ELECTRONIC FILING SERVICES
We are now required by the Internal Revenue Service to file all individual income tax returns electronically. If you do not want your tax return filed electronically, you will have to sign a waiver form that we must maintain in our files.
In order to e-file your return, be sure each family member’s birth date is included in the organizer. Returns may be rejected if Social Security numbers and names do not agree with Social Security Administration records. If you would like to either pay, or receive your refund by electronic funds transfer, we need the account and routing numbers of your bank. Please include a voided check to provide this information. You have the final responsibility to confirm that the appropriate routing numbers and bank account information are used on the tax return for any refund or payment. Once the return is accepted by the IRS we are not responsible for the length of time it takes the IRS to process your return.
Before your return is e-filed, you (and your spouse if applicable) will need to review and approve a copy of the return. We will assign a 5 digit pin number for each of you which will represent your electronic signature. You will need to approve your return by signing form 8879 (IRS e-File Signature Authorization) and return it to us. This authorizes us to file your 1040 electronically.
Please provide your preferred e-mail address in the organizer to be utilized for tax related correspondence.
TAX ID NUMBERS AND NAMES
Please be careful to check all Social Security numbers and names reported on the forms, as well as the dollar amounts. The IRS matches all 1099 and 1098 information to Form 1040 based upon Social Security numbers and requires names to be the same as indicated on Social Security Cards. If you find an error, notify the issuer and request a corrected copy.
STATE OF FLORIDA CORPORATE/LLC ANNUAL REPORT
Corporations and Limited Liability Companies (LLC’s) (including Not-for-Profit’s) no longer receive the pre-printed Annual Report form from the Florida Department of State. You only receive an “Annual Report Notice” by e-mail based upon the e-mail address on last year’s annual report. Corporations and LLC’s are now required to file the annual report on-line at www.sunbiz.org. The filing fee prior to May 1, 2013 is $139 - $150. After May 1, it is increased by a $400 penalty. Failure to file the annual report will result in statutory dissolution of your corporation or LLC and additional fees. We do not generally prepare, or assist you with filing the Annual Report, so you must make sure you meet the filing deadline for this. Of course, we will be glad to assist you with this upon request.
NANNY TAX LAW
The 2012 and 2013 reporting threshold for domestic workers is $1,800 annually. The wages are reported to the IRS by filing Schedule H with your Form 1040. The employment taxes are required to be paid as an addition to other taxes due with Form 1040. Form W-2 must be provided to the employee and filed with the Social Security Administration. You must have an employer identification number from the IRS. You may also be liable for filing quarterly State of Florida Unemployment Tax returns.
SOCIAL SECURITY WAGE BASE
The 2013 wage base is $113,700. The employee’s Social Security tax withholding rate reduction of 2% to 4.2% has been eliminated for 2013, resulting in the employer and employee portion at 6.2%. The Medicare tax rate remains the same at 1.45% on all taxable wages, with no upper limit. For employees earning in excess of $200,000 employers must withhold an additional .9% for Medicare on all wages in excess of $200,000.
STANDARD MILEAGE RATE
For 2012 the standard mileage rate for business use was 55.5 cents per mile. If you have business mileage, please include the 2012 totals for total vehicle mileage, commuting distance and mileage, and the business mileage. For 2013, the standard mileage rate for business use of autos is 56.5 cents per mile. The rate for medical travel is 24 cents per mile, and the charitable mileage rate is 14 cents per mile.
A dependent child’s 2012 unearned income over $1,900 is taxed at the parent’s top tax rate. Interest, dividends and capital gains will be subject to this tax, but not earned income, such as W-2 wages. For 2013 the limit is $2,000.
CHARITABLE CONTRIBUTION RULES
You are required to have proof, in the form of bank records (cancelled checks, etc.), and/or written communication from the charity, for any cash or monetary contribution. It must specify the amount and date of the contribution. For individual gifts of $250 or more, a written acknowledgment from the charity is required. See IRS Publication 1771 for full details. Non-cash contributions of clothing or household items are required to be in “good” condition.
NONTAXABLE IRA TRANSFERS TO ELIGIBLE CHARITIES REINSTATED
The last minute Taxpayer Relief Act reinstated this deduction which was not in effect for 2012 before the act. Taxpayers who are age 70 1/2 or older, with IRA withdrawals in December 2012, have until January 31, 2013 to make a cash contributions to a charity equal to their December withdrawal, and count it for 2012, as a direct transfer not included in income, up to the $100,000 limit. Withdrawals in January – November 2012 must still be included in income. Qualifying individuals may also make a direct transfer from the IRA to a charity in January and elect for it to be for the 2012 year. These distributions are neither included in gross income nor claimed as a deduction on the taxpayer's return. The direct transfer rule remains in effect for the 2013 year as well, up to the $100,000 limit.
