Posted by: Andrew Whitehair, CPA
The IRS recently announced 2014 inflation adjustments for several key tax provisions including the following:
- Standard Deduction - $12,400 for married filing joint returns, $6,200 for single individuals and married filing separate, and $9,100 for head of household.
- Limitations on Itemized Deductions –itemized deductions are limited for taxpayers with incomes above $305,050 for married filing joint, $254,200 for single individuals, and $152,525 for married filing separate.
- Personal Exemption Phase-out – The phase-out reduces a taxpayer’s personal exemptions beginning with adjusted gross incomes (AGI) above $305,050 for married filing joint returns and $254,200 for individual returns. The exemption is completely phased out for AGI’s exceeding $427,550 for married filing joint and $376,700 for single individuals.
- Alternative Minimum Tax (AMT) Exemption – $82,100 for married filing joint returns, $52,800 for single individuals, and $41,050 for married filing separate.
- Kiddie Tax – The exemption for dependents unearned income will be $1,000. Under this amount a child’s unearned income will not be taxed. Additionally, a parent can elect to include a child’s gross income in the parent’s return if the child’s gross income is less than $10,000 in 2014.
- The 401(k) contribution limit will remain at $17,500 with an additional $5,500 catch-up contribution for those aged 50 and older.
- The IRA contribution limitation, including Roth contributions, remains unchanged at $5,500 plus an additional $1,000 catch-up contribution for those aged 50 and older.
- The contribution limitation for defined contribution plans, including SEP plans, will increase to $52,000 in 2014.
Estate and Gift Tax
- The unified credit against estate tax available for the estate of any decedent dying during calendar year 2014 (or available when contemplating lifetime gifts) increases to $5,340,000.
- The annual gift exclusion, which allows donors to shield gifts of a present interest from gift taxation, remains at $14,000.
These are only some of the inflation adjustments for 2014. Please consult your Zinner & Co tax advisor to learn how the above adjustments impact your situation.
Posted by: Andrew Whitehair, CPA
Earlier this year, the Supreme Court’s ruling in the case of The United States v. Windsor essentially rendered the federal Defense of Marriage Act unconstitutional.
Our earlier blog post mentioned that the Internal Revenue Service promised that additional guidance would be forthcoming. The IRS has made good on its promise by issuing Revenue Ruling 2013-17 that was intended to address the practicalities of applying the Supreme Court’s decision. The key takeaways from this ruling are:
- IRS has clarified that the terms, spouse, husband, wife, and husband and wife include same sex couples lawfully married under state law. Additionally, the IRS clarified that the term “marriage” includes a state law marriage between two individuals of the same sex. This distinction by the IRS is crucial as there are hundreds of tax provisions with references to the above terms, and it was unclear how these terms would be interpreted following the ruling.
- One of the earlier open questions at the time of our last blog post was whether residents of states, such as Ohio, with a constitutional amendment prohibiting same-sex marriage, will be treated as married for federal tax purposes. The IRS clarified that any same-sex marriage validly entered into under state law will be recognized for federal tax purposes even if the couple resides in a state that does not recognize same-sex marriage. Ohio same-sex couples legally married in another state or foreign jurisdiction will be treated as married for federal tax purposes, and, beginning in 2013, they must file a joint return or elect married but separate status. However, for state tax purposes, an Ohio couple would still need to file separate individual Ohio tax returns until Ohio law changes.
- Furthermore, same-sex couples who are not legally married but have entered into a formal partnership or civil union under state law will not be treated as married for federal tax purposes. Residents in states such as Illinois who may have entered into a civil union and who receive favorable tax treatment under state law would not be treated as married for federal tax purposes.
The IRS ruling applies prospectively beginning with tax returns filed after 9/15/2013. Legally married same sex couples must either file joint tax returns or married filing separate returns for federal tax purposes after that date (generally beginning with 2013 tax returns). Because taxpayers had until 10/15/2013 to file an extended 2012 individual tax return, some same-sex couples who filed their individual tax returns after 9/15/2013 were required to file jointly for 2012. Additionally, provided the statute of limitations is still open (generally three years), taxpayers may benefit from filing amended tax returns for prior years to elect to joint filing status.
For Businesses and Employees:
Prior to the ruling striking down DOMA, employees with same sex spouses would have received a Form W-2 that included the value of their spouse’s employer provided health care. The IRS ruling clarifies that employees may file an amended return to exclude the value of their spouse’s health coverage for any open tax year in which the employee was legally married. Additionally, the employer can file refund claims for the excess Social Security and Medicare taxes paid on the spouse’s health care coverage, but the IRS has yet to provide further guidance on the procedure for doing so.
The changes related to same sex marriage and tax law have been swift and continue to evolve. Contact a professional at Zinner & Co. who can help keep you updated with the most recent developments and determine the best course of action for you and your business.
