Tis the Season, at the end of the year, companies often celebrate the holidays by having office parties or giving gifts to their employees. The following are some general guidelines as to what is taxable and what is not.
Employers can give their employ- ees merchan- dise of nominal value - hams and turkeys, for example with no negative tax conse- quences. Such items t are de minirnis fringe benefits that don't have to be included in the taxable compensation of the recipients if making a gen- eral distribution is seen as a means of promoting goodwill.
In most situations, the tax law limits a company's deduction for business meal and entertainment expenses to 50% of the expenses. However, like the holiday gifts just described, an occasional party given for employees and their guests is also considered a de minirnis fringe benefit. The 50% deduction limitation does not apply.
Employers sometimes use a holiday get-together as an occasion to hand out achievement awards to . employees in recognition of length of service or safety. Again, the full cost of such awards w is deductible and their value need not be included in the employees' compensation if various tax law requirements are met. In general, the cost of all awards made to one employee during the year may not exceed $400. A higher $1,600 limit applies if the awards are made under a written plan or program that doesn't discriminate in favor of highly compensated employees as to eligibility or benefits.
U.S. Supreme Court Strikes Down DOMA
This past June, the U.S. Supreme Court struck down Section 3 of the Defense of Marriage Act (DOMA), thereby rendering many same-sex marriages legal for purposes of federal law. Same-sex married couples and their employers should carefully review the impact of this decision.
Income -tax Planning
Same-sex married persons must now file their federal income-tax returns as either "married filing jointly" or "married filing separately." Couples should be aware that the two filing statuses can have dramatically different effects on income-tax rates, as well as on numerous deductions, credits, thresholds, and phaseouts.
Additionally, same-sex married couples should consider whether they want to amend their prior returns to declare their status as married rather than "single" or "head of household." Generally, to claim a refund, taxpayers must file Form 1040X within three years from the due date of their original return or within two years from the date they paid the tax whichever is later.
Given the high current federal estate-and gift-tax exemption ($5.25 million in 2013), the DOMA decision will affect few same-sex married couples. Those who will be affected will want to review their estate plans. What will affect far more couples will be the newly available and highly favorable rules allowing spousal beneficiaries of individual retirement accounts to delay and "stretch out" required minimum distributions (RMDs).
Employee Benefit Plans
The DOMA ruling affects many aspects of employee benefits for same-sex spouses, including the rules for COBRA continuation, spousal consents, qualified joint and survivor annuities, and RMDs.
A business owner with no employees may set up a solo 401(k) retirement plan and make contributions to the plan as both the employee and the employer. On the employee side. elective deferrals for 2013 generally may not exceed $17,500. plus another $5,500 for an owner age 50 or older. On the employer side, contributions may be up to 25% of total compensation. For 2013, the combined employer and employee contribution cannot exceed $51,000, plus an additional $5,500 if the owner is 50 or older. A special computation is required to figure the contribution limits for a self-employed individual.
Interest on Series EE Bonds
Many parents purchase Series EE savings bonds in the names of themselves and their children. Often, the children discover the bonds years later and want to know what the bonds are worth. To help you find out how much interest the bonds have earned, the U.S. Treasury provides a calculator and redemption tables on its TreasuryDirect website (www.treasurydirect.gov).
The general information in this publication is not intended to be nor should it be treated as tax, legal, or accounting advice. Additional issues could exist that would affect the tax treatment of a specific transaction and, therefore, taxpayers should seek advice from an independent tax advisor based on their particular circumstances before acting on any information presented. This information is not intended to be nor can it be used by any taxpayer for the purpose of avoiding tax penalties.