Inside Guest Editor’s Column: March 2014

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Ortega_Christina_webWe have dangled off the edge of the fiscal cliff, pushed through the debt ceiling and withstood the government shutdown. We continue to survive drastic changes in the government and legal structures to which we have become accustomed. Of course now that we have survived, what does it all mean?

For many tax and legal professionals, we are used to tracking changes in the tax laws, and we plan for a variety of scenarios. Our clients are not accustomed to tracking these changes. Our clients have real-life concerns about how this affects their business, livelihood and planning for the future—they want to know what adjustments they should make. It is up to us to advise our clients of the current tax laws and assure them that we are prepared to make any necessary adjustments.

Wealthy individuals will feel the biggest squeeze this year with respect to income tax changes. The Bush-era tax cuts are a thing of the past, and a 39.6 percent tax rate will apply to individuals who earn over $400,000 ($450,000 for married filing jointly). All wages are subject to Medicare tax; however, now individual taxpayers who earn over $200,000 ($250,000 married filing jointly) will be charged a surtax of 0.9 percent of wages, compensation, and self-employment income over that amount.

Taxpayers may also be subject to Net Investment Income Tax (3.8 percent) if they have both net investment income and modified adjusted gross income of $200,000 for individuals, and $250,000 for married couples. The Pease Limitations[1] are back after being eliminated in 2010. This limitation reduces allowable itemized deductions by 3 percent of the amount by which adjusted gross income exceeds $254,200 for individuals, and $305,050 for married couples, for a maximum reduction of 80 percent.

Clients are currently required to have health insurance, but the shared responsibility payment, or penalty, depending on your perspective, will not be felt until tax returns for 2014 are filed. Taxpayers who do not have health insurance this year will be required to pay 1 percent of taxable income or a flat fee of $95 per adult and $47.50 per child, up to $285 for families. This flat fee increases to $325 in 2015 and $695 in 2016.[2]

In addition, the following key tax breaks have expired: Deduction for higher education tuition and related fees, tax-free treatment for forgiven mortgage debt, charitable donations from IRAs, $500 credit for energy-efficient home improvements, and $250 deduction for teacher-incurred school expenses.

The good news? We have a very diverse group of tax professionals in Contra Costa County, as evidenced by the articles in this issue, and you need look no further for guidance.

Inside this issue, Leslie Dawson provides us with tax/family law updates, some of which are the result of the recent U.S. Supreme Court and 9th Circuit decisions. Rita Holder provides an informative piece on QDRO procedures, tax implications and issues to look out for. Jenny Lin has submitted a very timely article regarding implementation of the new Foreign Account Tax Compliance Act (FATCA).

Mark Ericsson was brought in to do the heavy lifting with respect to some of the intricacies associated with net operating losses, a very important and complicated area of law. Scott Haislet is keeping us up to date on 1031 exchanges, a known target for FTB examinations now and in the past. Gregory Harper is attempting to push all of us tax practitioners into the 21st century with his article on technology. Finally, I hope you will enjoy my article, “Procedural Considerations for Submitting an OIC: Anderson v. Commissioner.”

I was very happy to receive such an overwhelming response from the Taxation Section members wanting to get involved and provide articles for this issue. Despite the recent tax law changes, I say with confidence that this Bar Association has you covered. I wish everyone a happy and successful tax season.


Christina Ortega is an attorney at Youngman & Ericsson, LLP. Christina has her LL.M. in Taxation and focuses her practice on tax controversy and tax collection. Christina’s practice also includes complex civil litigation, and business and tax planning. Christina is Chair of the Taxation Section.
cortega@youngman.com | (925) 930-6000 | http://youngman.com/attorney_cortega.html

Special thanks to Asaf Kletter, UC Hastings law student, for cite checking the tax articles in this edition. He can be reached at akletter@gmail.com or (650) 218-4873.


[1] Named after former Rep. Don Pease.
[2] A credit is available for qualified low-income taxpayers.

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