Tax Partner Howard Kass is newly certified as an Accredited Estate Planner® by the National Association of Estate Planners & Councils, an organization focused on establishing and monitoring the highest professional and educational standards in the estate planning industry.
The AEP® designation is awarded to recognized professionals within the various disciplines of estate planning who meet stringent requirements of experience, knowledge, education, professional reputation, and character.
Howard has over thirty years of experience in estate, gift and trust taxes, as well as business income taxes, tax aspects of real estate investment and tax exempt organizations. He is a member of the American Institute of CPAs, the Ohio Society of CPAs, the Estate Planning Council of Cleveland, and currently serves on the board of the Society of Financial Service Professionals.
As a leading expert in the taxation industry, Howard has also published numerous articles and spoken before local and national organizations. He has held the title of Tax Partner at Zinner & Co. for more than twelve years, serving industries that include real estate, manufacturing, retail, hospitality, insurance agencies, distributors and service companies.
All of us at Zinner & Co. would like to congratulate Howard on his success and well-deserved recognition!
Posted by: Andrew Whitehair, CPA
On June 26, 2013, the United States Supreme Court issued its decision in the case of The United States v. Windsor which essentially ruled the federal Defense of Marriage Act (DOMA) unconstitutional. Given the widespread national press this case received, we will not rehash the details of the case here, but in short, the Windsor case treats same-sex couples who are validly married under state law as married for federal purposes. While this case is viewed as a huge civil rights win, it could potentially be a huge financial win for same-sex couples, but the ruling has raised as many questions as it has answered particularly in states such as Ohio that do not currently recognize same-sex marriage.
From a purely tax perspective and especially for couples with a primary breadwinner, the tax advantages of being married for federal purposes generally trump filing separate returns. In the wake of Windsor, legally married same sex couples may actually now be required to file joint Federal returns just as their different sexed counterparts do or face the negative impact of married filing separately status. For those same sex couples legally married for state purposes, the following Federal tax benefits should now be available:
- Joint filing of income tax returns
- Spousal inherited IRAs & required minimum distributions
- Tax-free employer benefits
- Income, estate & gift tax relief for spousal transfers
- Deductible alimony
- Favorable divorce tax treatment
- Adoption tax credit
Additionally, a host of other Federal benefits including Social Security, Medicare, Medicaid, family medical leave, and military benefits may now be available for legally married same-sex couples.
Seem too good to be true? Possibly, at least for now for same-sex couples residing in Ohio. The couple in the Windsor case resided in New York which currently is among the 13 states that recognize same-sex marriage. It seems clear that legally married couples residing in states that recognize same sex marriage will be treated as married for federal purposes. However, further guidance is still needed for residents of states such as Ohio which currently has a constitutional amendment banning recognition of same sex marriage. It remains unclear whether the state in which the marriage took place or the state of domicile controls for federal purposes.
Guidance may be forthcoming. In a recent case from the Southern District of Ohio, Obergefell v. Kasich, the plaintiffs are challenging the constitutionality of the Ohio laws forbidding recognition of legal same sex marriages from other states. The judge overseeing the case issued a temporary restraining order barring the local Ohio registrar of death certificates from accepting a death certificate which did not recognize a legal same sex marriage solemnized outside of Ohio. The judge’s order points out that “throughout Ohio’s history, Ohio law has been clear: a marriage solemnized outside of Ohio is valid in Ohio if it is valid where solemnized.”  Ultimately, it remains to be seen how state law will be decided in Obergefell and similar cases, but the discussion has already begun on whether a same-sex marriage from another state will be valid under Ohio law.
The resolution of the various state issues will be one big factor driving the question: What steps should you take following Windsor? The other major factor is your individual circumstances. Are you currently married? Considering marriage? How much do you and your partner earn? Is your spouse already included in your estate plan? Have you made lifetime transfers to your partner? Legally married same sex couples may want to consider filing amended individual income, gift, and/or estate tax returns for years still open under statute or filing protective claims for refunds depending upon their answers to the above questions. Other planning items to consider include reviewing your health plan options given that many plans will now cover same-sex spouses, reviewing your estate plan and beneficiary designations, and filing for federal benefits such as social security. Non-married same-sex couples who have long desired to marry may find new financial incentive to move forward.
The Internal Revenue Service responded to Windsor by issuing a statement that additional guidance will be forthcoming. In the meantime, the professionals at Zinner & Co. LLP can help you analyze the tax and financial impact of these recent changes and advise on an appropriate course of action, so you are well positioned to take advantage of these new benefits as the situation evolves.
 Obergefell v. Kasich United State District Court Southern District of Ohio Western Division. Case No. 1:13-cv-501. Judge Timothy S. Black. July 22, 2013.
Posted by: Barbara Theofilos, CPA
The 3.8% Medicare tax on net investment income, or NIIT took effect for individuals, trusts and estates for tax years beginning on or after January 1, 2013.
