|January 10||Employees - who work for tips. If you received $20 or more in tips during December, report them to your employer. You can use Form 4070, Employee’s Report of Tips to Employer.|
|January 15||Employers - Social Security, Medicare, and withheld income tax. If the monthly deposit rule applies, deposit the tax for payments in December 2012.
Individuals - Make a payment of your estimated tax for 2012 if you did not pay your income tax for the year through withholding (or did not pay in enough tax that way). Use Form 1040-ES. This is the final installment date for 2012 estimated tax. However, you do not have to make this payment if you file your 2012 return (Form 1040) and pay any tax due by January 31, 2013.
Employers - Nonpayroll Withholding. If the monthly deposit rule applies, deposit the tax for payments in December 2012.
Farmers and Fishermen - Pay your estimated tax for 2012 using Form 1040-ES. You have until April 15 to file your 2012 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2012 return and pay any tax due by March 1, 2013, to avoid an estimated tax penalty.
|January 31||Employers - Give your employees their copies of Form W-2 for 2012 by January 31, 2013. If an employee agreed to receive Form W-2 electronically, post it on a website accessible to the employee and notify the employee of the posting by January 31.
Businesses - Give annual information statements to recipients of 1099 payments made during 2012.
Employers - Federal unemployment tax. File Form 940 for 2012. If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you already deposited the tax for the year in full and on time, you have until February 11 to file the return.
Employers - Social Security, Medicare, and withheld income tax. File Form 941 for the fourth quarter of 2012. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 11 to file the return.
Employers - Nonpayroll taxes. File Form 945 to report income tax withheld for 2012 on all nonpayroll items, including backup withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 11 to file the return.
Individuals - who must make estimated tax payments. If you did not pay your last installment of estimated tax by January 15, you may choose (but are not required) to file your income tax return (Form 1040) for 2012. Filing your return and paying any tax due by January 31 prevents any penalty for late payment of last installment.
Payers of Gambling Winnings - If you either paid reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of Form W-2G.
Certain Small Employers - File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2012. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more from 2012 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return.
Don’t Fall for Phony IRS Websites
The Internal Revenue Service is issuing a warning about a new tax scam that uses a website that mimics the IRS e-Services online registration page.
The actual IRS e-Services page offers web-based products for tax preparers, not the general public. The phony web page looks almost identical to the real one. The IRS gets many reports of fake websites like this. Criminals use these sites to lure people into providing personal and financial information that may be used to steal the victim’s money or identity.
The address of the official IRS website is www.irs.gov. Don’t be misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov.
If you find a suspicious website that claims to be the IRS, send the site’s URL by email to email@example.com. Use the subject line, ‘Suspicious website’.
Be aware that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.
If you have any questions, don’t hesitate to contact us and be sure to report any unsolicited email that appears to be from the IRS by sending it to firstname.lastname@example.org.
IRS Announces 2013 Standard Mileage Rates
- 56.5 cents per mile for business miles driven
- 24 cents per mile driven for medical or moving purposes
- 14 cents per mile driven in service of charitable organizations
The standard mileage rate are based on an annual study of the fixed and variable costs of operating an automobile.
Let us know if you have questions about which driving activities you should monitor as tax year 2013 begins.
1099s: 5 Key Reporting Changes for Businesses
Overall, the IRS found that compliance is highest where there is third-party information reporting (1099 forms used to report taxable income earned that is not considered salary and wages) and/or withholding (W-2 forms). In the case of W-2 forms, the IRS found that a net of only 1% of wage and salary income was misreported; however, amounts subject to little or no information reporting had a 56 percent net misreporting rate in 2006.
In an effort to close that tax gap, the IRS has changed some reporting requirements for 1099s for tax year 2012. Here are some of those key changes:
1. 1099-MISC. Starting in 2012, compensation of $600 or more paid in a calendar year to an H-2A visa agricultural worker who did not give you a valid taxpayer identification number must be reported on 1099-MISC. You must also withhold federal income tax under the backup withholding rules. However, if the worker does furnish a valid taxpayer identification number, then report the payments on Form W-2.
2. 1099-B. New boxes have been added to Form 1099-B for reporting the stock or other symbol (box 1d), quantity sold (box 1e), whether basis is being reported to the IRS (box 6b), and state income tax withheld (boxes 13-15). Other boxes on the form have been moved or renumbered. In addition, brokers must report on Form 1099-B sales of covered securities by an S corporation if the S corporation acquired the covered securities after 2011.
