2013 has been a big year for taxes.  Earlier in the year, Congress passed legislation averting the so-called "fiscal cliff," and many of the "Obamacare" changes have taken effect, or are about to.  While few of us who watched the process would consider it Washington's finest hour, we now have answers to many of the questions that have made proactive planning so difficult over the past few years.  And now, with just 20 days left in 2013, it's time to review the "deals" the IRS is offering and start to plan.

Here are the highlights:

•  First, the Bush tax cuts are permanently extended for income up to $400,000 ($450,000 for joint filers).  Ordinary income above those thresholds is taxed at 39.6%, while qualified corporate dividends and long-term capital gains above those thresholds are taxed at 20%.

•  Next, the 2% payroll tax "holiday" of 2011-2012 is over.  This can mean over $2,000 in additional tax for those earning over $100,000 per year. 

•  Third, the Alternative Minimum Tax has finally been indexed for inflation.  This means Congress will no longer have to "patch" it every year to avoid entangling millions more taxpayers in its web.

•  Finally, the Medicare tax provisions of the Affordable Care Act, or "Obamacare," have taken effect.  This means an extra 0.9% tax on earned income above $250,000 and a 3.8% tax on investment income for taxpayers earning more than $200,000 ($250,000 for joint filers).

President Obama has called for slashing several more tax breaks, possibly including some sacred cows like mortgage interest.  However, after the recent government shutdown, there appears to be little appetite on Capitol Hill for further changes to the code.

With just 20 days left in until the “IRS Holiday Tax Sale” ends join us here to review some specific strategies for minimizing your tax under the new rules. 

The day to give "Thanks" is behind us and the holidays are in full swing. Millions of Americans are kicking off the season with “Black Friday” shopping. Braving the crowds and the cold, facing scorn from family they’ve left behind, they line up at obscenely early hours (or duck out of Thanksgiving dinner before the pumpkin pie is even served) to save $20 on a iPad or $40 on a flat-screen television.

It’s sad, but true, that most Americans spend more time planning their “Black Friday” shopping than they spend planning their taxes. But that can be an expensive mistake!

What if the IRS had a sale? What if the IRS let you discount your taxes by thousands of dollars, this year and every year to come? And what if they let you do it from the comfort of your home or your office, without lining up in the pre-dawn hours of a chilly November morning? Would you give thanks for a sale like that?

You’re probably not holding your breath for the scrooges at the IRS to hold a “sale.” The good news is, you don’t have to wait for that to happen. You just need a plan. Tax planning is the key to paying the legal minimum. And a good tax plan can pay for a holiday season full of gifts and fun.

Now is the season to find the mistakes and missed opportunities that may be costing you thousands. “Black Friday” tax planning before the year end can save thousands more off your taxes in the future. There are 31 days left for "Black Friday" tax planning. Contact us for ways to save on your taxes before the end of the year.

Don't want to be caught by the slashing machete of the IRS? Now is the time to put a plan in action so you will still be alive when the credits roll at the end of 2013. Time is ticking...

See how much time you have left here.

The Internal Revenue Service has modified its “first time abate” or (FTA) policy, which provides a one-time consideration of penalty relief, based on the taxpayer’s compliance history.

The FTA penalty relief option for failure to file, failure to pay and failure to deposit penalties, under certain conditions, does not apply if the taxpayer has not filed all returns and paid, or arranged to pay, all tax currently due. For example, the taxpayer is considered current if they have an open installment agreement and are current with their installment payments.

The FTA relief only applies to a single tax period for a taxpayer, and penalty relief under the first time abatement provision does not apply to returns with an event-based filing requirement.

Additionally the FTA relief does not apply to the following type returns if a previously filed return was late:

• Form 706 Estate tax Returns
• Form 709 Gift Tax Returns
• Form 1120 C-Corporation Returns
• Form 1120-S S-Corporation Returns

 
Feel free to contact us if you need assistance with a tax penalty abatement or proactive tax planning. 

Small business owners that are hearing a great deal about the cloud lately may not have all the facts when it comes to accounting in the cloud. Here is an infographic we created to outline the three major ways to take your accounting to the clouds.

In an attempt to reduce the administrative, recordkeeping, and compliance burdens of taxpayers, the IRS has offered a safe harbor method to compute the allowable deduction for the business-use portion of the home. The safe harbor method is effective for taxable years beginning on or after January 1, 2013. 

Under the safe harbor method, the taxpayer multiplies the allowable square footage of the home office by the prescribed rate of $5.00. The allowable square footage for business use cannot exceed 300 square feet; thus, the maximum allowable home office deduction under the safe harbor method is $1,500. The safe harbor deduction, cannot exceed the business income for the year reduced by business expenses unrelated to the dwelling unit. Any taxpayer using the safe harbor method may not carry over any disallowed safe harbor deductions to the next year.

Other Provisions

• The safe harbor method does not apply to any employee with a home office who receives advances, allowances, or reimbursements for expenses related to the business use of a home.
  
• Taxpayers may switch from the safe harbor method to actual expenses from year to year as many times as they wish.
• Taxpayers using the safe harbor method may deduct 100% of mortgage interest and real estate taxes on Schedule A, Itemized Deductions. However, if there is a rental portion, the taxpayer must allocate those expenses between Schedule E and Schedule A.
• When claiming actual expenses following a year for which the safe harbor method was used, multiply the remaining adjustable depreciable basis times the business- use percentage times the annual depreciation rate for the applicable year specified in the appropriate optional depreciation table.
• The calculation is based on whole business months. If business use begins during the year, a taxpayer takes the square footage times the number of business use months (minimum of 15 or more business days) divided by 12.
• Taxpayers sharing a home may each use the safe harbor method, but the same area (square footage) cannot be used twice.
• A taxpayer with qualified business use of more than one home for a taxable year may use the safe harbor method for only one home for that taxable year. The taxpayer may use actual expenses, if eligible, for the other home.
• A taxpayer using the same home office for more than one business must use the safe harbor method for each qualified business using that space if electing the safe harbor method. The taxpayer is limited to a maximum of 300 square feet. The taxpayer must allocate the square footage between the businesses in any reasonable manner.

