Welcome to the show notes for my annual year-end tax show on December 23, 2012 at 11:00am Eastern Time. In all of my years of being on WSB radio (and I’m thinking it’s about 15 or so), I’ve never had a year where so much was left undone this close to the end of the year.
Our guests today:
Bill Nemeth: firstname.lastname@example.org
Cell Phone: 770-616-1638
Merry Brodie: email@example.com
Cell phone: 678-776-5405
Chet Burgess: ChetBurgess@brookwoodtax.com
As we discussed during the show, the IRS likes to send FINAL tax forms to the printer in November. And here we are, on December 23, 2012, and nothing is set in stone.
We saw President Obama and Speaker Boehner get together and start to come to an agreement to avoid the fiscal cliff, which one of my listeners last week called the “physical cliff,” but even an agreement there means weeks of creating rules and regulations and then implementing those changes into IRS tax code.
We know some things for sure, mostly because they were enacted last year or even 10 years ago:
- The Bush Tax Cuts are coming to an end.
- We’re all going to pay more in taxes. If you earn income, the payroll tax holiday is going way. If you earn $50,000, that’s another $1,000 that won’t be in your pocket when you get your pay. If you don’t earn any income but live off of capital gains, you’ll see an increase in capital gains taxes.
- If you get the Earned Income Tax CreditA Tax Credit is an amount by which tax owed is reduced directly. In other words, a dollar-for-dollar amount is subtracted directly from the taxes you owe. (EIC), that’s changing, too and you could lose as much as 50 percent of your benefit.
- Educators are losing the $250 deduction for supplies.
- The Affordable Care Act (ACA), which is also known as Obamacare, has some tax provisions going into effect January 1, 2013, that will directly affect your tax bill including the .09% MedicareMedicare is a program of Hospital Insurance (Part A) and Supplementary Medical Insurance (Part B) protection provided under the Social Security Act. income tax, that will hit singles with income over $200,000 and married couples with income over $250,000 (you might see a bigger tax bill in April, 2014 from this as dual income wage earners under the $200,000 threshhold (each) fail to have additional income withheld); There’s also the 3.8% additional tax on capital gains (include profits on the sale of your home over $250,000 for singles or $500,000 for married couples). These taxes together are supposed to pay for half of Obamacare.
- If you are getting a refund, it’s going to take longer to get, thanks to the epidemic of tax fraud. After paying out billions in fraudulent refunds, the IRS is undertaking new tax fraud filters, which will slow down your refund. Don’t expect the check to hit your account in 10 business days or less. It’s going to take longer.
- And for those of you who like to file on the day the IRS opens for business, you’re going to have to wait awhile longer. The IRS has already announced it won’t open for business until at least January 22, 2013 and possibly a lot later. In fact, Bill, Merry and Chet think likely that the IRS might just say, we’re not going to accept any tax returns until February, as everything needs to get sorted out. That could push tax return season from April 15 to June 15, with returns needing to be filed June 15.
Some words of caution: If you file using tax software, be sure to hit the update button frequently. It’s clear that as the IRS doesn’t have rules and regulations, neither do Intuit (makers of TurboTax) or any of the other tax software products. If you don’t hit update, and even if you do, there’s a distinct possibility that something will go haywire with your return. If that happens, and you miss something, expect to get a letter from the IRS, but don’t expect it to be accurate. Many of these letters are wrong and if you get one, take it to a tax professional to be sure you’re not being overcharged or wrongly charged.
SEARCHING FOR SOMETHING AT IRS.GOV
You’re going to need some help. Contact the IRS (www.irs.gov) for more information. You can search for publications in your favorite search engine. Just type in “irs.gov” and whatever you’re searching for, let’s say “Section 179.” That should pull up the IRS publication that deals with Section 179 deductions.
Here are some other notes from today’s show:
Marriage Penalty. If this doesn’t change, married couples can expect to pay a third more in taxes.
Alternative Minimum Tax (AMT): Patch hasn’t been passed. If it isn’t, about 30 million Americans will be affected. There are two levels: 26% and 28%. You’ll pay either your regular tax or the AMT, whichever is higher.
Tax Rates: Revert back to where they were under President Clinton. The 10% level is gone and the highest rate is 39.6%.
Deductions: Will be limited. There will be some limitations around things like the mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home. interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. deduction And, the PMI (private mortgage insurance) deduction has been eliminated.
Itemized Deduction Limitation: Doesn’t kick in until 2013.
Mortgage Forgiveness: If you go into foreclosureForeclosure is the legal action taken to extinguish a home owner's right and interest in a property, so that the property can be sold in a foreclosure sale to satisfy a debt. or complete a short sale before the end of 2012, good for you because after January 1, 2013, the deficiencies (portion of the mortgage that is forgiven by banks) will no longer be excluded from tax. This deficiency is like phantom income: it isn’t in your pocket, but the IRS treats it as though it were actual income and it can even push you into a higher tax bracketA Tax Bracket is a range of income which must pay a certain level of taxes. The higher your income, the higher your tax bracket, and the more tax you pay.. This could have a serious negative effect on home values and the economy in general if millions of families struggle to pay this off over 5 to 10 years.
Capital Gains Rate: For most people it is 15% in 2012 and going to go up to 20% next year for most people. High income earners will add another 2.8% onto the top tax rate.
Superstorm Sandy: If you live in an area that was directly affected by Hurricane Sandy, you may have extra time to file your return.
Earned Income Tax Credit: If you have up to 3 kids and you’re a single parent earning $20,000, you’d get a stipend from the government in 2012 for $6,000 plus if your kis are under 17, you might be eligible for another $3,000 in the child tax credits because you don’t have any taxable incomeTaxable Income is your gross earnings minus deductions and exclusions.. In 2013, the number of kids eligible will be 2 and the tax credit (now $1,000/child) drops back to $500 per child. This will be devastating to some families.
THINGS TO DO FOR 2013:
- Plan your taxes so you don’t have big refunds
- Early filers make sure you hit the update button so you’re using the latest version of your tax filing software.
- Accelerate income into 2012 and increase deductions next year. Pay less this year on more income and pay less next year on a small amount of income.
- Section 179 is going to change next year. There’s a 50% bonus depreciation on equipment purchased before the end of 2012.
- Good news for Georgia Seniors: The Georgia Retirement Exclusion is available for people disabled or age 62 and above. Increasing for 2013.
GEORGIA TAX COURT (GEORGIA TRIBUNAL)
Tax preparers and taxpayers should be happy that the Georgia legislature created a tax court so small businesses and individual taxpayers can get proper resolution of issues. Kicks in January 2, 2013.
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