Impacts of the New Tax and Healthcare Laws and Other Tax Issues For Professionals Undergoing Reconstruction

2/11/13

ByAndrew Franklin, M.A.Tax Professional (CTEC Certified RPTP) at H&R BlockPast Sacramento Professional Network Resume Chair

Disclaimer: All tax advice presented is general advice. Consult a tax professional and give them consent to discuss your specific tax issues.

2/11/13

Tax laws are important during a career change

2/11/13

Brief Outline, Part I

• I. Big changes in our tax law in 2013 with the passage of ATRA(American Taxpayer Relief Act of 2012)

• II. Patient Protection and Affordable Healthcare Act moving us to universal healthcare

• III. The basics of debt cancellation in taxland

• IV. Education credits

2/11/13

Brief Outline, Part 2

• V. Unemployment benefits new law and reminder

• VI. Retirement planning

• VII. Conclusion: tax laws can significantly impact your career change options.

2/11/13

ATRA means big tax changes

• The American Taxpayer Relief Act became law on January 2, 2013. H&R Block’s Tax Institute identifies 21 major changes to the tax law. I find three most significant for our larger fiscal policy:

• 1. Most of the tax cuts made during the G.W. Bush administration are now permanent.

• 2. Social Security withholding on employees is back up to 6.2% after a two-year holiday.

• 3. The Alternative Minimum Tax has been permanently patched and indexed to inflation.

2/11/13

ATRA continued

• Essentially, ATRA protected people under $250,000 in income (couple or single) from massive tax increases.

• ATRA also eliminated some expiring tax laws and kept some of the more popular stimulus laws such as education deductions.

• You can read the actual text of ATRA here:http://www.gpo.gov/fdsys/pkg/BILLS-112hr8enr/pdf/BILLS-112hr8enr.pdf

2/11/13

Health Care and Taxes: Play or Pay!• In 2014, if you are not exempt from having health care, you will face

an IRS fine if you do not have health care.

• Your subsidy or free healthcare and fine are determined by your tax filing status, number of dependents, and income in 2012.

• Subsidies are projected to be provided to single people earning under $45,000 and a family of 4 earning under $92,000 if the employer does not provide adequate health insurance.

Business taxes and fines will be assessed based on health care coverage for their employees.

• CONCLUSION: Taxes and health care are now linked.

2/11/13

The Basics of Debt Cancellation in Taxland

• According to the IRS, cancelled debts are taxable unless specifically excluded. This is called cancellation of debt income.

• So, if you walk away from an ‘underwater’ mortgage, have a vehicle repossessed or credit card debt cancelled, you may lose your assets and then face a bigger tax bill!

• If you have debts and are considering cancellation, gather your documents on those debts. You may be able to exclude some of that COD income with an insolvency worksheet.

• ATRA included an income exclusion of $2 million for cancelled debt on a primary home loan. This provision expires at the end of 2013. So, if you are ‘underwater,’ and considering a short sale or foreclosure, get your options on the table now! The option to exclude that debt as income may not be available next year.

• Debt cancellation is a complex matter, so seek the advice of a professional before making a major decision.

2/11/13

IV. Education adjustments and credits

ATRA included several significant changes in the educational arena. A. Tuition interest adjustment is $2500 in 2012 tax year and $4000 in

2013. Paying down your student loans gives you a dollar-for-dollar reduction in income before computing AGI, the basis of most credit computations. Paying down interest on student loans is a good tax plan.

B. American Opportunity Credit has been extended through 2017 and is partially refundable. If you don’t have a Bachelor’s and aren’t in the fourth year of school or later, this amazing credit is refundable. You can get money if you qualify even if you don’t owe any taxes!

C. Lifetime learning credit is up to $2000 nonrefundable (only reduces your bill) and is based on 20% of your expenses.

Education Can reduce your tax bill

2/11/13

Unemployment and taxes

• Section 501 to 503 of ATRA extended the emergency unemployment benefits through January 1, 2014. It is unknown whether any further extensions will be made by Congress.

• Unemployment is taxed as income by the federal government. It is unearned income for purposes of the Earned Income Credit and other credits.

• The state of California does not tax unemployment. So, if you receive any, your California income is lower than your federal income for tax purposes.

2/11/13

VI. Retirement planning

• There are many tax laws related to retirement.

• Retirement tax law is complex and there are substantial penalties for non-compliance.

• Consult an expert like Grant Lewis

before making any retirement plan decisions!

• Grant is now going to tell you some basic retirement planning facts. . .

2/11/13

Conclusion: Taxes Matter in Your Career Change

• There are many other ways the tax laws can impact your career change. Moving expenses adjustment, employment-related travel, how your company covers your employee costs are just a few of the myriad ways taxes impact your career.

• As a professional, you know the value of expertise. Ask a professional about the tax implications of big decisions so you can make the best one for you.

2/11/13

Epilogue: A little about H&R Block• H&R Block is a major tax preparer, preparing one in every seven U.S. tax

returns.

• H&R Block has offices open year-round offices so you can always get advice from a tax expert. The new H&R Block Myaccount feature of the website makes it even easier to know your life through tax.

• H&R Block stands behind its tax pros, provides amazing tax education resources and requires that its tax pros complete more than the minimum continuing education units.

• H&R Block hires employees for work ranging from customer service, IT and marketing to tax preparation.

• Go to www.hrblock.com or ask an H&R Block associate to learn more!

2/11/13

Questions?