The Social Security Administration has implemented some new rules and features for 2013. 

Payroll tax cut ends.  Workers are once again paying 6.2% of their earnings into the Social Security trust fund.  There had been a 2% reduction in 2011 and 2012. 

Higher payroll tax cap.  Workers only pay the 6.2% on earnings up to $113,700.  That's an increase of $3600 from 2012.

More online services.  You can file for Social Security online, you can access your Social Security statements online, you can access a benefit verification letter and payment history online, you can change your address and start or change dirct-deposit information online.

Reduced office hours.  Since November 2012 Social Security offices have been closing 30 minutes early each day.  Beginning January 2nd, they will close at noon every Wednesday.

No more paper checks.  As of March 1st, Social Security will no longer mail paper checks to recipients.  Beneficiaries will have to choose between having payments directly deposited or loaded onto a prepaid Direct Express Debit MasterCard.

Higher earnings limit.  People between 62 and 66 who work and collect Social Security at the same time can earn $15,120 in 2013 before any benefits are withheld.  Once earnings exceed that threshold, $1 in benefits is withheld for every $2 earned.  People who turn 66 in 2013 can earn up to $40,080 and then will have $1 in benefits withheld for every $3 earned.  Once a beneficiary turns 66, there is no longer an earnings limit.

Payments have increased.  All beneficiaries received a 1.7% increase effective with their January 2013 payment.

The Social Security Administration has an excellent website with lots of useful information.  Check it out at www.ssa.gov.

 

This morning the IRS announced that returns claiming educational credits will not be accepted until late February or early March.  Turner's Tax Service will continue to prepare returns for taxpayers claiming those credits and will submit the returns as soon as the IRS will accept them.   

Numerous decisions are required when a couple decides to end a marriage.  In addition to decisions about assets and child custoday, separated couples have choices that affect how much they pay in federal and state taxes.

December 31st is an important day for separated couples.  the IRS considers you married for the entire tax year when you have no separation maintenance decree by that day.  If you are married by IRS standards, you can only choose "married filing jointly" or "married filing separately" when you prepare your taxes.  You cannot file as "single" or "head or household". 

Your filing status affects your tax rate and determines which credits you can claim.  Filing jointly can result in a lower tax bill than filing separately, so you should have your tax preparer calculate your return both ways to determine which is best for you.  Filing jointly does pose risks however.  Both taxpayers share responsbility for any taxes due along with related penalties and interest.  If one spouse skips out on his or her taxes, the other spouse is responsibile for paying them.

Filing separately generally leads to paying more taxes, but doing so avoids sharing liability for each other's tax obligation.  When you file as "married filing separately" both taxpayers have to agree on taking the standard deduction or itemizing - if one itemizes, both must itemize, and both must have income to take this option.  Some deductions are limited and both taxpayers lose the ability claim various credits such as the earned income credit and education tax credits.

If you do have a decree of separation prior to December 31st, you can file as "single" or "head of household".  "Head of household" requires you to have a dependent and pay at least half of the expenses needed to maintain a home.  If your dependent is a child who lives with you more than with your spouse, the IRS considers you to be the custodial parent.  As the custodial parent, you can agree to let your spouse claim the child as a dependent by signing Form 8332.  Allowing your spouse to claim the child as a dependent does not affect your ability to file as head of household or take advantage of tax breaks such as the work-related child care expense deduction.

No deductions are allowed for court costs and/or legal fees related to a divorce.  However, if you itemize deductions you can deduct any portion of the fees that are related to tax advice and alimony, if you have an itemized billing statement from your attorney that clearly identifies charges for those services.

Consulting with a professional tax preparer as you work your way through a separation and/or divorce is always a wise move.  Knowing what your options are ahead of time will prevent a nasty surprise come April 15th.

Tax forms are on the way from employers, banks, stockbrokers and other institutions and agencies involved in your financial life in 2012.  Statements must be mailed to you no later than January 31st.  Some forms are sent by mail and some are emailed, so be sure to check both your mail box and your email inbox. 

