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April 15 has passed — now what?

kbotti on April 19, 2013

With the 2012 tax filing season behind us, it’s time to start thinking seriously about 2013 tax planning — especially if you’re a higher-income taxpayer, because you might be subject to one or more significant tax increases this year:

Taxpayers with FICA wages and self-employment income exceeding $200,000 for singles and $250,000 for joint filers face an additional 0.9% Medicare tax on the excess.
Taxpayers with modified adjusted gross income exceeding $200,000 for singles and $250,000 for joint filers may face a new 3.8% Medicare tax on some or all of their net investment income.
Taxpayers with taxable income in excess of $400,000 for singles and $450,000 for joint filers face the return of the 39.6% marginal income tax rate — and of the 20% long-term capital gains rate on long-term capital gains and qualified dividends.

Contact me at karen.botti@whalencpa.com to learn whether you’re likely to be hit with these tax hikes and what strategies you can implement to minimize the impact.

Karen Botti is the staff manager of tax services. She has more than 30 years of experience in the public accounting field with extensive experience in preparing and reviewing federal, state and local income tax returns for businesses and individuals as well as for non-profit entities. She serves as a resource to clients and staff in multiple tax areas. Her areas of expertise also include like-kind exchanges, fixed-asset reporting, tax software and S-Corporation issues. She also has experience in accounting and the preparation of financial statements and payroll taxes.

IRS provides penalty relief to certain late filers

mnarog on April 9, 2013

On March 20, the IRS issued guidance providing penalty relief to both individual and business taxpayers who file for an extension of their 2012 tax return and ultimately owe additional tax — but only if they meet certain criteria. First, the reason for filing for the extension must be that the taxpayer’s 2012 return involved forms whose publication was delayed because of the American Taxpayer Relief Act of 2012 (ATRA), signed into law Jan. 2. Here’s a sampling of the delayed forms:

Form 8839: Qualified Adoption Expenses
Form 8863: Education Credits
Form 3800: General Business Credit
Form 5884: Work Opportunity Credit
Form 6765: Credit for Increasing Research Activities
Form 8844: Empowerment Zone Employment Credit
Form 8874: New Markets Credit

In addition, the taxpayer must make a good faith effort when filing for the extension to properly estimate the tax liability. Then that estimated amount must be paid by the return’s original due date, and any additional tax owed must be paid by the return’s extended due date.

If you’re considering filing for an extension due to delayed IRS forms, please contact us to help ensure you’ll qualify for penalty relief.

Do you need to file a 2012 gift tax return by April 15?

atreasure on March 26, 2013

Generally, you’ll need to file a gift tax return for 2012 if, during the tax year, you made gifts:

That exceeded the $13,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
That you wish to split with your spouse to take advantage of your combined $26,000 annual exclusions, or
Of future interests — such as remainder interests in a trust — regardless of amount.

If you transferred hard-to-value property, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact me at anne.treasure@whalencpa.com for details.

Yes, there’s still time to make a 2012 IRA contribution!

mnarog on March 19, 2013

The deadline for 2012 IRA contributions is April 15, 2013. The limit for total contributions to all IRAs generally is $5,000 ($6,000 if you were age 50 or older on Dec. 31, 2012). Any unused limit can’t be carried forward to make larger contributions in future years.

So if you haven’t already maxed out your 2012 limit, consider taking advantage of one of these three contribution options by April 15:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2012 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. Contributions to a Roth IRA aren’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.

3. Nondeductible traditional. If your income is too high for you to fully deduct a traditional IRA contribution or make the maximum Roth IRA contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.

You don’t have to be a manufacturer to take the “manufacturers’ deduction”

mnarog on March 15, 2013

The manufacturers’ deduction, also called the “Section 199” or “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.

Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.

The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the AMT.

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News & Tech Tips

April 15 has passed — now what?

IRS provides penalty relief to certain late filers

Do you need to file a 2012 gift tax return by April 15?

Yes, there’s still time to make a 2012 IRA contribution!

You don’t have to be a manufacturer to take the “manufacturers’ deduction”