Individual taxpayers will be affected by this new tax if their modified adjusted gross income (MAGI) exceeds one of the following thresholds:
- $200,000 for an unmarried taxpayer
- $250,000 for a married couple filing jointly or a qualifying widow or widower
- $125,000 for those married individuals filing separately
MAGI is regular adjusted gross income adjusted for certain excluded foreign-source income of U.S. citizens as well as residents living abroad. This particular add-back is very narrowly targeted and will not affect many taxpayers. Unfortunately, the above MAGI thresholds are not slated to increase with inflation after the 2013 tax year, so this additional tax will begin to affect even more taxpayers in future years.
If this isn’t complicated enough, the amount of income actually subject to NIIT is a bit convoluted; it is the lesser of (1) net investment income or (2) the amount by which MAGI exceeds the thresholds listed above.
Individuals aren’t the only taxpayers affected by this new tax. Trusts and estates will also be subject to it on the lesser of the following:
- The trust’s or estate’s undistributed net investment income, or
- The portion of its adjusted gross income (AGI) that exceeds the threshold for the top trust federal income tax bracket. (This threshold is only $11,950 for tax year 2013.)
The following trust types are exempt from NIIT:
- Charitable trusts
- Retirement plan trusts
- Grantor trusts that are disregarded for federal income tax purposes
- Real estate investment trusts
Those taxpayers and trustees planning for their 2013 tax obligations need to be aware that this tax will have an effect on their estimated taxes, because it needs to be considered when calculating quarterly estimated tax payments. Failure to do so could result in interest and penalty charges on underpayments of tax.
Examples of income that are considered net investment income include the following:
- Gross income from interest (excludes tax-free interest)
- Gross income from dividends
- Capital gains from the sale of stocks, bonds and mutual funds
- Capital gain distributions from mutual funds
- Gains from selling investment real estate
- Gains from selling personal residences to the extent that the gain is taxable
- Gains from selling interests in partnerships and S corporations if the taxpayer is a passive owner
- Gross income from rents
- Gross income from royalties
- Gross income from annuities
- Gross income and gains from passive business activities
- Gross income and gains from the business of trading in financial institutions or commodities
The above items may be reduced by appropriately allocated deductions including investment interest expense, brokerage fees, investment advisory fees, and expenses related to rent and royalty income.
Capital gains may be offset by capital losses within the guidelines for regular federal income tax purposes. Net capital losses are only permitted to offset other income to a maximum of $3,000. Any remaining capital loss for regular tax purposes is permitted to be carried forward to offset gains in future years.
Examples of items exempt from NIIT include the following:
- Wages and self-employment income
- Operating income from nonpassive business activities
- Distributions from retirement accounts (401(k) plans, pension plans, stock bonus plans, traditional and Roth IRAs)
- Social security benefits
- Tax-exempt interest, unemployment compensation and alimony
The NIIT has the potential to affect many individuals as well as trusts and estates, especially since the 2013 reporting threshold for trusts and estates is so low. The rules and exceptions can be complicated but it is important to be knowledgeable about this tax and the rules associated with it. Please contact a Zinner professional if you have any questions and to find out how this new tax may affect you.
Zinner & Co. was honored to receive two awards from an elite panel of judges at the 2013 Smart Business World Class Customer Service Awards, held June 6 at Executive Caterers at Landerhaven.
The World Class Customer Service Awards serve to raise awareness of the importance of customer service in the business world, recognize organizations that demonstrate exceptional customer service and share best practices in customer service from those that do it the best.
For the second year in a row Zinner & Co. was among the 25 Northeast Ohio companies recognized for a commitment to delivering top-notch customer service. Based off interviews conducted at a VIP reception in April, we were also selected as one of the top “Best in Class” winners this year, garnering us our second award of the night.
Zinner & Co. stands out from the competition due to making “the platinum rule” – do unto others as they want you to do unto them – a mandatory part of our company’s testing and training in our new employee orientation process. We train employees on how to alter their personal communication methods to adapt to how the client wants to be communicated to or is accustomed to being communicated with. We also set firm-wide SMART goals (Specific, Measurable, Accountable, Realistic, Timely) designed to help increase customer service satisfaction with clients.
Zinner & Co. would like to congratulate our good friends at the Greater Cleveland Film Commission for also being recognized for their superior customer service and “Best in Class” designation.
On hand to collect our firm’s two awards were Partners Gabe Adler, Robin Baum, Howard Kass and Susan Krantz and Firm Administrator Matt Aloisi. We look forward to continuing our practice of superior customer service for the next 75 years to come!
There was finally a break in the clouds this past Sunday, just in time for the annual Race for the Place 5K. Several members of the Zinner & Co. family participated.