The most common forms are -

W-2 - You will receive one from each employer you worked for showing gross wages, taxable wages, taxes withheld, and any benefit contributions such as a retirement plan.

1098 - From your mortage company showing deductible mortgage interest, property taxes and homeowners insurance paid from your impound account and mortgage insurance paid.  For a new loan the form may also show the points paid but not always.  If you purchased a home in 2012 or refinanced your existing loan, you should take your final settlement document (sometimes labeled HUD 1) to your tax preparer along with the 1098 as there may be items showing on the form, such as points, that may be deductible.

1098E - If you paid more than $600 in interest on your student loan, your lender must send you this form.  If you paid less than $600 you will probably not receive a form, but the information will be available online.

1099INT - If you earn more than $10 in interest on a bank account or a CD, you will get one of these forms.  If you have an impound account that earned interest, you'll get one from your mortgage lender as well.  It may come in the envelope with your 1098 so be sure to take both forms to your tax preparer.

1099DIV - Earnings from stocks and mutual funds are reported on this form as well as capital gains.  

1099B - If you sold stocks, bonds or mutual funds, your broker or mutual fund company will sent you this form.  It will tell you the number of shares sold, when they were sold and the amount you received for the sale.  In addition to this information, you'll need to know the date you bought the shares and the amount you paid for them to determine if you had a gain or loss on the sale.

PLEASE NOTE - Brokerage houses usually include the 1099INT, the 1099DIV and the 1099B as part of an annual statement.  Your tax preparer will need to see all pages of the annual statement to accurately prepare your return.  It is not unusual for brokerage houses to send amended statements after January 31st.  If that happens, you should take the amended statement to your tax preparer who can determine if your return needs to be amended because of the new information. 

1099G - Taxpayers who got a refund of state or local taxes last year will get this form.  If you took the standard deduction on your 2011 return, the refund doesn't need to be reported as income.  However, if you claimed state or local taxes as an itemized deduction on your 2011 return, the refund will probably need to be reported as income.  There are some complex rules about if and how much has to be reported, so be sure to take the form to your tax preparer along with your 2011 return and they will be able to calculate what's taxable for you.

1099R - If you received a pension or a distribution from an individual retirement account or retirement plan, you will receive this form.  You will also get this form if you rolled over money in a retirement account such as a 401(k) or IRA or if you converted a traditional IRA to a Roth IRA.  A rollover is usually not taxable, but does need to be reported.

1099SSA - If you received Social Security benefits, you will receive this form.  It shows not only the amount of Social Security you received, but the amount that was deducted for MediCare and any federal tax you had withheld.  Some of your Social Security may be taxable, depending on what your other income is.

1099MISC - Self-employed individuals who earned $600 or more will receive this from each employer.  All earnings from self-employment must be reported, even if you do not receive a form.

1099K - A new form being sent by credit card companies or payment processors such asPayPal, Amazon and eBay reporting payments you received by credit or debit card.  Forms are only sent for transactions over $200 and/or amounts in excess of $20,000 so even if you take credit cards, you may not receive this form.  However, all income received by credit card is taxable and must be reported.

Form 5498 - This annual statement about your IRA shows any contributions made during the year as well as any conversions between a traditional IRA and a Roth IRA.  Both of these activities may have tax consequences, so the form should be taken to your tax preparer along with your other forms.  A seperate form -the Form 5498ESA - reports contributions to educational savings accounts.

Schedule K1 - If you received money from an estate, trust, partnership or S coporation you will receive this form.  Income from these sources is usually taxable.  It is not unusual for these forms to come after the January 31st deadline because of the complexity of preparing the underlying return.  If you know you will receive a K1, you should discuss with your tax preparer the possibility of filing an extension and/or an amendment, rather than waiting for it to arrive.

The IRS requires professional tax preparers to use these forms to prepare your income tax return.  Substitutes such as your final paystub cannot be relied upon so be sure to keep a close watch on your mail box and your email over the next couple of weeks to insure you have all the information you will need to properly calculate your 2012 return.

