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10-18-13:  Government (including IRS) is Back at Work

As expected, our esteemed lawmakers crafted an 11th hour "patch" to avoid a default and re-open government for the people. I'm not going to waste your time discussing the ramifications. We've all seen this dance and we will all see it again in December.

What you need to remember is that the IRS is re-opened for business and that "critical" operations will be addressed immediately to restore order. What that means and which areas receive focus is yet to be revealed, but you can be sure tax court cases, audits, examinations, and other tax resolution-related cases will quickly resume, as will revenue-collecting services.

No word on when refunds will begin, but we will keep you posted!

 

10-16-13:  For 2013 Tax Planning:  Tax Extenders

After 2013, many popular but temporary tax incentives (known as extenders) are scheduled to expire. They include the state and local sales tax deduction, the teacher’s classroom expense deduction, the research tax credit, transit benefits parity, and many more. Some lawmakers in Congress have proposed to include the extenders in year-end comprehensive tax reform legislation, but leaders in the House and Senate have been cool to this idea. More likely, these incentives will be extended for one or two years in a year-end stand-alone bill or linked to other legislation. Our office will keep you posted of developments on the fate of these valuable tax incentives

 

 

Beware of Bogus IRS Emails

The IRS receives thousands of reports every year from taxpayers who receive emails out-of-the-blue claiming to be from the IRS. Scammers use the IRS name or logo to make the message appear authentic so you will respond to it. In reality, it’s a scam known as “phishing,” attempting to trick you into revealing your personal and financial information. The criminals then use this information to commit identity theft or steal your money.

The IRS has this advice for anyone who receives an email claiming to be from the IRS or directing you to an IRS site:

  • Do not reply to the message;
  • Do not open any attachments. Attachments may contain malicious code that will infect your computer; and
  • Do not click on any links in a suspicious email or phishing website and do not enter confidential information. Visit the IRS website and click on 'Identity Theft' at the bottom of the page for more information.

Here are five other key points the IRS wants you to know about phishing scams.

1. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information;

2. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts;

3. The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org or anything other than .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on their site and report it to the IRS;

4. If you receive a phone call, fax or letter in the mail from an individual claiming to be from the IRS but you suspect they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to phishing@irs.gov;

5. You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website to get details on how to report scams and helpful resources if you are the victim of a scam. Click on "Reporting Phishing" at the bottom of the page.

Nov 14 2012
Upcoming Medicare Surtax of 3.8% Begins in 2013

Posted in general

For tax years beginning January 1, 2013, the tax law imposes a 3.8 percent surtax on certain passive investment income of individuals, trusts and estates. For individuals, the amount subject to the tax is the lesser of (1) net investment income (NII) or (2) the excess of a taxpayer's modified adjusted gross income (MAGI) over an applicable threshold amount.


Net investment income includes dividends, rents, interest, passive activity income, capital gains, annuities and royalties. Specifically excluded from the definition of net investment income are self-employment income, income from an active trade or business, gain on the sale of an active interest in a partnership or S corporation, IRA or qualified plan distributions and income from charitable remainder trusts.
MAGI is generally the amount you report on the last line of page 1, Form 1040.

 

The applicable threshold amounts are shown below.

 
Married taxpayers filing jointly                            $250,000

Married taxpayers filing separately                     $125,000

All other individual taxpayers                             $200,000

A simple example will illustrate how the tax is calculated.

Example. Al and Barb, married taxpayers filing separately, have $300,000 of salary income and $100,000 of NII. The amount subject to the surtax is the lesser of (1) NII ($100,000) or (2) the excess of their MAGI ($400,000) over the threshold amount ($400,000 -$250,000 = $150,000). Because NII is the smaller amount, it is the base on which the tax is calculated. Thus, the amount subject to the tax is $100,000 and the surtax payable is $3,800 (.038 x $100,000).

 

Fortunately, there are a number of effective strategies that can be used to reduce MAGI and or NII and reduce the base on which the surtax is paid. These include (1) Roth IRA conversions, (2) tax exempt bonds, (3) tax-deferred annuities, (4) life insurance, (5) rental real estate, (6) oil and gas investments, (7) timing estate and trust distributions, (8) charitable remainder trusts, (9) installment sales and maximizing above-the-line deductions. We would be happy to explain how these strategies might save you large amounts of surtax.

 

Accelerating Ordinary Income into 2012

A final opportunity that should be noted is accelerating ordinary income into 2012. Perhaps the best way to do this would be to convert a traditional IRA to a Roth IRA in 2012, if a conversion otherwise made sense. Ordinary income could also be accelerated by selling bonds with accrued interest in 2012 or selling and repurchasing bonds trading at a premium. Finally, you might consider exercising non-qualified stock options in 2012.

 

Last Updated by Leigh Van Gilst on 2012-11-14 06:45:40 AM

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