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Final Rules Require EIN Updates

By 2013, Tax Tips

On Friday, the IRS issued final regulations requiring taxpayers that obtain employer identification numbers (EINs) to update their information with the IRS (T.D. 9617). The regulations, which will apply beginning Jan. 1, 2014, to give the IRS time to publish the relevant form and instructions, adopt without change proposed regulations that were issued last year (REG-135491-10).

The IRS issues EINs (which take the form 00-0000000) to employers, sole proprietors, corporations, partnerships, nonprofit associations, trusts, estates, government agencies, certain individuals, and other business entities for tax filing and reporting purposes. Apparently, many EINs are issued to nominees that act on the applicant’s behalf but then are no longer authorized to represent the applicant.

To address this problem, the IRS revised Form SS-4, Application for Employer Identification Number, to require the disclosure of the applicant’s “responsible party” and that person’s Social Security number, individual taxpayer identification number, or EIN. The definition of responsible party depends on the type of entity applying for the EIN and is listed in the instructions to Form SS-4.

The final regulations require any person that has been issued an EIN to provide updated information to the IRS in the manner and frequency required by the forms, instructions, or other appropriate guidance. According to the preamble, following the publication of the final regulations (scheduled for May 6, 2013), the IRS will publish a form for persons issued an EIN to use to disclose the correct application information to the IRS. The relevant form will require these persons to update application information about the name and taxpayer identifying number of the responsible party within the applicable time frame. The regulations apply to all persons possessing an EIN on or after Jan. 1, 2014 (which means the rules apply retroactively and not only to persons that applied for or were issued EINs after the effective date).

Scammers Pose as IRS in Email Scam

By 2013, Tax Tips

There is a new scam email going around, supposedly from the IRS, stating:

“Your PTIN account has been temporarily locked due to too many attempts to sign in to your account with an incorrect password. In order to unlock your account, please click the link below and log in with the correct password.”

Delete this email if you receive it! 
The IRS never communicates via email!

IRS Plans January 30, 2013 Tax Season Opening for 1040 Filers

By 2013, Tax Tips

IR-2013-2, January 8, 2013

WASHINGTON – Following the January tax law changes made by Congress under the American Taxpayer Relief ACT (ATRA), the Internal Revenue Service announced today its plans to open the 2013 filing season and begin processing individual income tax returns on January 30, 2013.

The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted January 2, 2013. The announcement means that the vast majority of tax filers – more than 120 million households – should be able to start filing tax returns starting January 30, 2013.

Highlights of the American Taxpayer Relief Act of 2012

By 2013, Tax Tips

This legislation was signed into law on January 2, 2013. There are 157 pages to this law – great reading for insomniacs!

We have tried to highlight the provisions which will have the most impact on the majority of taxpayers.

  • Marginal income and capital gains tax rates would increase relative to their 2012 levels for those with annual income over $400,000 for individuals and $450,000 for couples, but the rates below these levels would remain at their 2012 levels. The income rate would increase from 35% to 39.6%, and capital gains rate would increase from 15% to 20%.
  • A phase-out of tax deductions and credits for incomes over $250,000 for individuals and $300,000 for couples would be reinstated. Limits on deductions had existed before the Bush tax cuts, and had disappeared in 2010.

Yes, the “marriage penalty” is back greater than ever!