3. 1099-C. The titles for boxes 1, 2, and 6 on Form 1099-C have changed. Box 1 is now Date of Identifiable Event; box 2 is now Amount of Debt Discharged; and box 6 is now Identifiable Event Code, and requires the entry of a code for the identifiable event. See Box 6–Identifiable Event Code. For 2012, all codes are optional except for Code A–Bankruptcy.
4. 1099-DIV. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are now reported on Form 1099-DIV and are no longer reported on Form 1099-INT, Interest Income. Also, boxes 12 through 14 have been added to Form 1099-DIV to report state income tax withheld.
5. 1099-INT. Exempt-interest dividends from a mutual fund or other regulated investment company (RIC) are no longer reported on Form 1099-INT. Instead, those amounts are reported on Form 1099-DIV, Dividends and Distributions. In addition, boxes 11 through 13 have been added to Form 1099-INT to report state income tax withheld.
If you need help with 1099s this year, don’t hesitate to give us a ring. We’re happy to help you out.
The Fiscal Cliff Deal: What It Means for You
By now, everyone has heard about the “fiscal cliff” bill signed into law on January 2, 2013, but what you might not understand is how it affects you. With that in mind, let’s take a closer look.
What is the “Fiscal Cliff”?
The term “fiscal cliff” refers to the $503 billion in federal tax increases and $200 billion in spending cuts (according to recent Congressional Budget Office projections) that took effect at the end of 2012 and beginning of 2013–before Congress passed ATRA. It is the abruptness of these measures and possible negative economic impacts such as an increase in unemployment and a recession that has resulted in the use of the metaphor “fiscal cliff”.
What Could Have Happened?
According to the Tax Policy Center the arrival of the fiscal cliff would have meant that nearly 90% of all households would see their taxes rise. The top 20 percent of Americans would see their effective tax rate rise about 5.8 percentage points on average, while the bottom 20 percent of Americans would see their tax rate rise about 3.7 percentage points as a result of the Bush-era tax cuts to income, estate, and capital gains tax.
Further, in addition to a rise in tax rates, middle class and the lower-income working families are affected by the fiscal cliff in other ways–among them child-related credits and deductions for dependent care and education, and the EITC.
What Actually Happened: The “Fiscal Cliff” Deal
On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, which President Obama signed into law the following day. The “fiscal cliff” bill, as it’s referred to, extended a number of tax provisions that expired in 2011 and 2012, as well as increasing taxes on higher income individuals.
All Wage Earners
Personal tax rate. Marginal tax rates remained the same for most taxpayers (10%, 15%, 25%, 28%, 33%, and 35%) except for those taxpayers with taxable income greater than $400,000 (single filers) or $450,000 for married filers, whose rate increased to 39.6%.
Payroll taxes. The payroll tax holiday expired at the end of 2012 and was not extended. This means that you’ll see 6.2% taken out of your paycheck for Social Security for the first $113,700 in wages for 2013 instead of 4.2%. For the average family making $50,000 a year, this amounts to $1,000 less in their pocket. The self-employed tax rate reverts to 15.3% up from 13.3% in 2012.
Unemployment Insurance. Federally funded unemployment insurance (UI) benefits, scheduled to end on December 29, 2012, were extended for another year, through December 29, 2013.
Middle Income Families
Child-Related Tax Credits. Child-related tax credits, used by families to offset their tax burden, have been extended under ATRA. The child tax credit remains at $1,000 and is still refundable. It is phased out for married couples who earn over $110,000 and single filers who earn more than $75,000. The dependent care tax credit is equal to 35% of the first $3,000 ($6,000 for two or more) of eligible expenses for one qualifying child.
Education. The American Opportunity Tax Credit, which was scheduled to revert to the Hope Credit ($1,500), has been extended through 2017. The credit is used to offset education expenses and is worth up to $2,500.
EITC. The EITC or Earned Income Tax Credit, which benefits low to middle income working families, is extended for five years through the end of 2017. In 2013 the maximum credit is $6,044.
Higher Income Earners
AMT. The AMT (Alternative Minimum Tax) “patch” (exemption amounts) was made permanent and indexed for inflation for tax years beginning in 2013 and made retroactive for 2012. In addition, nonrefundable personal credits can be used to offset AMT liability. For 2013, the exemption amounts are $80,800 ($78,750 in 2012) for married taxpayers filing jointly and $51,900 ($50,600 in 2012) for single filers.