It’s not time to stop thinking about taxes and strategic tax planning opportunities during the tax "off" season. Since the start of 2013, there have been many new federal tax developments, which will impact tax planning for this year and beyond. As 2013 unfolds, many changes made to the Tax Code by the American Taxpayer Relief Act of 2012 (ATRA) take effect. Additionally, there are new taxes to take into account because of the health care reform package, along with enhancements to many tax credits and deductions. Here is a brief review of the tax and health care provisions affecting taxpayers for 2013. 

Tax Provisions

• 7.5% floor for deducting medical and dental expenses climbs to 10% (for taxpayers age 65 or older, floor stays at 7.5% until 2016). 
  


• Healthcare flexible spending account contributions are capped at $2,500 per year. 
  


• Hike Medicare tax to 3.8% of earned income above $200,000 (individuals) or $250,000 (joint filers)
  


• Impose Medicare tax of 3.8% on “investment income” for filers with adjusted gross income above $200,000 (individuals) or $250,000 (joint filers)
  

Health Care Provisions


Limit deduction for health insurer’s executive compensation to $500,000


Now is a good time to revisit these developments and explore how they will affect your strategic tax plans. Planning today can help maximize your tax savings going forward. 

There will be a late start to the tax season for many taxpayers as we already know due to the fiscal cliff legislation that was past at the end of 2012. 

The IRS announced yesterday that it will begin accepting many of the tax returns that were affected by the last minute legislation by January 30th. There are however, additional forms that will need to be updated and for those taxpayers tax season may not start until late February or early March!

Want to know if you are one of the late filers???

You are if you have to file the following forms:

• Form 3800 General Business Credit
• Form 4136 Credit for Federal Tax Paid on Fuels
• Form 4562 Depreciation and Amortization (Including Information on Listed Property)
• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations
• Form 5695 Residential Energy Credits
• Form 5735 American Samoa Economic Development Credit 
• Form 5884 Work Opportunity Credit
• Form 6478 Credit for Alcohol Used as Fuel
• Form 6765 Credit for Increasing Research Activities
• Form 8396 Mortgage Interest Credit
• Form 8582 Passive Activity Loss Limitations
• Form 8820 Orphan Drug Credit
• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit
• Form 8839 Qualified Adoption Expenses
• Form 8844 Empowerment Zone and Renewal Community Employment Credit
• Form 8845 Indian Employment Credit
• Form 8859 District of Columbia First-Time Homebuyer Credit
• Form 8864 Biodiesel and Renewable Diesel Fuels Credit
• Form 8874 New Markets Credits
• Form 8900 Qualified Railroad Track Maintenance Credit
• Form 8903 Domestic Production Activities Deduction
• Form 8908 Energy Efficient Home Credit
• Form 8909 Energy Efficient Appliance Credit
• Form 8910 Alternative Motor Vehicle Credit
• Form 8911 Alternative Fuel Vehicle Refueling Property Credit
• Form 8912 Credit to Holders of Tax Credit Bonds
• Form 8923 Mine Rescue Team Training Credit
• Form 8932 Credit for Employer Differential Wage Payments
• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

Still unsure? Contact us.

Source: http://www.irs.gov/uac/Newsroom/List-of-IRS-forms-that-1040-filers-can-begin-filing-in-late-February-or-into-March-2013

The IRS Tax season is upon us. Listen to this brief podcast (boo) on what forms the IRS is accepting for E-file as of Jan. 7th. The filing season for personal taxpayers will still more than likely be delayed due to the fiscal cliff legislation. We will keep you posted. 

By now, of course, you've heard that Congress has passed legislation avoiding the tax increases of the Fiscal Cliff. Here are the highlights:

The Bush tax cuts are restored for income up to $400,000 ($450,000 for joint filers).  Rates for income above those ceilings rises to 39.6% for ordinary income.

Capital gains rate…or gains you earn from the sale of property that you’ve held for longer than a year increased to 20%. The key point here is that you don’t pay tax until you actually sell the property.

Next, are “qualified corporate dividends.”  The rate also is 20%

Corporate dividends are also subject to the new “Unearned Income Medicare Contribution” that goes into effect on January 1.

New rates on capital gains and qualified corporate dividends will make tax planning an even more important part of your overall financial planning.

Back in 2010, Washington cut the payroll tax by 2%, for one year, on the employee side. This meant a savings of up to $2,136 for someone earning at or above the Social Security wage base.

Earlier this year, Washington struggled to extend it through 2012. But as it stands now, that cut expires. And unfortunately, it looks like both sides are content to let that cut expire for good.

The Alternative Minimum Tax, or AMT, is a parallel tax designed to prevent “the rich” from using regular deductions to avoid tax entirely.

The Alternative Minimum Tax is finally indexed for inflation, meaning Washington won't need to "patch" it every year so about 33 million tax payers are safe.

Next, the estate tax…

The estate tax "unified credit" amount that you can bequeath tax-free remains at $5 million, indexed for inflation.  The actual rate rises from 35% to 40%.

The legislation also extends several popular tax breaks, like higher limits for business equipment expensing, deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts.

We realize you've already heard this news.  But we want you to know we'll be studying the new law in the coming weeks and months to look for every opportunity to help you save.  And of course, if you have any questions, don't hesitate to call us.