  • Changes would be made to the alternative minimum tax to permanently index it to inflation and thus avoid the annual “patch” that was required to prevent it from impacting middle-class families.
  • The two year old cut of 2% of social security taxes expired. This rate will revert back to 6.2% from the 4.2% in 2011 and 2012. So, individuals making $100,000 per year will be effected by $2,000.
  • The federal income tax rate on long-term capital gains has been increased from 15% to 20% for individuals with incomes of $400,000 or more ($450,000 for married couples filing jointly) beginning in 2013.
  • Qualified Dividends, that is, dividends paid by U. S. and certain non-U.S. corporations to non-corporate taxpayers, are impacted by the Act, but not as significantly as had been expected. The Act does not repeal the provisions addressing qualified dividend income (“QDI”). Accordingly, QDI will remain taxable at the rates applicable to long-term capital gains, and thus at the 20% rate applicable to taxpayers with income of at least $400,000 ($450,000 for married couples).
  • Taxpayers who live in states without income taxes have been permitted to deduct sales taxes instead. (In fact, all taxpayers may elect to deduct either sales or income taxes.) The ability to deduct sales and use taxes was set to expire in 2011. The Act extends the election to deduct sales and use taxes through 2013.
  • The Act extends, until December 31, 2013, the ability of individuals who have attained age 70 1/2 to transfer up to $100,000 per year directly from an IRA to certain public charities without including the amount transferred in their gross income. The Act also permits IRA distributions in January of 2013 to be treated as having been made in 2012 for these purposes and permits taxpayers who received distributions in December of 2012 to treat the portion of that distribution that is transferred in cash to a public charity before February 1, 2013 as if it had been transferred directly from the IRA to the charity for these purposes.
  • Several other tax incentives aimed at individuals at different levels of income were extended only by one year. As a result, the following individual tax incentives were extended by one year:
    • Above-the line deduction of up to $250 for teacher classroom expenses.
    • Discharge of indebtedness on principal residence excluded from gross income of individuals.
    • Parity for exclusion for employer-provided mass transit and parking benefits.
    • Premiums for mortgage insurance deductible as interest that is qualified residence interest.
    • Contributions of capital gain real property made for qualified conservation purposes.

The ACT extended the following 2009 Obama Tax Cuts to December 31, 2017:

  • The American Opportunity Tax Credit.
  • The reduction in the earnings threshold for the refundable portion of the Child Tax Credit to $3,000.
  • The Earned Income Tax Credit (“EITC”) for larger families.
  • EIC modification and simplification – increase in joint returns, beginning and ending income level for phase-out by $5,000 indexed after 2008.

A few of the 26 Business Tax Extenders:

  • Increase in Section 179 depreciation – $500,000
  • Extension of 50% bonus depreciation
  • Employer wage credit for activated military reservists
  • Work Opportunity tax credit

We look forward to helping our clients navigate through these changes in 2013!

Individual Tax News

By 2013, Tax Tips

As of this date, Congress still has not agreed on extending the Bush tax cuts or what changes will be made.

Employee portion of Social Security Tax: The 2% reduction in the employee portion of social security tax will also expire at the end of 2012, unless Congress extends this provision.

Also, the alternative minimum tax (AMT) patch has not been fixed for 2012. If Congress does not address this issue, 33 million taxpayers will be affected by AMT in 2012.

The only thing we know for certain is that two new Medicare surcharges, which are part of the Health Care Act, will go in effect for 2013 for single taxpayers over 200K in income and married taxpayers over $250K.

There will be a 0.9% surtax imposed on wages and self-employed earnings in excess of those amounts. And, there will be a 3.8% surtax on the lesser of net investment income or the excess of AGI over those levels.

IDENTITY THEFT:

Tax-related identity theft is likely to result in slower refunds next year, according to IRS officials. Fraudsters take stolen Social Security numbers and file for unauthorized refunds early in the filing season. Victims discover that their identity has been stolen only after their true tax return filing is rejected. The problem is increasing rapidly. IRS will take measures to stop phony refunds, but as a result, the agency will end up taking longer to issue refunds to taxpayers.

FILING SEASON:

IRS won’t be giving precise dates for refunds in the upcoming filing season. This past winter, many taxpayers complained that the refund date shown on the IRS “Where’s My Refund” page was inaccurate. The problem was compounded when a glitch caused refund delays for some early filers. The Service now has decided to fuzz the refund date. Filers who are seeking the status of their refunds will be told that refunds will generally be paid within 21 days of the date of the return was filed.

MEDICAL EXPENSES:

In 2013, there will be an increase from 7.5% to 10% in the threshold for deducting medical expenses.

CHILD CARE TAX CREDIT:

Unless Congress acts differently, the Child Tax Credit for children under 17 will be reduced from $1,000 per qualifying child to the pre-Bush tax cut level of $500 for 2013 and later.