Marriage Penalty. The larger standard deduction for married couples filing joint tax returns is retained ($12,200 in 2013) as is the increased size of the 15% income tax bracket. Generally, each spouse would need to earn income in excess of $80,000 (with no itemized deductions) in order to be hit with the marriage penalty; however, the higher your income, the harder you get hit with the penalty. Despite this, it usually makes more sense to file joint tax returns and not married filing separately. If you’re not sure which filing status to use, give us a call.
Long Term Capital Gains and Dividends. For retirees (and others) whose investment income is at or above $400,000 (single filers) or $450,000 (married filing jointly), long term capital gains and dividends are both taxed at 20%. However, taxpayers in the lower brackets (10% and 15%) however, the tax rate is zero. For middle tax brackets, long-term capital gains and dividends are taxed at 15%.
Even if that dividend income is part of an IRA or other retirement plan (and not in and of itself subject to taxes), retirees in the highest tax bracket ($400,000 for single filers) will still be affected by higher income tax rates in 2013 of 39.6%.
Estate and Gift Taxes. The exclusion for a decedent’s estate is $5,250,000 (adjusted for inflation) and the top tax rate increases to 40% for taxpayers with income of $400,000 ($450,000 married filing jointly). The “portability” election of exemptions between spouses remains in effect for decedents dying after 2012. The gift tax is increased to $14,000.
Pease amendment and PEP. The Pease amendment, which enabled wealthier taxpayers to get the full value of their itemized deductions, expired in 2012. As a result, taxpayers with incomes of $250,000 $300,000 married filing jointly) will see higher taxes, especially when taking into account higher personal tax rates, Medicare tax increases (see Higher Income Earners above), and the return of the personal exemption phaseout (PEP) provision in 2013 as well. Threshold amounts for PEP are $250,000 for single filers and $300,000 married filing jointly.
If you have questions or need help understanding how the fiscal cliff impacts you, don’t hesitate to give us a call. We’ll help you figure it out and plan ahead for the future.
For 2013, the big news is the signing of the American Taxpayer Relief Act of 2012 (ATRA), which modified, made permanent or extended a number of tax provisions that expired in 2012 and 2011, for both individuals and businesses. Standard mileage, health savings account contribution limits, and foreign earned income exclusion, as well as most retirement contribution limits have been adjusted upward to reflect inflation as well.
Alternative Minimum Tax (AMT)
Exemption amounts for the AMT are now permanent and indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2013 the exemption amounts are $51,900 for individuals ($50,600 in 2012) and $80,800 for married couples filing jointly ($78,750 in 2012).
For taxable years beginning in 2013, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,000 (up from $950 in 2012). The same $1,000 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax”. For example, one of the requirements for the parental election is that a child’s gross income for 2013 must be more than $1,000 but less than $10,000.
For 2013, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,000.
Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.
A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.
For calendar year 2013, a qualifying HDHP must have a deductible of at least $1,250 (up $50 from 2012) for self-only coverage or $2,500 (up $100 from 2012) for family coverage (unchanged from 2011) and must limit annual out-of-pocket expenses of the beneficiary to $6,250 for self-only coverage (up $200 from 2012) and $12,500 for family coverage (up $400 from 2012).
Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2013, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,150 (up $50 from 2012) and not more than $3,200 (up $50 from 2012), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,300 (up $100 from 2012).
Family coverage. For taxable years beginning in 2013, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,300 (up $100 from 2012) and not more than $6,450 (up $150 from 2012), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $7,850 (up $200 from 2012).
Increased AGI Limit for Deductible Medical Expenses
Starting in 2013, the deduction threshold increases from 7.5% to 10% of adjusted gross income (AGI). However, if either you or your spouse will be age 65 or older as of December 31, 2013, the new 10% of AGI threshold will not take effect until 2017. In other words, the 7.5% threshold continues to apply for tax years 2013 to 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2014, 2015, or 2016, the 7.5% of AGI threshold applies for that year through 2016 as well. Starting in 2017, the 10% of AGI threshold applies to everyone.
Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or less at the end of 2013, the limitation is $360. Persons over 40 but less than 50 can deduct $680. Those over age 50 but not more than 60 can deduct $1,360, while individuals over age 60 but younger than 70 can deduct $3,640. The maximum deduction $4,550 and applies to anyone over the age of 70.
