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Dean's Column: Tax Season 2014: Training Tips, Traps and New Taxes

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Nevada Lawyer Magazine
“Despite continued low federal income tax rates for 2013 and beyond, there are tips and traps for the unwary that all federal income taxpayers should have on their radar screens.”
Dean’s Column
Service to the community is an essential part of each student’s experience at the William S. Boyd School of Law. As our thoughts turn to taxes in April, we are very proud that Boyd law students volunteer annually to bring precious federal tax refunds into our local Nevada communities; those refunds exponentially benefit working families, including many of our most vulnerable children and the many Nevada businesses where taxpayers spend these refunds. The law school’s Volunteer Income Tax Assistance (VITA) program, sponsored by the Financial Law Society, is a student-organized, managed and operated volunteer program. Students are certified by the IRS in income tax assistance and volunteer hundreds of hours helping countless taxpayers and their families prepare and file their federal income tax returns. The Law School’s VITA program received one of only two Rookie VITA Site awards, from the American Bar Association, in August 2012. Our faculty also shares its expertise with the community. Together with UNLV’s Lee Business School, and in partnership with Nevada Legal Services and Legal Aid of Southern Nevada, the law school co-hosted its first annual Tax Season Update on February 28, 2014. We look forward to continuing both of these outreach programs and to keeping students and faculty engaged with the local community, with respect to what Albert Einstein termed “[t]he hardest thing in the world to understand” – i.e., income taxes. Our February program highlighted many recent tax law changes, including cutbacks in some deductions, progressive Medicare taxes on compensation and a flat Medicare tax on net investment income above certain income thresholds. The following discussion summarizes a few of these updates. income taxpayers should have on their radar screens. First, the highest federal marginal income tax rate has increased. For calendar year 2013 and beyond, the highest federal marginal income tax rate is 39.6 percent for net taxable income over $457,600; this is an increase of less than 5 percent from 2012 rates. Ordinary income tax rates for 2013 and beyond range from 10 percent to 39.6 percent, therefore retaining and marginally enhancing our progressive income tax rate structure. Capital Gains Beginning in 2013, long-term capital gains are subject to a maximum tax rate of up to 20 percent for taxpayers in the highest marginal income tax bracket. For taxpayers with lower taxable incomes, long-term capital gains tax rates are 15 percent and even as low as zero percent for married, filing jointly, taxpayers who have 2014 net taxable incomes below $73,800. Progressive Medicare Tax Taxpayers’ aggregate salaries, compensation, self-employed income and certain nontaxable fringe benefits that exceed $250,000 for married filing jointly taxpayers ($200,000 for unmarried taxpayers) are subject to an additional 0.9 percent Medicare employee tax beginning in 2013 (the threshold is indexed for inflation annually). Employers are required to withhold this additional Medicare tax from compensation.
Tax Exemptions and Deductions
Personal and Dependency Exemptions Beginning in 2013, personal and dependency exemptions of $3,950 each are phased-out for higher income taxpayers (the phase-out threshold, which is indexed for inflation annually, begins at $305,050 of adjusted gross income for married, filing jointly, taxpayers in 2014) down to zero.
Tax Rates
Ordinary Income Despite continued low federal income tax rates for 2013 and beyond, there are tips and traps for the unwary that all federal
36 Nevada Lawyer April 2014
Deductions Taxpayers can reduce their income by certain allowable deductions. About 70 percent of all taxpayers use the standard deduction in lieu of itemizing their deductions, because the standard deduction is greater. Standard deduction amounts depend upon a taxpayer’s filing status and are indexed annually for inflation; for married, filing jointly, taxpayers, the standard deduction for 2014 is $12,400 ($6,200 for unmarried taxpayers). Itemized Deductions Beginning in 2013, total itemized deductions are reduced for higher-income individuals (the cut-back threshold, which is indexed for inflation annually, begins at $305,050 of adjusted gross income for married filing jointly taxpayers in 2014). Medical Expenses Medical expenses are an itemized deduction, but beginning in calendar year 2013, only medical expenses in excess of 10 percent of a taxpayer’s adjusted gross income are allowable as itemized deductions. For years prior to 2013, medical expenses that exceeded 7.5 percent of adjusted gross income could be deducted. The federal government has affirmatively stated that same-sex married couples should file their tax returns consistent with their marital status. Accordingly, the term “spouse,” as used in the federal income tax system, will apply to all legally married couples. Legal marital status for this purpose will be determined in the state where the marriage was celebrated rather than, if different, the state where the taxpayer resides. As much as we might like to postpone it, and regardless of whether or not we agree with Albert Einstein’s take on taxes, 2013 federal income tax returns must be filed or extended (with payment of any tax liability due) no later than April 15, 2014. A valid and timely filed extension will permit you to extend the date to file (but not pay) your 2013 tax return no later than October 15, 2014.
Bishop Gorman High School’s winning team. IN MEMORIAM
Roger B. Whomes passed away on January 28. Whomes was born April 6, 1955, in Fallon. He grew up in Nevada and attended college at UNR. Following his graduation, Whomes attended the Reno Police Academy. He received his juris doctorate from McGeorge School of Law in 1985. Upon graduating from law school, Whomes went to work for the Washoe County District Attorney’s office. He stayed at the DA’s office for nearly 18 years. While there, Whomes served as Chairman of the DUI Task Force and prosecuted more than 100 jury trials. He then worked in the Public Defender’s office for several years. He spent almost three years working at the Humbolt County District Attorney’s office in Winnemucca. He retired in January of this year. Whomes was 58 years old.
Marriage Matters
Due Dates
FRANCINE J. LIPMAN joined the faculty at the William S. Boyd School of Law in 2012, as a William S. Boyd Professor of Law. She is an elected member of the American Law Institute and the American College of Tax Counsel, an editor for the Tax Section of the American Bar Association and a CPA. Lipman’s J.D. is from the University of California-Davis, where she served as editorin-chief of the UC Davis Law Review and was a member of the Order of the Coif. Her LL.M. (Tax) is from New York University where she served as a Tax Law Review Scholar.
A team from Bishop Gorman High School took first place at the Nevada State High School Mock Trial competition. The competition took place on March 7 and 8 at the Regional Justice Center in Las Vegas. Competing for the title were teams from Reno, McQueen and North Valley high schools in northern Nevada and Bishop Gorman and Faith Lutheran (two teams) in the south. The winning team will head to the national competition in Madison, Wisconsin; it takes place May 8 - 10. Congratulations to the winning team.
News & Notes continued on page 38
April 2014
Nevada Lawyer 37

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