Tax Planning in July, What to Do, What to Watch Out For

I know, you just filed your taxes, or worst you have applied for an extension and plan to file by October 15th of this year for 2012.

The truth is, savvy taxpayers are planning for their 2013 tax year now.  Here  is a list of task they complete in order to fine tune their taxes for the coming year:

1.  They have a copy of their last pay check stub in June of 2012.  They will visit either Forbes article and links to tax calculator, or the IRS tax calculator web site and put in the necessary information to determine if they will owe taxes or will receive a refund.

2.  They will input their 2013 tax information into their 2012 tax software to get a solid idea of what they will be up against in 2013.  They will remember that they are using the tax tables for 2012.  They ALSO will remember that Congress may make some last minute tax changes towards the end of the year.

3.  They will try to leave an opening to respond to last minute tax law changes.  (Like giving more to charity or paying a second or third mortgage payment in December, which will increase their mortgage interest for the year.

4.  If they are expecting a new baby in the family, they will check with the doctor to be sure the kid will arrive prior to December 31st!  If the doctor said twins, they will will want to make twice as sure of the delivery date!

5.  If they haven't purchased a home, and their tax planning show an amount owed, then they are making the necessary arrangements to purchase property ASAP

6.  If they have stock that hasn't moved in recent years, and they aren't even sure that the company is still in existence, they will want to prepare to take a lost on the stock.  If they are concerned about a stock that has no possibility of recovering, then they will sell the stock now, to be sure that they get at least a $3000 loss. 

7. They are eyeing certain furniture, clothing and household items that they can truck over to the Goodwill and get a written receipt for the donation.  Of course they are also shopping for the replacement of the furniture, clothing and household items.

8.  They are looking at qualified exempt organizations, which they can write a check (cash) and receive confirmation in writing. 

9.  They actually spend an evening doing "what ifs" to determine if it might be better to turn in the car and lease a car in the business name.  If they don't have a business, yet they have a large write-off in miles driven for work, they are reviewing all of the possibilities to get the largest tax write off.

10.  Most importantly, they are making sure that they don't trigger the AMT (Alternative Minimum Tax) on their 2013 tax-return.  You can learn more about the AMT tax by visiting the IRS web site; AMT Tax.  In summary the AMT  tax is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold.  It can get a little complicated.  If you trigger this tax, contact an experienced tax professional to help determine what you can do to try and avoid the tax.
(Line 45 Form 1040; 2012; Form 6251)

If you are set to earn over $250,000 in 2013, this article won't do you much good, it is highly recommended that you contact your CPA, immediately.

How to file tax return; Itemizing vs. Standard Deduction

The tax software will help you determine if you should itemize or use the standard deduction.  The announcement from the IRS below will help to ensure that you and your tax software make the right decision.

 

Single people who earn high salaries, often times pay more than $5,950 in State taxes, and ultimately end up with the option to Itemize.  If you fall into this category, there are two things you have to be aware of.  1) you could easily end up with an AMT tax and 2) you may have a lot more legal deductions which you can add to your Schedule A. 

 

If you find yourself in this situation, you may want to consult with a tax professional.  (AMT is imposed at a nearly flat rate on an adjusted amount of taxable income above a certain threshold)

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Itemizing vs. Standard Deduction: Six Facts to Help You Choose

 

When you file a tax return, you usually have a choice to make: whether to itemize deductions or take the standard deduction. You should compare both methods and use the one that gives you the greater tax benefit.

The IRS offers these six facts to help you choose.

1. Figure your itemized deductions. Add up the cost of items you paid for during the year that you might be able to deduct. Expenses could include home mortgage interest, state income taxes or sales taxes (but not both), real estate and personal property taxes, and gifts to charities. They may also include large casualty or theft losses or large medical and dental expenses that insurance did not cover. Unreimbursed employee business expenses may also be deductible.

 

2. Know your standard deduction. If you do not itemize, your basic standard deduction amount depends on your filing status. For 2012, the basic amounts are:

 

• Single = $5,950
• Married Filing Jointly = $11,900
• Head of Household = $8,700
• Married Filing Separately = $5,950
• Qualifying Widow(er) = $11,900

 

3. Apply other rules in some cases. Your standard deduction is higher if you are 65 or older or blind. Other rules apply if someone else can claim you as a dependent on his or her tax return. To figure your standard deduction in these cases, use the worksheet in the instructions for Form 1040, U.S. Individual Income Tax Return.

 

4. Check for the exceptions. Some people do not qualify for the standard deduction and should itemize. This includes married people who file a separate return and their spouse itemizes deductions. See the Form 1040 instructions for the rules about who may not claim a standard deduction.

 

5. Choose the best method. Compare your itemized and standard deduction amounts. You should file using the method with the larger amount.

 

6. File the right forms. To itemize your deductions, use Form 1040, and Schedule A, Itemized Deductions. You can take the standard deduction on Forms 1040, 1040A or 1040EZ.

The Slient Tax That Can Change Everything on a Tax Return

 

First of all, people who are subject to the AMT Tax should know about it BEFORE the year ends.  This is not a tax that you want to sneak up on you, as it does with millions of taxpayers.  Once this tax kicks in, there is very little you can do to change or lower it. 