Zinner & Co. has been a proud sponsor of the event, held at Beachwood Mall to celebrate National Cancer Survivors Day, for many years as it supports our good friends at The Gathering Place. Started in 2000 as a nonprofit cancer support center in the greater Cleveland community, The Gathering Place focuses on the emotional, physical and spiritual needs of cancer patients and their families. The Gathering Place offers free education centers, support groups, exercise and nutrition classes to individuals and families touched by cancer. During times of pure despair and fear, The Gathering Place has been a sanctuary for over 21,500 individuals since its inception.
The Race for the Place always brings in a large crowd, but this year was bigger than ever with over 4,200 registered participants who raised $350,000 for the cause! Team Zinner included Gabe Adler (with wife, Nikki), Robin Baum, Howard Kass (with wife, Cindy) Sue Krantz (with husband, Jonathan, and children Adam and Rachel), Matt Aloisi, Laura Haines, Patti Puterbaugh and Spike Radway, who ended up finishing in the top 20 for his age division.
Posted by: Sue Krantz, CPA
As an advocate and member of the Board of Directors of the Epilepsy Association, I am so excited that Zinner & Co. will once again be supporting Purple Day, the Global Day of Epilepsy Awareness held annually on March 26th.
More than 3 million Americans, including 55,000 Northeast Ohioans, have some form of epilepsy. Epilepsy affects more people than Parkinson's disease, cerebral palsy, multiple sclerosis and muscular dystrophy combined. Of the major chronic medical conditions, epilepsy is among the least understood even though 1 in 3 adults knows someone with the disorder.
Purple Day was conceived by a young girl, Cassidy Megan, in Nova Scotia, Canada as Global Epilepsy Awareness Day. The name 'Purple Day' was chosen after the international color for epilepsy: lavender. The lavender flower is associated with solitude, which is representative of the feelings of isolation many people affected by epilepsy and seizure disorders often feel. The Purple Day goal is for people with epilepsy everywhere to know they are not alone and to increase the public's awareness of epilepsy. Purple Day is now celebrated on every continent in the world, including Antarctica. Our own Terminal Tower will be lit up in purple on March 26th.
So how can you get involved and create awareness of epilepsy?
- Wear purple to work or school on March 26th, and ask others to wear purple too.
- Tweet this message or change your Facebook status to read: "On March 26, I'm wearing PURPLE to support EPILEPSY AWARENESS. Help spread the word!"
- Tell the Epilepsy Association how you are supporting Purple Day by using social media websites like Facebook, Twitter, and the agency's blog at www.epilepsyinfo.org.
- Visit the epilepsy awareness booth at the SouthPark Mall in Strongsville on March 23rd and 24th or at the Great Lakes Mall in Mentor on March 26th.
- Join the Epilepsy Association at their annual Purple Day Party Fundraiser. Meet up with other Cleveland-area epilepsy supporters at PJ McIntyre's Irish Pub, located at 17119 Lorain Ave., from 5:30-7:30 pm for happy hour. Tickets are $25 and include appetizers and 2 drinks. Purchase your pre-sale tickets here.
The Zinner & Co. staff all dressed to celebrate this year's Purple Day!
Posted by: Sue Krantz, CPA
Cleveland Rape Crisis Center is dedicated to serving survivors of sexual violence and those who support them with free comprehensive healing and advocacy services, and to creating social change in the community through education, training, and activism.
I am honored to be a member of the Center’s Board of Directors and proud that Zinner & Co. is a sponsor of the Faces of Change Luncheon to benefit the Cleveland Rape Crisis Center. The luncheon is a community event that raises awareness about sexual assault and financial support for Cleveland Rape Crisis Center. The all-star Sing Out! Chorale will also give a preview of Sing Out! 2014.
This amazing event will be held on April 15, 2013 from 12:00-1:30 pm at The Renaissance Hotel Cleveland. For ticket information, you can go to the Center’s website at www.clevelandrapecrisis.org. Please consider joining us for this spectacular program!
Posted by: Sue Krantz, CPA
As the Cleveland, Ohio member of the National Association of Nonprofit Accountants and Consultants (NPAC) through the Rainmaker Alliances, I recently had the opportunity to attend a member fly-in at the Rainmaker Alliances office in Nashville, Tennessee.
The purpose of the fly-in was to give NPAC members the opportunity to go deeper and connect with fellow members about the current needs, struggles and successes of those working in and with the not-for-profit industry. I was able to share ideas with the best and brightest CPAs and business advisors in the industry, all of which spend a significant amount of time working with not-for-profit organizations.
As members, we cooperatively exchange business development practices and technical knowledge to benefit our clients and practice groups. Zinner & Co. was selected to become a member of NPAC based on our superior service to the not-for-profit industry. NPAC is a nationwide affiliation of independently owned accounting firms committed to delivering exceptional financial and consulting services to nonprofit organizations.