SP Group, P.C.

For an individual, the tax will apply to the lesser of the taxpayer’s NII, or the amount of “modified” adjusted gross income (AGI with foreign income added back) above a specified threshold, which is $250,000 for married taxpayers filing jointly and a surviving spouse, $125,000 for married taxpayers filing separately, $200,000 for single and head of household taxpayers. The tax applies to the lesser of $30,000 or ($220,000 minus $200,000), the specified threshold for single taxpayers. Income from a Roth conversion is not net investment income, although the income will increase modified AGI, which may put other income in danger of being subject to the 3.8 percent tax. A trust’s NII will be taxed at a low threshold (less than $12,000), while the income received by a beneficiary is taxed only if the much higher $200,000/$250,000 thresholds are exceeded.

2012 year-end legislation clearly plays a major role in 2012 year-end tax planning for many taxpayers. Some taxpayers who are close to the amount of their standard deduction amount may want to load deductions into a single year, say 2013, so they have enough to itemize deductions for that year, while still be entitled to the maximum amount of their standard deduction into an adjacent year (2012 in our example). In connection with medical expenses, and particularly relevant to 2012 year-end planning, is the increase in the floor on deductible medical expenses from 7.5 percent adjusted gross income (AGI) in 2012 to 10 percent AGI in 2013 (7.5 percent for those who reach 65 years of age by the close of the tax year). A gift of $13,000 on December 31, 2012 and a $14,000 gift on January 1, 2013, for example, amount to a $27,000 tax-free gift; while a $27,000 gift all on January 1, 2013 will subject $13,000 of that gift to potential gift tax.

In an employer-operated van pool, the employer either purchases or leases vans to enable employees to commute together to the employer’s place of business or the employer contracts with and pays a third party to provide the vans and pays some or all of the costs of operating the vans. Private or public transit operated van pool is when a private or public transit operated van pool, public transit authorities or a person in the business of transporting persons for compensation or hire owns or operates the van pool. Additionally, at least 80 percent of the mileage use can reasonably be expected to be for transporting employees between their residences and their place of employment or used on trips during which the number of employees transported for such purposes is at least 50 percent of the adult seating capacity (not including the driver.) Rather, the 80/50 rule requires that riders in the van pool fill at least 50 percent of the adult seating capacity, not including the driver.

The IRS must release a tax lien if the IRS determines that the tax liability has been paid or is legally unenforceable. The IRS may issue a certificate of subordination to a federal tax lien. Generally, IRS guidelines instruct that the agency must exercise good judgment in weighing the risks and deciding whether to issue a certificate of subordination and subordinate a federal tax lien. Please contact our office if you have any questions about subordination of a federal tax lien or federal tax liens in general.