Starting in 2013, there will be an additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly). Also starting in 2013, there is a new Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (MAGI) over $200,000 ($250,00 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.
Foreign Earned Income Exclusion
For taxable years beginning in 2012, the foreign earned income exclusion amount is $97,600, up from $95,100 in 2012.
Long-Term Capital Gains and Dividends
In 2013 tax rates on capital gains and dividends for taxpayers whose income is at or below $400,000 ($450,000 married filing jointly) remain the same as 2012 rates. As such, for taxpayers in the lower tax brackets (10% and 15%), the rate remains 0%. For taxpayers in the middle tax brackets, the rate is 15%. An individual taxpayer whose income is at or above $400,000 ($450,000 married filing jointly), the rate for both capital gains and dividends is capped at 20% (up from 15% in 2012).
Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) is permanently extended for taxable years beginning after December 31, 2012 for taxpayers with income at or below $250,000 for single filers) and $300,000 for married filing jointly. The PEP (personal exemption phase-out) limitations was also reinstated, but with higher thresholds of $250,000 for single filers and $300,000 for married taxpayers filing joint tax returns.
Estate and Gift Taxes
For an estate of any decedent during calendar year 2013, the basic exclusion amount is $5,250,000 indexed for inflation (up from $5,120,000 2012). The maximum tax rate rises to 40% (up from 35% in 2012). The annual exclusion for gifts increases to $14,000 (up from $13,000 in 2012).
Individuals – Tax Credits
In 2013, a non-refundable (only those individuals with tax liability will benefit) credit of up to $10,000 is available for qualified adoption expenses for each eligible child.
Earned Income Tax Credit
For tax year 2013, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,044, up from $5,891 in 2012. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.
Child Tax Credit
For tax year 2013, the child tax credit is $1,000 per child.
Child and Dependent Care Credit
The child and dependent care tax credit was permanently extended for taxable years beginning in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Individuals – Education
American Opportunity Tax Credit and Lifetime Learning Credits
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) is extended to the end of 2017. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000.
Interest on Educational Loans
Starting in 2013, the $2,500 maximum deduction for interest paid on student loans is repealed and no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers.
Tuition and Related Expenses Deduction
In 2013, there is once again an above-the-line deduction of up to $4,000 for qualified tuition expenses. This means that qualified tuition payments can directly reduce the amount of taxable income, and you don’t have to itemize to claim this deduction. However, this option can’t be used with other education tax breaks, such as the American Opportunity Tax Credit, and the amount available is phased out for higher-income taxpayers.
Individuals – Retirement
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is increased from $17,000 to $17,500. Contribution limits for SIMPLE plans increase from $11,500 to $12,000. The maximum compensation used to determine contributions increases to $255,000 (up $5,000 from 2012 levels).
Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified adjusted gross income (AGI) between $59,000 and $69,000, up from $58,000 and $68,000 in 2012.
For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $95,000 to $115,000, up from $92,000 to $112,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $178,000 and $188,000, up from $173,000 and $183,000.
The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $178,000 to $188,000 for married couples filing jointly, up from $173,000 to $183,000 in 2012. For singles and heads of household, the income phase-out range is $112,000 to $127,000, up from $110,000 to $125,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.
The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012; $44,250 for heads of household, up from $43,125; and $29,500 for married individuals filing separately and for singles, up from $28,750.
Standard Mileage Rates
The rate for business miles driven is 56.5 cents per mile for 2013, up from 55.5 cents per mile in 2012.
Section 179 Expensing
For 2013 the maximum Section 179 expense deduction for equipment purchases increases to $500,000 of the first $2,000,000 of business property placed in service during 2013. The bonus depreciation of 50% is also extended through 2013.
Work Opportunity Tax Credit (WOTC)
The WOTC is extended through 2013 (retroactive to 2012) and includes a one-year extension of the enhanced credit for hiring certain veterans. When a business hires a person from one of several specific economically disadvantaged groups it may claim a Work Opportunity Tax Credit, generally equal to 40 percent of the first $6,000 in wages paid to a new hire.
Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, for tax years beginning in 2013 (through 2017) the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $245 up from $240 in 2012 (the American Taxpayer Relief Act provided for a retroactive increase from the $125 limit that had been in place for 2012). The monthly limitation for qualified parking is also $240.
While this checklist outlines important tax changes for 2013, additional changes in tax law are more than likely to arise during the year ahead.
Don’t hesitate to call us if you want to get an early start on tax planning for 2013. We’re here to help!