MEDICAL FSA’s:

Employees flexible spending accounts will be reduced from $5,000 to $2,500 beginning in 2013.

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Business News

By 2013, Tax Tips

The standard mileage rate for business use of a vehicle will increase to 56.5 cents per mile as of January 2, 2013.

The Social Security Wage base will increase to $113,700 for 2013.

The Colorado State Unemployment Wage Base will increase to $11,300 for 2013.

S-CORPORATION HEALTH INSURANCE:

This amount must be reported on W-2 Forms for anyone who is more than a 2% shareholder.

ENTERPRISE ZONE:

Don’t forget that you must now pre-qualify if you are eligible for Enterprise Zone credits. This pre-qualification form should be filed in January, 2013 to qualify for 2013 credit.

STATE WITHHOLDING BOOKLETS NO LONGER MAILED:

The Colorado Department of Revenue is working to find state budget savings wherever possible. Due to the increase in electronic filing, it is becoming less cost-effective to create and mail coupon booklets. Wage withholding tax has a very simple tax form and many employers are already filing and paying their tax by Electronic Funds Transfer (EFT) and do not need coupon booklets.

For this reason, 2013 wage withholding coupon booklets will not be mailed to any withholding tax account holder. These booklets would normally be sent in January and February. Also, the Department will not issue coupon booklets if they are requested.

Withholding account holders are encouraged to sign up for account access to file and pay through Revenue Online at www.Colorado.gov/RevenueOnline. Revenue Online is a one-stop, secure, streamlined website where you can file returns (including “zero returns”) register for EFT; make payments online by EFT, e-check or credit card; and monitor your account activity. Visit www.Colorado.gov/RevenueOnline and choose “Business” to get started.

Each new wage withholding tax license sent to businesses will contain a Letter ID number that can be used to sign up for Revenue Online Login ID and Password access to the tax account. Click the “View Tutorial” link under “Login” for step-by-step instructions on how to sign up for Revenue Online.

EMPLOYERS RESPONSIBLE FOR ADDITIONAL WITHHOLDING MEDICAL SURCHARGE:

Employers will be responsible for withholding the additional 0.9% Medicare surcharge for single employees with W-2 earning over $200,000 and married employees over $250,000. This additional withholding will begin when employers exceed those amounts.

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Reminder About (2) New Taxes Starting in 2013

By Tax Tips

The first levy is a special 3.8% Medicare surtax on unearned income of single filers with modified adjusted gross income (AGI) over $200,000 and joint filers above $250,000. Modified AGI is AGI plus any excluded foreign earned income. The surtax is imposed on the smaller of the filer’s net investment income or the excess of modified AGI over the thresholds. Investment income includes interest, dividends, capital gains, annuities, royalties and passive rental income, but not tax free interest or payouts from retirement plans such as 401(k)s, IRAs, Roths, profit sharing plans and defined benefit plans. So annuity payouts from retirement plans are exempt. A couple with $50,000 of investment income and AGI of $280,000 will pay $1,140 … 3.8% on the $30,000 excess over $250,000. A single taxpayer with AGI of $400,000 and $50,000 of investment income will pay an additional $1,900 … 3.8% of $50,000.

The surtax boosts the top rate on capital gains and dividends to 18.8%… the 15% nominal maximum rate that we expect will be in effect for 2013, plus 3.8%. If you sell your primary residence, only the portion of the profit over the $250,000 or $500,000 exclusion will be subject to the tax if your AGI is high enough to trigger it. The full profit on sales of rental properties and second homes can be hit by the surtax. And note that the taxable gain may push your income over the surtax thresholds.

So consider selling highly appreciated assets in 2012 instead of 2013.

The second levy is a 0.9% surtax on earned income … wages and income from self-employment. Singles will owe the extra 0.9% Medicare tax once total earnings are more than $200,000. Couples … over $250,000. So the effective Medicare tax rate on earnings over the thresholds will be 3.8% … the usual 2.9% rate plus an extra 0.9%.

This is another reason you may not want to defer compensation into 2013.

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