It’s Not Too Early to Proactively Plan for 2014 Taxes by Kenneth J. Strauss

Posted on January 28, 2014

The unfortunate reality of taxes is that too many taxpayers neglect the importance of proactive planning. Often, preparation and planning do not start until a fiscal year ends and tax season begins. As a result, individuals, business leaders and their advisors end up serving as historians. They look at past activities to dictate the tax strategies that might be most advantageous and least detrimental after taxpayers have already taken action. In these instances, taxpayers may miss opportunities, fail in their regulatory compliance and be surprised by a substantial tax liability for which they are unprepared.

Proper tax planning requires taxpayers and their advisors to keep a keen eye on emerging issues, regulations and changes to tax laws and make assumptions and projections based on that information. Taking the time to assess taxpayers’ unique situations and plan accordingly provides an opportunity to uncover potential benefits and risks for which taxpayers may have been otherwise unaware.

Following are just some of the important issues and developments that taxpayers should keep an eye on in 2014.

Expiring Tax Provision

More than 50 tax breaks expired on Dec. 31, 2013, creating an uncertain planning environment for taxpayers who await congressional action to possibly renew the provisions or allow the expirations to stand. Complicating any action on Congress’s part are this year’s mid-term elections and attention to the debt ceiling, which lawmakers must address in February.

Health Care Reform

Taxpayers will need to begin addressing the provisions of the ACA in 2014, if they have not done so already, and navigate cautiously to evaluate the tax incentives and penalties associated with compliance and non-compliance.

As of the writing of this article, the IRS and Treasury Department are working to finalize regulations relating to the processes and reporting requirements of the employer-shared responsibility rules of the Affordable Care Act. As a result, a significant amount of uncertainty currently exists among large employers, who will eventually need to assess the new rules and take the necessary steps to become compliant with them before the current 2015 deadline.

Defense of Marriage Act

By expanding the definition of marriage to include same-sex couples, the federal government in 2014 requires businesses to extend employee benefits, such as health insurance and FSA and HSA plans, to same-sex spouses.

Net Investment Income Tax

The 3.8 percent net investment income (NII) surtax on high-income earners that went into effect in 2013 continues to evolve in 2014. For example, there is currently no clear definition to help taxpayers differentiate between their passive and material activities in an investment and their subsequent exposure to the NII tax. Moreover, taxpayers who do not earn high incomes may be surprised to learn they too are subject to the NII tax if they generate significant capital gains form the sales of real estate, stocks and other assets.

Repair Regulations

Effective Jan. 1, 2014, businesses that own or lease buildings, equipment, machinery or other tangible assets will need to determine how they will comply with the new repair regulations, which govern how and when expenses for acquiring, maintaining, repairing and replacing these assets may be capitalized and deducted. Because of these new regulations, it would behoove businesses to review their accounting methods and capitalization policies and make changes, as needed.

Internet Sales Tax

In May, the Senate passed the Marketplace Fairness Act, which, if enacted by Congress, would compel online retailers to begin collecting and remitting sales tax on products and services they sell outside of their headquarter states.

International Tax Reform

Proposed legislation calls for imposing a one-time tax on the profits businesses hold overseas, which they may exclude from their U.S. tax returns. Additionally, taxing authorities worldwide are focusing their attention on increased documentation requirements and detailed disclosures relating to transfer-pricing agreements between domestic and overseas businesses.

Another potential challenge for taxpayers with offshore accounts is compliance with the Foreign Account Tax Compliance Act (FATCA), which goes in effect July 2014. Under the law, foreign banks must report directly to the IRS information about financial accounts they hold for U.S. taxpayers and foreign entities in which U.S. taxpayers hold a substantial ownership interest. While it appears that compliance falls solely on the shoulders of foreign financial institutions, U.S. taxpayers, banks and non-financial entities that make withholdable payments to non-U.S. entities will also need to assess their compliance activities or risk civil and criminal penalties.

Rather than perceiving accountants as number crunchers adept at reacting to past actions, taxpayers should look to their accountants throughout the calendar year and rely on their expertise, experience and ongoing counsel to guide them through a range of decisions, opportunities and challenges. Doing so can have significant long-term effects on taxes, business operations, investments and income.

The Tax Department at Berkowitz Pollack Brant provides year-round consultation, tax and estate-planning services to individuals and businesses both domestically and internationally.

About the Author: Kenneth J. Strauss CPA/PFS CFP is director of the Taxation and Personal Financial Planning practice of Berkowitz Pollack Brant. For more information, call (954) 712-7000 or email