RECAP OF VARIOUS INDIVIDUAL RETIREMENT ACCOUNT RULES
Here are some of the rules regarding IRAs you need to review:
Roth IRAs of up to $5,000 may be established for the 2012 year. The limit increases to $5,500 for 2013. If you are age 50 or more, you may contribute another $1,000.The 2012 allowable contribution is subject to phase-out limits if you have Modified Adjusted Gross Income of $110,000 - $125,000 for single taxpayers, or $173,000 - $183,000 for married filing joint. Active participation in an employer plan does not prevent establishment of a Roth IRA. Also, you may establish a spousal Roth IRA for a non-working spouse. For each $5,000 (or $6,000) contribution, there must be at least the same amount of earned income included in adjusted gross income. Roth IRAs are not currently deductible, but after meeting certain rules, withdrawals are not taxed. Individuals age 70 1/2 or older may also establish Roth IRAs if they have earned income equal to the amount of the IRA contribution for the year. The $5,000 (or $6,000) limit is a combined limit for both Roth and Traditional IRAs.
Traditional deductible IRAs of up to $5,000 for 2012 and $5,500 for 2013 ($6,000 and $6,500 if age 50 or more) may be established without limitations for anyone with at least $5,000 (or $6,000) of earned income for 2012, and $5,500 (or $6,500) for 2013, less than 70 1/2, and not an active participant in a qualified pension plan during the year. For individuals who are active participants, the 2012 year deduction phases out between adjusted gross incomes of $58,000 - $68,000 for single, and $92,000 - $112,000 for married individuals.
If one spouse is a participant but the other is not, the non-participating spouse, including a non-working spouse, is eligible for a full deductible IRA if adjusted gross income is $178,000 or less on their joint income tax return. There is a phase-out of the deduction for AGI’s between $178,000 - $183,000.
IRA contributions for the 2012 tax year must be paid by April 15th 2013.
If you did not convert your traditional IRA to a Roth IRA in 2012, you may still want to consider this option for 2013. Although you must pay the income tax on the amount converted in the year of conversion, subsequent withdrawals from the Roth IRA account are tax free, and you do not have to begin mandatory withdrawals after age 70 1/2. Prior to 2010 there was an Adjusted Gross Income limit on eligibility for conversions. This was eliminated. The decision to convert or not requires careful planning. Let us know if you would like to consider this.
If you have an IRA, you should carefully review your choice of beneficiaries who will receive the account upon your death. There are many choices in this area that can have wide ranging tax implications. Contact us if you have any questions about this.
LOWER CAPITAL GAINS RATES
Most investments held more than one year are subject to capital gains tax at a top rate of 15 percent, increasing to 20% for taxpayers with adjusted gross incomes of $400,000 single, or $450,000 married filing joint. Also see the paragraph below for the additional 3.8% Medicare tax that will also apply for $200,000 and$250,000 modified adjusted gross incomes. In the years 2012 and 2013, taxpayers in the 10 percent and 15 percent brackets will pay zero tax on long-term gains. Depreciation recapture on rental real estate remains at 25% maximum.
DIVIDENDS TAXED AT CAPITAL GAINS RATES
Qualified dividends are subject to the same tax rates as capital gains explained above.
3.8% Medicare Tax on Unearned Income
For 2013, the 2010 Health Care Act, added a 3.8% Medicare tax on any “unearned” income for single taxpayers with modified adjusted gross incomes in excess of $200,000 and married filing joint MAGIs in excess of $250,000. Unearned income generally includes interest, dividends, capital gains, net rents, and other passive income from investments.
TAX CREDIT FOR HOME ENERGY EFFICIENCY IMPROVEMENTS
The 2012 Taxpayer Relief Act extended the energy property credit for the 2012 and 2013 year. Overall lifetime limits of $500 are in effect for qualifying improvements.
Detailed information on qualifying improvements is available at www.energystar.gov. The City of Tallahassee and many other utility companies also have an energy credit program available.
