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2012 Tax Changes for Individuals
Here's what individuals and families need to know about tax changes for 2012.
From personal deductions to tax credits and educational expenses, many of the tax changes relating to individuals remain in effect through 2012 and are the result of tax provisions that were either modified or extended by the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 that became law on December 17, 2010.
The additional standard deduction for blind people and senior citizens in 2012 is unchanged from 2011, remaining at $1,150 for married individuals and $1,450 for singles and heads of household.
Income Tax Rates
Estate and Gift Taxes
Alternative Minimum Tax (AMT)
Marriage Penalty Relief
Pease and PEP (Personal Exemption Phaseout)
Flexible Spending Accounts (FSA)
Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.
Further, the IRS is providing relief for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer.
Long Term Capital Gains
Individuals - Tax Credits
In 2012 a credit of up to $12,650 is available for qualified adoption expenses for each eligible child. The available adoption credit begins to phase out for taxpayers with modified adjusted gross income (MAGI) in excess of $189,710 and is completely phased out for taxpayers with modified adjusted gross income of $229,710 or more.
Child and Dependent Care Credit
For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.
Child Tax Credit
Earned Income Tax Credit (EITC)
Individuals - Education Expenses
Coverdell Education Savings Account
American Opportunity Tax Credit
Employer Provided Educational Assistance
Lifetime Learning Credit
Student Loan Interest
Individuals - Retirement
Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
2012 Tax Changes for Businesses
Whether you file as a corporation or sole proprietor here's what business owners need to know about tax changes in 2012.
Standard Mileage Rates
Health Care Tax Credit for Small Businesses
Credit for Hiring Qualified Veterans
Section 179 Expensing
3 Ways to Spend Wisely in December
While in the mode of holiday shopping, consider these 3 tax-smart purchases.
Make Charitable Contributions
Consider making charitable contributions before year-end both to obtain the maximum tax deduction and to fulfill any charitable programs or commitments you may have established for the year.
Pay Tax-Deductible Expenses
Consider paying tax-deductible expenses prior to year-end. Some common examples are real estate taxes, quarterly state or local income taxes, investment-related expenses, and dues. These must be paid by December 31 to obtain a deduction this year. Please call us if you'd like to discuss these deductions further.
Buy a New Car
If you need a new car, now is a great time to purchase or lease one. Frequently, dealers are anxious to clear out last year's inventory prior to year-end. In making your choice, consider the federal tax (and occasional state tax) advantages for buying fuel-efficient vehicles such as plug-in hybrids and electric vehicles.
Evaluate Your Spending Plan
If you're one of the rare few who are disciplined enough to create and hold yourself to a budget, December is a great time to evaluate how close your spending went compared to plan for the year. You'll learn lessons from the areas you overspent that will help you create an even better plan for 2013.
For the rest of us mere mortals, recalculate your net worth. Compare it to the value at the beginning of the year. How did you do?
Tax Credit for Employers Hiring Veterans This Year
Many businesses may qualify to receive thousands of dollars through the Work Opportunity Tax Credit (WOTC), but employers planning to claim an expanded tax credit for hiring certain veterans should act soon because they are only eligible for the credit if the veteran begins work before the new year.
Here are five key facts about the WOTC as expanded by The Veterans Opportunity to Work (VOW) to Hire Heroes Act of 2011.
1. Hiring Deadline: Employers may be able to claim the expanded WOTC for qualified veterans who begin work on or after November 22, 2011 but before January 1, 2013.
2. Maximum Credit: The maximum tax credit is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.
3. Credit Factors: The amount of credit will depend on a number of factors. Such factors include the length of the veteran's unemployment before being hired, the number of hours the veteran works and the amount of the wages the veteran receives during the first-year of employment.
4. Disabled Veterans: Employers hiring veterans with service-related disabilities may be eligible for the maximum tax credit.
5. State Certification: Employers must file Form 8850, Pre-Screening Notice and Certification Request for the Work Opportunity Credit, with their state workforce agency. The form must be filed within 28 days after the qualified veteran starts work. Some states accept Form 8850 electronically.
Please give us a call if you need assistance filling out Form 8850 or if you'd like more information about the expanded tax credit for hiring veterans.
IRS Provides Relief for Hurricane Sandy
In the aftermath of Hurricane Sandy, the Internal Revenue Service has announced several types of relief aimed at helping affected individuals and businesses. Here are two of them.
Qualified Disaster Treatment of Payments to Victims of Hurricane Sandy
In light of the designation of Hurricane Sandy as a qualified disaster for tax purposes, the IRS is notifying taxpayers and employers that qualified disaster relief payments made to individuals by their employer or any person can be excluded from those individuals' taxable income.
Qualified disaster relief payments include amounts to cover necessary personal, family, living or funeral expenses that were not covered by insurance. They also include expenses to repair or rehabilitate personal residences or repair or replace the contents to the extent that they were not covered by insurance. Again, these payments would not be included in the individual recipient's gross income.
In addition, employer-sponsored private foundations may provide disaster relief to employee-victims in areas affected by the hurricane without affecting their tax-exempt status.
Return Filing and Tax Payment Deadline Extended to February 1, 2013
Following recent disaster declarations for individual assistance issued by the Federal Emergency Management Agency, the IRS announced today that affected taxpayers in Connecticut, New Jersey and New York will receive tax relief. Other locations may be added in coming days based on additional damage assessments by FEMA.
