1099 RELIEF ON MISCLASSIFIED WORKERS

The IRS is temporarily easing the 1099 rules. From now until June 30, 2013, firms that haven’t filed all the 1099s on misclassified workers for the past three years can sign up. The businesses will owe a slightly higher penalty and will have to pay a modest fine for failing to timely file 1099 forms on the workers.  Announcement 2012-46 has all the rules, plus a worksheet to compute the penalties. 

IRA CHARITABLE ROLLOVER

If you are over age 70 1/2, you can save on last year's taxes by giving directly from your IRA this January.

In the 2012 Taxpayer Relief Act, there is a provision that is retroactive.

How? With an Individual Retirement Account "IRA" Charitable Rollover, also called a "qualified charitable distribution."

What is an IRA Charitable Rollover? An IRA Charitable Rollover is a direct transfer of up to $100,000 from your traditional IRA to a qualified charity.

Who is eligible to make an IRA Charitable Rollover? Traditional IRA owners who are at least 70 1/2 years old.

How does an IRA Charitable Rollover benefit me? Because the donation is made directly to charity, you benefit by not having to count the donated amount as income for tax purposes - this can be particularly helpful in excluding all or part of your required minimum distribution.

What if I already took my required distribution this year? If you received a distribution between December 1, 2013 and December 31, 2012, you may donate all or part of that distribution by writing a check to your desired charity by February 1, 2013 and that donation will count as an IRA Charitable Rollover for 2012.

How long do I have to act? You are allowed to make an IRA Charitable Rollover before February 1, 2013 and have it apply to your 2012 taxes. You are also eligible to make an IRA Charitable Rollover for your 2013 taxes any time throughout 2013.

How do I make an IRA Charitable Rollover? Instruct your IRA trustee to make the contribution directly to your designated charity before February 1, 2013.

Contact us if you need further information.

IRS WILL BEGIN 2013 FILING SEASON AND PROCESSING OF INDIVIDUAL RETURNS ON JANUARY 30

If you are expecting a refund you will have to wait a little longer this year. The IRS has announced that it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30, 2013. The announcement follows on the heels of the enactment of the American Taxpayer Relief Act of 2012 (the 2012 Taxpayer Relief Act) on Jan. 2, 2013, which, apart from permanently extending the Bush-era tax cuts for most taxpayers and increasing the income tax rates for some high-income individuals for 2013 and later years, retroactively restored many deductions and credits and patched the alternative minimum tax for 2012. IRS will begin accepting tax returns only after updating forms and completing programming and testing of its processing systems to reflect these retroactive changes. IR 2013-2

It appears we are going to file returns later than normal. The following is a list of forms that the IRS will not accept until late February or March. Depreciation is on this list, so this will impact a lot of our clients.

Note that depreciation schedule is on the list.

• 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

PAYROLL TAX INCREASES MAY SPOIL THE PARTY

I warned you this was coming.

Despite the federal tax relief for taxpayers passed at the last minute, or actually after the last minute, payroll tax increases may spoil the party. As we have been warning you, the payroll tax reduction of 2% on employees that has been in place for 2011 and 2012 was allowed to expire on December 31^st.

Lawmakers did not renew the two-percentage-point cut in the employees’ share of the Social Security tax. They did not like the idea that government funding was required to make up the decrease in tax revenue for the Social Security trust fund. As a result, they decided to let this break lapse. Thus, employees will see smaller paychecks as the rate returns to normal.

So the result of all of this…Since the cliff bill was passed the federal tax withholding stayed the same as in 2012 instead of going up, but since the 2% withholding of Social Security went up people will see 2% less in their 2013 paychecks.

UNREPORTED INCOME

Over the years I have had clients say to me "My records are a mess on purpose." "If the IRS ever audits me it will be up to them to figure it out." Unfortunately that is not how it works. If you don't have good records the IRS has the power to "reconstruct" your income.

Taxpayers are required to maintain books and records sufficient to establish the amount of their gross income, and if they fail to do so, the IRS is entitled to reconstruct their income through the use of any reasonable method.

In one recent case, the taxpayer was a licensed massage therapist who failed to file federal income tax returns for several years, dealt primarily in cash, and refused to cooperate in the examination. The IRS reconstructed her income for one year (1997) based on a credit application she submitted to JP Morgan-Chase Bank. Because taxpayer "did not produce any evidence beyond self-serving testimony that [the IRS's] income determinations were incorrect," the Tax Court sustained the IRS's income determination for 2007. Carol Trescott , TC Memo 2012-321 (Tax Ct.).

CREDIT CARD RECEIPTS

Q: I was wondering if you could tell me how long you are suppose to keep credit card statements having to do with customers?  Thanks for your help!

A: Greetings.  Regarding your credit card receipts from customers, I presume you are thinking of your copy of the receipt that you give to them.  In actuality that information is in the system so if you are worried about the IRS they most likely are not going to look at the receipts so you can get rid of them.  If you wanted to be safe… 3 years would take care of you.

Another reason to keep them three years is if in the future there might be employee theft. The receipts could be used to show that they do not tie back to an altered entry in the computer.

Watch for our upcoming Red Flag webinar that we will be putting on in the next month or so as this topic will be in the webinar.

KOPSA OTTE ON THE FISCAL CLIFF

By now you’ve heard that Congress has passed legislation avoiding the tax increases of the “fiscal cliff.” In actuality it is more like a bungee jump off the cliff, because they dealt with the tax increase aspects of the cliff but not the deficit problem.  So, like a bungee jumper, they have hit the first bottom and now are back at the top ready to propel back down for the second half of the cliff. Few of us who watched the process would consider it Washington’s finest hour, but we finally have answers to the questions that have made proactive tax planning so difficult.

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 rise to 39.6% for ordinary income and 20% for qualified corporate dividends and long-term capital gains. (There actually are six different capital gains rates, but more on that at a later time.)
• The Alternative Minimum Tax is finally indexed for inflation retroactive to January 1, 2012, meaning Washington won’t need to “patch” it every year.
• 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 2% payroll tax holiday has expired, most likely for good.
• The higher expensing of equipment has been increased to $500,000 for both 2012 and 2013.  In addition, the 50% write off of new qualified business purchases in place for 2012 has been extended through 2013.

The legislation also extends several popular tax breaks like deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts and several others that have been reported on by the news organizations.

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 or email us.