor deduction is capped at $1,500 per year, based on $5 per square foot up to a maximum of 300 square feet.

Also be aware that, for employees, home office expenses are a miscellaneous itemized deduction. This means you’ll enjoy a tax benefit only if these expenses plus your other miscellaneous itemized expenses exceed 2% of your adjusted gross income (AGI). If, however, you’re self-employed, you can deduct eligible home office expenses against your self-employment income.

Questions about deducting home office expenses? Contact us; we’d be pleased to answer them.

Investors are looking everywhere for better yields – but how many of them look into Master Limited Partnerships?

Many investors have never heard of MLPs. Others have, but assume they are complex and esoteric. In reality, investing in MLPs isn’t that mysterious. They trade on public exchanges, and today there are even MLP mutual funds and ETFs.

MLPs have outperformed the S&P 500 in 11 of the past 12 years. In fact, they have left stocks in the dust in terms of annualized total returns. From 2002 to 2011, the average yearly total return for MLPs approached 16 percent, compared to less than 5 percent or less each for the S&P 500* and the DJIA*.¹

Look at their yields***. At the end of Q2 2012, MLPs were yielding 6.7 percent. The S&P 500 was yielding 2.2 percent, the 10-year Treasury was yielding 1.6 percent and REITs (3.4 percent) and utilities (4.1 percent) were yielding less.²

Of particular interest is the 5 percent gap between the yields on MLPs and the 10-year note**. Historically, MLPs have done well when this gap is this large. Since 1999, the gap has averaged 3.3 percent.¹

Almost all MLPs are pipeline businesses. They make money from the processing or transport of oil, natural gas or coal. Thanks to strict environmental regulations, they don’t face much competition – and as they transport these commodities rather than explore for them, they are theoretically less affected by ongoing volatility in commodity prices.

An MLP weds the tax structure of a limited partnership to the liquidity of a publicly traded security. MLPs are designed to pay out nearly all of their free cash flow to investors in the form of quarterly distributions. As MLPs have big depreciation shields resulting from capital expenditures, 80 percent of their distributions are characterized as tax-deferred return on capital.²

There are demerits resulting from this hybrid construction. MLPs are exempt from corporate taxes, and the taxed part of an MLP distribution is taxed as regular income. The tax-deferred part of the payout reduces your cost basis in MLP shares (which are properly called units), and it is taxable when MLP shares are sold. Appreciation in MLP holdings is subject to corporate tax, and MLP investors get K-1 forms instead of annual 1099s.¹

However, MLP funds aren’t required to make distributions on balance with the distribution rate of the underlying partnerships, or indeed any distributions at all. In other works, when times are tough, these distributions can suddenly stop.¹

Consequently, MLPs can be problematic for investors with tax-deferred accounts. Expect intensive paperwork at tax time if you own MLP units. Tax benefits from investing in an MLP are contingent on them being considered partnerships for federal income tax purposes. The impact if the MLP is considered a corporation rather than a partnership? In that case, it’s subject to federal taxation, which can diminish the fund’s value.¹

MLPs attract income-focused investors who want a hedge. Most people invest in MLPs through a holding company. Select ETFs or mutual funds provide alternate points of entry. Offering potential for attractive yield and depending on your tolerance for risk, you may want to look into this underpublicized investment class.

* Holdings within an MLP differ significantly from the securities held in the S&P500 and DJIA index. These indices are unmanaged and not available for direct investment.

** Government bonds and treasury bills are guaranteed by the U.S. Government and, if held to maturity, all bonds offer both a fixed rate of return and fixed principal value.

*** Annualized dividend yields are historical and will fluctuate and do not guarantee future results.

Citations

1 –online.barrons.com/article/SB50001424053111904081004577434252994880844.html [6/2/12]

2 – www.dailyfinance.com/2012/08/14/mlps-the-low-risk-high-yield-investment-youve-never-heard-of/ [8/14/12]

ADP recently introduced additional tools to assist small businesses in complying with the complex provisions of the Affordable Care Act (ACA).

The company has added extra tools and resources to its RUN Powered by ADP human resource and payroll software. Two of the new features — an ACA full-time equivalent calculator and tax-credit assist tools — add to the existing software tools to further help small business owners improve compliance, take advantage of potential tax credits and help determine their status under the ACA’s Shared Responsibility Provision.

The new features complement other small business ACA-related tools and resources available to businesses using ADP’s RUN HR and payroll system, including an ACA Dashboard, which provides tools, reports and links to help clients understand how the ACA affects their business and employees.

ADP’s Pay-by-Pay Premium Payment Program for Workers’ Compensation is another existing tool that helps to manage the cash businesses spend on workers’ compensation premiums.

In addition, A Time-and-Attendance tool provides workforce planning to improve time tracking, apply employee schedules and monitor employee hours to help clients comply with ACA’s employer shared-responsibility provisions.

Furthermore, ADP’s ongoing ACA alerts and education provide regular legislative and regulatory alerts and educational materials, including webinars and updates, to help clients keep apprised of latest ACA developments.

For more information about how ADP can help your business in managing payroll responsibilities, other HR functions and customer payments, contact Kristy Billman at 783-8778 or Matt Banks at 901-7467. ADP is an alliance partner with our firm so make sure to indicate you are a Whalen client to obtain the best pricing and other benefits.