ITEMIZED DEDUCTION FOR STATE SALES TAX
Taxpayers can deduct state and local general sales taxes as an itemized deduction on Schedule A for 2012. (You cannot deduct these taxes if you live in a state with state personal income taxes and choose to deduct the income taxes as an itemized deduction.) You can either deduct the actual sales tax paid based upon your receipts, or use IRS tables based upon your gross income. In addition to the amounts given in the tables you may add the sales tax paid on motor vehicles, including boats and aircraft, as well as materials to build, renovate or make a substantial addition to your home.
RETIREMENT PLAN CHANGES
401-K, 403-B, and 457 Plans: The employee contribution limit increases to $17,500 for 2013.
457 Plans: In the three years prior to retirement a “catch-up” provision will be twice the otherwise applicable dollar limit in the three years prior to retirement. Also, distributions from a 457 plan can be “rolled over” to other qualified plans or an individual retirement plan.
SIMPLE Plans: The contribution limit for SIMPLE retirement accounts is $11,500 for 2012 and $12,000 for 2013.
Self-Employed Plans: The maximum contribution limit for self-employed Keogh and SEP plans remains at 25% of compensation, up to a maximum of $50,000 for 2012 and $51,000 for 2013.
“Catch-Up” Provisions: Additional contribution amounts are allowed for many retirement plans for individuals aged 50 or older to allow saving at an accelerated rate. An additional contribution of $1,000 is allowed for IRA’s each year. An additional contribution of $5,500 is allowed for 401-K, 403-B and 457 plans for 2012 and 2013. SIMPLE plans allow an additional contribution of $2,500 for 2012 and 2013.
“Roth” Retirement Plans Allowed in 2010 and Later Years: Many types of plans can adopt provisions allowing participants to treat elective contributions in the same manner as Roth IRA contributions. The contributions will not be currently tax deferred, but withdrawals will be tax free in future years. Contact us if you are interested in knowing more about these new rules.
Taxpayers trying to fund the future cost of their child’s education need to be aware of important tax provisions in this area:
Education IRA’s: Annual contribution limits are $2,000 per child under age 18. The funds may be used for elementary and secondary education in addition to higher education. Single filers with incomes up to $95,000, and joint filers with income up to $190,000 can now contribute to an education IRA. Phase out provisions apply for higher incomes. Contributions to these plans are not tax deductible, but the plan earnings are tax-free if used for qualifying education costs upon withdrawal.
American Opportunity Tax Credit (AOTC) and Lifetime Learning Credit: These credits are extended through the 2017 year. The maximum AOTC credit for 2012-2013 is $2,500 (100% on the first $2,000, plus 25% of the next $2,000) for qualified tuition and fees, course related books, supplies and equipment paid on behalf of a student (i.e., the taxpayer, the taxpayer's spouse, or a dependent) who is enrolled on at least a half-time basis. The credit is available for the first four years of the student's post-secondary education. Up to 40% of the AOTC credit ($1,000) is a refundable credit even if you owe no income tax for the year. The Lifetime Learning credit maximum in 2011-2012 is $2,000 (20% of qualified tuition and fees up to $10,000). A student need not be enrolled on at least a half-time basis so long as he or she is taking post-secondary classes to acquire or improve job skills. As with the AOTC credit, eligible students include the taxpayer, the taxpayer's spouse, or a dependent. For 2012, the AOTC credit is phased out at modified AGI levels between $160,000 and $180,000 for joint filers, and between $80,000 and $90,000 for single taxpayers. The Lifetime Learning credit is phased out for modified AGI levels between $102,000 - $122,000 for joint filers, and $51,000 - $61,000 for single filers for the 2012 year.
Qualified State Tuition (Section 529) Plans: These plans allow the contribution of up to $13,000 per year for each child. The contribution is considered a gift under estate and gift tax rules. An individual is also allowed to make a one-time $65,000 contribution which covers the $13,000 annual amount for the next five years. Like the education IRA, the 529 plan offers a chance to receive tax-free earnings if payouts are used for qualifying education expenses.
Student Loan Interest: In 2012 the income phase-out range to be eligible to deduct student loan interest of up to $2,500 is $60,000 - $75,000 for single taxpayers and $125,000 - $155,000 for married taxpayers.
HEALTH SAVINGS ACCOUNT LIMITS
The 2013 annual caps on deductible contributions to HSAs increase to $6,450 for family coverage and $3,250 for single coverage, up from $6,250 and $3,100 for 2012. If you are age 55 or older, these limits increase by $1,000.