 

The IRS has announced a simplified option for claiming a home office deduction beginning with 2013 returns.

The new optional deduction, capped at $1500 per year based on $5 a square foot for up to 300 square feet, is intended to reduce thepaperwork and recordkeeping burden on small businesses.

Currently claiming a home office deduction requires a fairly complex calculation of allocated expenses, depreciation and carryovers of unused deductions.  Homeowners using the new option cannot depreciate the portion of their home used in a trade or business and will claim allowable mortgage interest, real estate taxes and casualy losses on the home as an itemized deduction and will not have to allocate those deductions between personal and business use.

The current requirement that a home office must be used regularly and exclusively for business remains in effect and the allowable deduction will be limited to gross income of the business.  Any excess deduction cannot be carried forward. 

Taxpayers will be allowed to switch methods annually but once a return is filed the method chosen for that year cannot be reversed.

More information has become available about the American Taxpayer Relief Act of 2012. 

The marriage penalty relief was extended permanently.  There will continue to be no tax advantage to remaining single. 

In lieu of taking a required minimum distribution, a taxpayer over 701/2 may make a charitable distribution from their IRA in January 2013 and have it considered as being made in December 2012 and any portion of a distribution from an IRA taken in December 2012 may be treated as a charitable contribution if the distribution is transferred to a qualifying charity before February 1, 2013.

Businesses will continue to have the option to expense up to $500,000 in capital assets rather than depreciating them and 50% bonus depreciation was extended through 2013.

The IRS has delayed the start of filing until January 30th (that's just a one week delay) but has announced a longer delay for those filing certain forms and schedules.  The two that will impact many clients of Turner's Tax Service are the residential energy credit form and the depreciation schedule.  The IRS has given no date for accepting those returns as yet - their announcement just said late February and perhaps even into early March.  Returns can be prepared and readied for filing once the IRS gives the go ahead, so please schedule your appointment or mail your material as soon as you have all collected.

Yesterday Congress approved and the President signed the American Taxpayer Relief Act of 2012.  The document is 154 pages long and it will take some time to completely analyze all its provisions.  Here's what I know so far -

Income tax rates made permanent. For 2013 and beyond, the top individual income tax will increase from 35% to 39.6% for taxpayers with taxable income of $400,000 or more. Taxpayers with income below that threshold will not see an increase in tax rates.

Capital gain rates. Beginning in 2013, the maximum capital gains tax will increase from 15% to 20% for taxpayers with taxable income of $400,000 or more.

Payroll tax holiday. The 2% reduction in Social Security tax for employees and self-employed individuals expired at the end of 2012 and was not extended for 2013. An employee’s Social Security withholding will increase from 4.2% to 6.2%, with a corresponding increase in self-employment tax.

The Alternative Minimum Tax was permanently patched.  For 2012, the AMT exemption amounts will be $50,600 for individuals and $78,750 for married couples. The bill also allows nonrefundable personal credits to offset AMT.

The following deductions and exclusions were extended -

The $1000 Child Tax Credit was extended permanently.
The Earned Income Credit was extended for five years.
The American Opportunity Credit was extended for five years.
You will still be able to deduct either state income tax or state sales tax if you itemize yours deductions.  This option was extended through 2013.
The $250 educator income adjustmentfor primary and secondary teachers was extended through 2013.
The exclusion from income for qualified principal residence indebtedness was extended through 2013.
The deduction for mortgage insurance premiums as mortgage interest was extended through 2013.
The provision allowing tax-free distributions from IRAs for charitable purposes was extended through 2013.

Beginning in 2013, itemized deductions and personal exemptions will begin to phase out for taxpayer with adjusted gross income of $250,000 or more for Singles, $275,000 or more for Heads of Household, or $300,000 or more for married couples.

Beginning in 2013, the estate tax rate will increase from 35% to 40% for estates that exceed $5 million in value.

As more information becomes available about all the provisions of this bill it will be posted here, so be sure to check back regularly.