The tax relief postpones various tax filing and payment deadlines that occurred starting in late October. As a result, affected individuals and businesses will have until February 1, 2013 to file these returns and pay any taxes due. This includes the fourth quarter individual estimated tax payment, normally due January 15, 2013. It also includes payroll and excise tax returns and accompanying payments for the third and fourth quarters, normally due on October 31, 2012 and January 31, 2013 respectively. It also applies to tax-exempt organizations required to file Form 990 series returns with an original or extended deadline falling during this period.
The IRS will abate any interest, late-payment or late-filing penalty that would otherwise apply. The IRS automatically provides this relief to any taxpayer located in the disaster area.
Taxpayers need not contact the IRS to get this relief.
Beyond the relief provided by law to taxpayers in the FEMA-designated counties, the IRS will work with any taxpayer who resides outside the disaster area but whose books, records or tax professional are located in the areas affected by Hurricane Sandy. All workers assisting the relief activities in the covered disaster areas who are affiliated with a recognized government or philanthropic organization are eligible for relief. Please contact us if you are a taxpayer who lives outside of the impacted area, but think you may qualify for this relief. We can help you sort it out.
In addition, the IRS is waiving failure-to-deposit penalties for federal payroll and excise tax deposits normally due on or after the disaster area start date and before November 26, if the deposits are made by November 26, 2012.
So far, IRS filing and payment relief applies to the following localities:
In Connecticut (starting October 27): Fairfield, Middlesex, New Haven, and New London Counties and the Mashantucket Pequot Tribal Nation and Mohegan Tribal Nation located within New London County;
In New Jersey (starting October 26): Atlantic, Bergen, Cape May, Essex, Hudson, Middlesex, Monmouth, Ocean, Somerset and Union;
In New York (starting October 27): Bronx, Kings, Nassau, New York, Queens, Richmond, Rockland, Suffolk and Westchester.
Questions? Don't hesitate to give us a call. We have answers!
Are Your Social Security Benefits Taxable?
All Social Security recipients should receive a Form SSA-1099 from the Social Security Administration which shows the total amount of their benefits.
But many people may not realize the Social Security benefits they received in 2012 may be taxable. The information outlined below should help you determine whether those benefits you receive in 2012 are taxable or not.
1. How much, if any, of your Social Security benefits are taxable depends on your total income and marital status.
2. Generally, if Social Security benefits were your only income for 2012, your benefits are not taxable and you probably do not need to file a federal income tax return.
3. If you received income from other sources, your benefits will not be taxed unless your modified adjusted gross income is more than the base amount for your filing status (see below).
4. Your taxable benefits and modified adjusted gross income are figured on a worksheet in the Form 1040A or Form 1040 Instruction booklet. Your tax software program will also figure this for you.
5. You can do the following quick computation to determine whether some of your benefits may be taxable:
6. The 2012 base amounts are:
Confused? Give us a call. We'll make sure you receive all of the Social Security benefits you're entitled to.
Are You Defining Items In QuickBooks Correctly?
Obviously, you're using QuickBooks because you buy and/or sell products and/or services. You want to know at least weekly -- if not daily -- what's selling and what's not, so you can make informed plans about your company's future.
You get that information from the reports that you so painstakingly customize and create. But their accuracy depends in large part on how carefully you define each item. This can be a laborious process, but it's a critical part of QuickBooks' foundation.
QuickBooks' Item Lineup
You may not be aware of all of your options here. So let's take a look at what you see when you go to Lists | Item List | Item | New:
Service. Simple enough. Do you or your employees do something for clients? Training? Construction labor? Web design? This is usually tracked by the hour.
Inventory Part. If you want to maintain detailed records about inventory that contain up-to-date information about value, quantities on hand and cost of goods sold, you must define these items as inventory parts. Before you start creating individual records, make sure that QuickBooks is set up for this purpose. Go to Edit | Preferences | Items & Inventory | Company Preferences and select the desired options there, like this:
Figure 2: QuickBooks needs to know that you're planning to track at least some items as inventory parts.
Inventory Assembly. Just what it sounds like; it's sometimes referred to as a Bill of Materials. Do you sell items that actually consist of multiple individual products, services and/or other charges (though you may also sell the parts separately)? If you're planning to track the compilations as individual units, then you must define them as assemblies.
Non-Inventory Parts. If you don't track inventory, you can set up items as non-inventory parts. Even if you do track inventory, there may be times when you'll want to use this designation. For instance, you might sell something to a customer that they asked you to obtain, but you don't plan to stock it. In that case, QuickBooks only records the incoming and outgoing funds.
Figure 3: The New Item window looks a bit intimidating, but it's critical that you complete it thoroughly and correctly. We can help you get started.
Other Charges. This is a catch-all category for items like delivery charges or setup fees. You can't designate a unit or measure here; they're just standard costs.
Groups. Unlike assemblies, these are not recorded as individual inventory units. Use this designation when you sell a combination of items together frequently but you don't want them tracked as one entity.
Discount. This is a fixed amount or a percentage that you subtract from a subtotal or total.
Payment. Normally, you would use the Receive Payments window to record a payment made. But if your customer has made a partial or advance payment upfront, use this item to subtract it from the total when you create the invoice or statement.
Figure 4: Use the Payment item to record an upfront remittance.
Sales Tax Item. One sales tax, one rate, one agency.
Sales Tax Group. If a sale requires two or more sales tax items, QuickBooks calculates the total and displays it for the customer, but the items are tracked individually.
The Item menu provides other options for working with items. You can:
Let us know if you're not confident about items you've already created or if you're just getting started with this important QuickBooks feature. Some extra work and attention upfront can save you from hours of back-tracking and frustration--and from reports that don't tell the truth.
Tax Due Dates for December 2012
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