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PPACA Provisions | Tax Tip of the Week | No. 174 November 28, 2012

Posted by bradstreetblogger in : Tax Tip, Taxes, Taxes, Uncategorized , 1 comment so far

What to Expect in 2013

Now that the elections are over we know not much has changed in Washington D.C.  It now appears that the tax provisions of the Patient Protection and Affordable Care Act (Obamacare) will become effective in 2013.  Here is what you need to know: 

-There will be a new 3.8% Medicare Surtax.  This tax will be assessed on the net investment income of married couples with income over $250,000 and individuals with income over $200,000.  Net investment income is defined as income from interest, dividends, annuities, royalties and rental income.  It should be noted that net investment income does NOT include income from 401(k) (and other defined contribution savings plans) distributions or tax-exempt bond interest.  Gain from the sale of a principal residence is also excluded from this Medicare Surtax. 

-An additional Medicare Tax of 0.9% will be assessed on the earned income of married couples making over $250,000 and all others earning over $200,000.  Unlike FICA taxes, this additional tax is not split between the employer and employee—the employee pays the full 0.9%.  Employers are required to withhold this tax.  Married couples who are both employed may need to make estimated tax payments if their joint income exceeds $250,000 but individually they do not exceed $250,000. 

-Beginning in 2013, the AGI thresholds for deducting medical expenses as itemized deductions increases from 7.5% to 10%.  If the taxpayer or taxpayer’s spouse has attained age 65 by the end of the year, the effective date of this new threshold is delayed until 2017.  This new restriction on reduced medical deductions applies to all taxpayers regardless of income. 

-A 2.3% excise tax will be assessed on Medical Device Manufacturers.  This tax will be imposed on the sale of any taxable medical device by the manufacturer, producer or importer.  The tax, however, will not be assessed on the sale of eyeglasses, contact lenses, hearing aids and any other medical devices determined by the IRS to be of a type purchased by the general public at the retail level. 

-Employers will now be limited to a $2,500 maximum reimbursement as a benefit under a qualified cafeteria plan (health FSA). 

We will let you know about other 2013 tax changes as they become finalized.

As always, give us a call with any questions you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

Here Are a Few of The Many Tax Law Changes For 2013….| Tax Tip of the Week | No. 173 November 21, 2012

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IRS Announces Inflation Adjustments for 2013

Every year the IRS automatically adjusts certain tax rules based upon current inflation levels.  The following are a few of the significant changes: 

-The gift tax annual exclusion will increase from $13,000 to $14,000.  This means a married couple could gift up to $28,000 to an individual before a gift tax return would need to be filed. 

-The amount used to reduce the net unearned income reported on a child’s tax return to calculate the “Kiddie Tax” increases from $950 to $1,000.  The other rules of filing a “Kiddie Tax” return remain the same- a return must be filed if the child has more than $1,900 of investment income and is under age 18 (or age 19-23 if a full time college student). 

-The foreign earned income exclusion increases from $95,100 to $97,600. 

-The maximum contribution to 401(k) and other defined contribution saving plans is now $17,500/year ($17,000 was the maximum in 2012).  The catch-up contribution limit for those age 50 and over remains unchanged at $5,500. 

-There are over 20 other changes that were announced.   For a complete review, see Revenue Procedure 2012-41.  

Please note there are many other tax items that typically receive inflation adjustments as well. Those include earning adjustments for the child tax credit, American Opportunity tax credits and Earned Income Credit. Many of these, and other, tax items are scheduled to expire or change at the end of the year.  It appears the IRS is waiting to see what actions Congress takes in its lame-duck session. 

We will keep you posted!As always, give us a call with any questions you may have.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

A Great Resource to Keep in Mind | Tax Tip of the Week | No. 172 November 14, 2012

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New Guidelines From the Taxpayer Advocate Service

The Taxpayer Advocate Service (TAS) is an independent organization within the Internal Revenue Service charged with assisting taxpayers who are experiencing economic harm, who are seeking help in resolving tax problems that have not been resolved through normal channels, or who believe that an IRS system or procedure is not working as it should.

