For the tax year 2013, there are a few changes that will affect the payroll taxes paid by everyone. The Social Security Administration has announced an increase to the taxable wage base for computing next year's Social Security tax, both for employees and employers, to $113,700 from $110,100. This $3,600 increase was determined by the overall increase in the national average wage base over the last year.

Perhaps one of the most impactful changes to employees in the next year is the expiration of the 2% tax break for Social Security taxes paid by the employee. As this temporary cut expires, employees will now pay 6.2% for Social Security taxes on the first $113,700 of gross wages. The standard Medicare tax (1.45%) continues to have an unlimited taxable base.

Finally, 2013 marks the first year for some of the tax provisions of the Patient Protection and Affordable Care Act (PAPCA).   Next year employees earning more than $200,000 of gross wages will see an additional 0.9% Medicare tax (1.45 + 0.9 = 2.35%) on those wages in excess of the $200,000 safe harbor mark. Those taxpayers filing married joint or married filing separate returns will have additional thresholds of $250,000 and $125,000 respectively. Employees falling into either of these two categories will want to let their employer know that they have reached this threshold so the additional withholding may occur to avoid the additional tax liability when filing annual Form 1040.

In December 2012, the newly elected President of Mexico is scheduled to take office. The new President has given his word to have a focus on Mexican taxes, which brings us to a few of the significant corporate income tax changes being considered that could potentially have an effect on U.S. companies that have entities located in Mexico.

Tax on cash flow - The tax on cash flow would replace the current realization based regime. The pro of this new approach is it would raise revenue for the government. The cons of this approach are it will not be welcomed by companies and it will cause higher tax prepayments. As a result of the implementation of the tax on cash flow, the current flat tax would be eliminated.

Elimination of the flat tax - Due to the potential implementation of the tax on cash flow, the flat tax would be eliminated and replaced by new taxes. The new taxes being considered are a wealth tax and a financial transactions tax (FTT) on gains from sales on the Mexican stock exchange.

Some additional tax considerations include a tax for small taxpayers with revenues fewer than 20 million Mexican pesos, which would be levied at 5 percent on gross revenues, and tax credits up to 30 percent of a company's salary payments and social security contributions creditable against the corporate income tax.

Mexico's corporate income tax has been a highly debated issue within the past few years; therefore the new elected President is considering continuing with the current 30 percent corporate income tax rate.

If some of the above tax considerations are adopted by the Mexican government they could have a significant impact on U.S. companies with operations in Mexico.

When S corporation shareholders contribute or loan money to the corporation, they establish what is known as basis in the corporation.  Basis is also increased and decreased for various items that are passed-through to the shareholder such as income and losses.  It is critical to accurately measure basis as losses passed-through to shareholders are only deductible to the extent of the shareholder's basis in the S corporation.  Therefore, if the shareholder's basis is zero, any losses passed-through to them are suspended until a future period when basis is re-established.

The Tax Court recently reached a favorable decision for shareholders of an S corporation who increased their basis in the corporation by contributing accounts receivable that had first been distributed to them from another S corporation.  This allowed them to immediately utilize operating losses passed-through to them which they otherwise would not have had the basis to do so. 

Although the IRS argued that the shareholders should not have been allowed to increase their basis because the transactions lacked substantial economic effect, the court held that because of the proper timing and recording of the transactions, and the fact that the shareholders position in each corporation had changed, the transactions had proper substantial economic effect, therefore allowing them to increase their basis.