January 2013 News Letter

Hello Clients and Friends,

I’d like to tell you a little bit about some new tax issues for year 2012 & 2013 tax years:

Late legislation by Congress

As you probably already know congress made some late decisions this year for tax years 2012 and forward.  These changes did not occur till January 2013.  Due to this there has been a number of late form changes, tax software changes and delays for IRS accepting tax returns.    

As of 2/25/2013 the IRS is still not accepting tax returns that are required to file certain forms.  The list of forms is being updated frequently.  The software programs will tell you each time you install new software updates.  You can also see the list at www.irs.gov.

Remember that Corporation tax returns are due March 15^th, earlier than individual tax returns.  If you have a corporation and you are not ready to file soon you may file an extension.  Use form #7004 for corporations, including LLC’s that have elected S-Corporation status.  Also please remember that an extension is only to extend your time to file.

If you owe money you need to send it in with the extension or you may owe interest and penalties.  The extension does not extend the TIME to PAY. 

Please call me if you would like me to file an extension for you. 

I will need your W-2’s and estimates of tax paid in to the IRS for year 2012 to prepare an individual extension for you.  If you don’t have any of your documents but you think you may owe tax we can estimate the amount.  Or you can send in as much as you can afford at the time.  That is better than doing nothing.

The deadline for filing the payroll reports W-2, W-3, 1099 and 1096 transmittals is Feb. 28^th. 

You may have noticed is that the employees share of Social Security (SS) tax went back up to 6.2 % for earnings less than the SS tax limit of $110,100.00 for year 2012.  The limit for year 2013 is now $113,700.00. 

This means that everyone is getting a smaller paycheck, due to this increase in tax.

For year 2013 the threshold for deducting medical expenses is going up to 10% of Adjusted Gross Income (AGI) for taxpayers under age 65.  This is a new one! 

If you don’t think you will have enough don’t waste your time adding it all up because it won’t get you any tax benefit. 

That amount has been 7.5% ever since I can remember.  This means that less people will be able to get a tax benefit for their medical expenses.  

The maximum 401K contribution limit for this year 2013 is $17,500.00.  Up from $17,000.00 for year 2012. 

The IRA contribution limit for year 2013 is now $5,500.00 for everybody born after 1963.  Anyone born in 1963 or earlier can contribute an extra $1,000.00.  There are still rules and limitations on this deduction depending on your income and if you (or your spouse) have another retirement plan. 

The Business Standard Mileage Rate (SMR) for year 2012 is $.555 per mile. 

The 2013 Standard Mileage Rate (SMR) for business miles is now $.565 or 56.5 cents per mile.

The rate for medical and moving mileage expense is now 24 cents a mile. 

The charitable mileage rate expense deduction remains at 14 cents per mile, the same as previous years.

Most of the late negotiation was over the Bush Tax Cuts that were set to expire at the end of 2012.  These tax cuts affect mostly higher income taxpayers, Alternative Minimum Tax, Estate and Gift Tax exemptions. 

We will also see higher tax rates of 39.6% again for the first time since 1993.  This rate now applies to taxable income over $400,000 for singles, $425,000 for heads of household and $450,000 for married filing jointly. 

There are also a number of lapsed business tax breaks that have been continued such as:  The Research & Development tax credit.

The work opportunity credit for hiring disadvantaged workers.  This includes a lot of unemployed people so check into it if you are hiring!  You will need a certification form from the organization or group that you hired them from.  You have limited time to get the form, so don’t delay if you hire someone from one of these groups!

We still have the advantage of taking 15 year depreciation on restaurant renovations and leasehold improvements.  These and a few more provisions were reinstated by Congress retroactively for years 2012 and 2013. 

Congress also restored a set of tax breaks for individuals.  This includes the income tax exclusion of up to $2 million of forgiven home mortgage debt.  

Cancellation of Debt form 1099 A or C: 

This could be taxable income to the recipient, depending on what kind of debt was cancelled.  If you had a foreclosure of your primary residence then that kind of debt forgiveness is usually not taxed, but you do need to report the transaction.  If you get those forms please keep them. 

We still have the American Opportunity Tax Credit for qualifying college expenses. 

We still have the Child Tax Credit.  Remember this credit goes away the year the child turns 17.

The late legislation regarding IRA transfers directly to a charity caused some confusing problems for folks over age 70 ½ who wanted to donate money directly to a charity.  Normally you have till the end of December to take your minimum required distribution (MRD) or do a direct transfer to the charity. 

Since Congress did not finalize this tax provision till sometime in January of this year this is not easy to apply retroactively.  A lot of folks already had to take the distribution not knowing if they could just transfer it directly.

Therefore payouts received by IRA owners in December 2012 can still qualify for this special tax treatment if they transferred directly to a charity before Feb. 1, 2013.

Also they can elect to treat direct transfers made in January 2013 as if the transfers were made in year 2012.

Self-Employed Health Insurance Change

Older taxpayers who are self-employed and receive Medicare will still get an additional deduction for the amount of premiums paid for parts B & D of Medicare on the front of form 1040.  This will now be deductible as self-employed health insurance. 

This deduction/adjustment from gross income to arrive at adjusted gross income is a good deal!  Previously these deductions were only allowed on schedule A as a medical expense subject to limitations.   Many taxpayers were not able to get a tax benefit from the deduction at all.   

This deduction will also apply to S-Corporation owner/ employees only if the corporation pays the premiums.   This is also retroactive so it will probably be worth amending some prior years’ tax returns if this applies to you. 

Standard Business Deduction Rates

The per diem rates for year 2012 will be:  $177.00 for lodging and $65.00 for meals & incidental expenses per day for HIGH cost areas.  $111.00 and $52.00 per day for other localities. The rates change every Oct 1^st due to the fiscal year of the government.

Exemptions for 2012

The personal exemption for year 2012 went up to $3,900.00 per person.  Unfortunately this deduction is phased out once again for high income tax payers.

The total itemized deduction amount will also be phased out for the same. 

The AMT exemptions are going up for year 2013.  They go to $80,750.00 for married couples and $51,900.00 for singles.   Personal tax credits, such as those for education and dependent care, will continue to offset alternative minimum tax liability (AMT).

Year-end reminders: 

If you are using your personal vehicle for business please remember to write down your odometer reading periodically and at year end.    You will need this information later for your taxes. 

Estimated Tax Payments:  If you are, or should be, making E.S. tax payments you should have paid the last one for year 2012 in Jan. 2013 the next one for this year 2013 is due April 15, 2013 along with any tax you still owe for year 2012.

You should have the coupons with your prior year (2011) tax information.  If you don’t have the coupons, or you have never made these payments before you can get the coupons from the IRS web site:  http://www.irs.gov/

Look for Form 1040 ES for year 2013 and follow the instructions.  If you have no idea how much you owe try to estimate it the best you can.  Or you call me or whoever did your taxes last year.

 If you still have no idea of how much you should pay please send in as much as you can afford, as soon as you can because you will probably owe more!