Taxpayers may be eligible for assistance if:

• They are experiencing economic harm or significant cost (including fees for professional representation);

• They have experienced a delay of more than 30 days to resolve a tax issue; or

• They have not received a response or resolution to their problem by the date promised by the IRS.

The service is free, confidential, tailored to meet taxpayers’ needs, and available for businesses as well as individuals. There is at least one local taxpayer advocate in every state. 

Recently, the TAS released this statement: “…..the TAS, however, cannot help all six million to 12 million taxpayers who may be having problems at any given time.  We must focus on cases where we can add the most value.”  The statement went to list the four categories that will be the focus of TAS for the foreseeable future: 

1. Situations where a taxpayer is experiencing some financial difficulty, or hardship, and the IRS needs to move faster than it usually does under their normal procedures.  An example of this would be to expedite the removal of a federal tax lien on a pending home sale.

2. Where many different IRS units and steps are involved, and the case needs a “coordinator” or “traffic cop” to make sure everyone does their part.

3. Where a taxpayer has tried to resolve a problem through normal IRS channels but those channels have broken down.

4. Where a taxpayer is presenting unique facts or issues (including legal issues), and the IRS is applying a “one size fits all” approach and is not listening to the taxpayer. 

Our firm has used the services of the TAS in the past.  At times, they can be very helpful in resolving difficult tax situations. 

If you are experiencing any IRS issues let us know.  There are means available to resolve just about any issue.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.

What You May Not Know | Tax Tip of the Week | No. 171 November 7, 2012

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IRS Never Told Taxpayers They Could Get Penalty Relief

Approximately 1.45 million taxpayers who qualified for relief from tax penalties totaling close to $181 million never heard from the Internal Revenue Service that they were entitled to it and never received it, according to a new government report. 

The report, from the Treasury Inspector General for Tax Administration (TIGTA), noted that the Tax Code imposes penalties on taxpayers with a filing requirement who fail to file a tax return or fail to timely pay the full tax shown on any tax return. The IRS waives those penalties for taxpayers who have demonstrated full compliance over the prior three years, but only if the taxpayers request penalty relief. The IRS does not widely publicize the opportunity to request this waiver, known as a First-Time Abate.

The reason for granting the First-Time Abate is to reward past tax compliance and promote future tax compliance. However, most taxpayers with compliant tax histories are not offered and do not receive the waiver, TIGTA found. 

“Penalty waivers should not be granted only to taxpayers or preparers with knowledge of IRS processes,” said TIGTA Inspector General J. Russell George in a statement. “If the IRS does not administer these and other penalties fairly and accurately, taxpayers’ confidence in the tax system will be jeopardized.”

In addition, TIGTA found that the First-Time Abate waiver is not used to its full potential as a compliance tool because when it is granted, it is granted before taxpayers demonstrate full compliance by paying their current tax liability.

TIGTA suggested that the First-Time Abate waiver would be better used as a compliance tool if the IRS ensured that taxpayers were aware of the potential to receive the waiver based on their past compliance history, while making receipt of the waiver contingent upon taxpayers paying their current tax liabilities.

In response to the report, IRS officials agreed with the recommendations and said they are taking appropriate corrective actions. The IRS plans to study how best to use the First-Time Abate waiver as a compliance tool. It also intends to review the current process for application of an FTA waiver prior to reasonable cause and its impact on taxpayers who qualify for reasonable cause, but instead are given an FTA waiver.

Editor’s Note:  We have been using this tactic for years to get penalties abated.  Now you know the secret too! 

Give us a call if you need any other details.

You can contact us in Dayton at 937-436-3133 and in Xenia at 937-372-3504.  Or visit our website.

Rick Prewitt – the guy behind TTW

…until next week.