 

In our opinion, avoiding the AMT tax takes tax planning, and knowing exactly what tax situation you are in for the year.  If you have a tax on Line 45 of your Form 1040, you may want to consult with a tax professional.  If you believe that you may run into trouble in the next tax year, you can consult with the tax professional on ways to avoid or lower the tax. 

 

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Five Facts to Know about AMT

The Alternative Minimum Tax may apply to you if your income is above a certain amount. Here are five facts the IRS wants you to know about the AMT:

1. You may have to pay the tax if your taxable income plus certain adjustments is more than the AMT exemption amount for your filing status.

 

2. The 2012 AMT exemption amounts for each filing status are:

• Single and Head of Household = $50,600;
• Married Filing Joint and Qualifying Widow(er) = $78,750; and
• Married Filing Separate = $39,375.

3. AMT attempts to ensure that some individuals and corporations who claim certain exclusions, tax deductions and tax credits pay a minimum amount of tax.

 

4. You should use IRS e-file to prepare and file your tax return. You figure AMT using different rules than those you use to figure your regular income tax. IRS e-file software will determine if you owe AMT, and if you do, it will figure the tax for you.

 

5. If you file a paper return, use the AMT Assistant tool on IRS.gov to find out if you may need to pay the tax.

Visit IRS.gov for more information about AMT. You should also check Form 6251, Alternative Minimum Tax – Individuals and its instructions. Both are available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).

Additional IRS Resources:

IRS RELEASED ANNUAL INFLATION ADJUSTMENTS FOR 2013

OK people, the numbers are in.  The vote is still out on reaction to these numbers, check them out and see what you think.  It is clear we as taxpayers are going to have to share more of a tax burden in the coming decade.  If you will notice this informatin is being presented as "inflation adjustments" not as new tax laws, I guess it all how you look at it.


The Internal Revenue Service has released the annual inflation adjustments for 2013, including the tax rate schedules and other tax changes from the recently enacted fiscal cliff legislation with its new tax rate of 39.6 percent and permanently patched Alternative Minimum Tax.

 

Revenue Procedure 2013-15 provides the 2013 cost-of-living adjustments for inflation for certain items, including the tax tables. It also includes items whose values were specified in the American Taxpayer Relief Act of 2012 (ATRA), such as the beginning of the 39.6 percent income tax brackets; the beginning income levels for the limitation on certain itemized deductions, and the beginning income levels for the phaseout of the personal exemptions.

In addition Rev. Proc. 2013-5 modifies Rev. Proc. 2011-52 to reflect an amendment to Section 132(f)(2) made by ATRA concerning qualified transportation fringe benefits. Specifically, for 2012, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $240.

The tax items for 2013 of greatest interest to most taxpayers include the following changes.

• Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates—10, 15, 25, 28, 33 and 35 percent—remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.

• The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.

• The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).

• The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $150,000 ($300,000 for married couples filing jointly). It phases out completely at $211,250 ($422,500 for married couples filing jointly.)

• The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).

• The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.

• Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.

• For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

Details on the inflation adjustments and others are contained in Revenue Procedure 2013-15, which will be published in Internal Revenue Bulletin 2013-5 on Jan.28, 2013. Other inflation-adjusted items were published in October 2012 in Revenue Procedure 2012-41.

Tax Hike for 28 Million Taxpayers

Alternative Minimum Tax Could Cause Unintended Tax Hike For 28 Million Americans...... humm..... sounds serious, is it?  YES. read the entire article: AMT Tax could change your tax liability

AMT Tax - You No Longer Have to be Wealthy to Get Hit, With the Alternative Minimum Tax

 

AMT tax law gives special treatment to some kinds of income and allows special deductions and credits for some kinds of expenses.

Taxpayers, who benefit from certain tax laws, may have a minimum amount of tax added, through the alternative minimum tax (AMT) You may have to pay the AMT if your taxable income for regular taxes combined with certain adjustments and tax preference items is more than a certain amount.

The most common adjustments and tax preference which can trigger the AMT tax include:

·        Addition of personal exemptions

·        Addition of the standard deduction (if claimed)

·        Addition of itemized deductions claimed for state and local taxes, certain interest, most miscellaneous deductions, and part of medical expenses

·        Subtraction of any refund of state and local taxes included in grass income

·        Changes to accelerated depreciation of certain property

·        Difference between gain or loss on the sale of property reported for regular tax purposes and ATM purposes

·        Addition of certain income from incentive stock options

·        Change in certain passive activity loss deductions

·        Addition of certain depletion that is more than the adjustment bases of the property

·        Addition of part of the deduction for certain intangible drilling costs

·        Addition of tax-exempt interest on certain private activity bonds

The exemption amount is $48,450 ($74,450 if married filing jointly, or qualifying widow(er); $37,225 if married filing separately.  Meaning, the AMT Tax is no longer just for the wealthy tax payers.  Everyday day, hard working taxpayers can trigger this tax, unknowingly.  (This tax law could change for 2012)

To learn more about the AMT tax, read the Instructions for Form 6251 or speak with your Tax Professional