Changing jobs? Make sure you know the best options for your retirement plan.
There’s a lot to think about when you change jobs, and it’s easy for a 401(k) or other employer-sponsored retirement plan to get lost in the shuffle.
News & Tech Tips
Alternative-asset IRAs: Handle with care
Most IRA owners invest their funds in traditional assets, such as stocks, bonds and mutual funds. But some intrepid investors have enjoyed impressive, tax-deferred returns — or even tax-free returns in the case of a Roth IRA — by using their IRAs to hold rental real estate, business interests or other alternative assets.
Despite the appeal of earning higher returns in a tax-advantaged account, alternative-asset IRAs contain a minefield of tax traps that can quickly wipe out the potential benefits. For example:
- Mortgaged real estate held in an IRA can trigger unrelated business income tax. Real estate may also create problems when traditional IRA minimum distributions are required (beginning after age 70½).
- Your dealings with a business in which your IRA has an interest may violate the prohibited transaction rules, resulting in substantial taxes and penalties.
- Transferring S corporation stock to an IRA may terminate the company’s S status and trigger corporate tax liability.
So if you’re contemplating an alternative-asset IRA, please contact us for professional advice.
Be prepared for the health care act’s “play or pay” provision
The Patient Protection and Affordable Care Act of 2010’s shared responsibility provision, commonly referred to as “play or pay,” is scheduled to take effect Jan. 1, 2014. It doesn’t require employers to provide health care coverage, but it in some cases imposes penalties on larger employers that don’t offer coverage or that provide coverage that is “unaffordable” or that doesn’t provide “minimum value.”
A large employer is one with at least 50 full-time employees, or a combination of full-time and part-time employees that’s “equivalent” to at least 50 full-time employees. The nondeductible penalties generally are $2,000 per full-time employee.
Although the shared responsibility provisions don’t take effect until 2014, employers will use information about the workers they employ in 2013 to determine whether they’re subject to the provisions and face the potential for penalties in 2014. The rules are complex, so contact us today to learn how they may affect your business and what steps you can take to avoid, or at least minimize penalties.
Hearings Taking Place on Legislation to Simplify Ohio’s Municipal Income Tax System
Proponents Emphasize the Goal Is to Reduce the Cost Burden on Small Businesses
Proponents and opponents of legislation seeking to establish a uniform, cost-effective set of rules and regulations governing the municipal income tax system are expressing their views before Ways and Means Committee members of the Ohio House. Hearings are continuing during the week of May 6.
House Bill 5, the latest legislative effort to simplify the state municipal income tax system, was introduced in January. It has support from business groups, including the Ohio Society of CPAs, a coalition of organizations and individual taxpayers. They contend that the administrative burden and costs for many Ohio businesses impedes them from creating more jobs across Ohio.
Ohio is just one of a few states in which municipalities impose an income tax on individuals and businesses. Those businesses must track and comply with as many as 600 different sets of tax ordinances, depending on where they conduct business.
The proposed legislation would establish a more uniform municipal tax code that all municipalities assessing a tax on businesses or individuals would follow, including a uniform definition of income, withholding, penalties and interest, and all related rules and regulations other than tax rate and reciprocity rate.
The bill creates the Municipal Tax Policy Board charged with creating a uniform form. It may also recommend rules. The board will be comprised solely of seven city representatives with no business or taxpayer representatives.
Five of the seven members are required to be local tax administrators. Of the two remaining members, one must be an employee of the Regional Income Tax Authority (RITA) and one must be an employee of the Central Collection Agency (CCA). Both RITA and CCA are agencies that currently collect municipal taxes for a number of cities and villages throughout Ohio.
In addition to unifying some of the definitions for income and deductions, the bill also requires not counting anything less than a half-day as a workday for income tax purposes. It also would expand the number of days that someone must work in a community before he or she is liable for any income tax there. Currently, the threshold is 12 days per year. The proposal would expand that to 20 days.
Opponents, largely from cities, insist that the cost of compliance with the current municipal tax laws is overstated. Proponents contend that Ohio’s current municipal tax system presents compliance problems for individual and business taxpayers, costs existing employers resources that could be redirected to growing their businesses and creating more jobs, and puts Ohio at an economic disadvantage for attracting new employers.
The proposed legislation does not call for a centralized collection system, nor is it looking to reduce the amount of tax that individuals and businesses must pay.
April 15 has passed — now what?
With the 2012 tax filing season behind us, it’s time to start thinking seriously about 2013 tax planning — especially if you’re a higher-income taxpayer, because you might be subject to one or more significant tax increases this year:
- Taxpayers with FICA wages and self-employment income exceeding $200,000 for singles and $250,000 for joint filers face an additional 0.9% Medicare tax on the excess.
- Taxpayers with modified adjusted gross income exceeding $200,000 for singles and $250,000 for joint filers may face a new 3.8% Medicare tax on some or all of their net investment income.
- Taxpayers with taxable income in excess of $400,000 for singles and $450,000 for joint filers face the return of the 39.6% marginal income tax rate — and of the 20% long-term capital gains rate on long-term capital gains and qualified dividends.
Contact me at karen.botti@whalencpa.com to learn whether you’re likely to be hit with these tax hikes and what strategies you can implement to minimize the impact.
Karen Botti is the staff manager of tax services. She has more than 30 years of experience in the public accounting field with extensive experience in preparing and reviewing federal, state and local income tax returns for businesses and individuals as well as for non-profit entities. She serves as a resource to clients and staff in multiple tax areas. Her areas of expertise also include like-kind exchanges, fixed-asset reporting, tax software and S-Corporation issues. She also has experience in accounting and the preparation of financial statements and payroll taxes.