First, I want to thank everyone for returning and I hope that your summer was excellent. I hope that if you ever have questions that you will feel comfortable calling and asking. Tax season can be very rushed, so I want to be sure you have all your questions answered.
Stimulus Tax Incentives
As things stand right now this will be the last year for the stimulus tax incentives that many of us gotten used to. Depending on your politics, some will see this as a tax increase while others will see it as going back to normal.
Gone for 2013:
- Cash-back additional child tax credit – even the tax credit itself is on the block
- Education tax credits
- Home energy efficiency tax credits for those who have not used the maximum allowance
- Capital gains tax reduction
- 179 deduction reverting to $25,000 cap
- Social Security Tax for employees returns to 6.2% from 4.2%
Concepts in the works:
- Raising taxes on certain income levels
a. Surcharges for excess dividend, interest, and other passive income
b. Further limiting itemized deductions for those over $120,000 annual taxable income
- Increased penalties for erroneous filings and simple errors
Individual Health Care Mandate
Most of these tax changes are related to raising funds for the Individual Health Care Mandate. I put off writing this earlier because I was hoping to have greater details but so much is still subject to interpretation and rule changes as well as may be changed. I have struggled to find a Web site that really explained all the details easily but have not found one. For those interested, Wikipedia does a nice technical outline:
http://en.wikipedia.org/wiki/PPACA
New Surcharges
Whether or not you support the bill, it is here to stay in some shape or form so trying to be prepared for it will be a key tax planning maneuver for many of us. There are actually many new surcharges already in the program and the major ones to affect my clients are:
- Investment real estate sales tax of 3%. This will be assessed against any property that you have held for investment; e.g., rental properties or income-producing lands such as logging and farm lands. It also will be assessed on profit of selling your residence exceeding $250,000 for individuals of $500,000 for married persons. Of course, in today’s market, I doubt many of us need to worry about that one. However, if you have real estate that will become part of your estate, this will affect you, so proper planning is needed.
- Medicare taxes will increase for the portion of your income over:
a. self employed 0.9% over $200,000
b. employees 0.9% over $125,000
- For employers those with over 50 employees will have to provide health insurance or be fined per employee. Insurance must have a deductible no greater then $2000 per individual or $4000 per family
For those who meet the threshold there will also be a surtax of 3.8% for all passive income. These surcharges are in addition to any AMT tax, which means some of you will have huge increases in your taxes.
Are you safe?
Who does not need to be concerned about the taxes or the insurance mandate? The following persons are exempt from the mandate.
- Anyone whose premiums exceed 8% of income after federal tax credits are calculated. This is the hard part because you may not know your income until the year is over, and the credit is calculated one year in advance. So if you think you were exempt, but come tax time you’re not, then you’ll be penalized. Or if you have coverage but made more income, you now must pay back the tax credit you received.
- Most persons over 65, unless your income exceeds $80,000. If this is you, the biggest changes are:
a. Loss of home health care services from Medicare
b. Those on Medicare Advantage Programs will not have drug coverage
c. Your tax rates will increase as well as premium surcharge for Medicare
d. Members of Amish/Mennonite religious orders
e. Most religious leaders who are ministers will be able to claim exemption
None of this comes into play until 2014; however, many of the calculations will be based on your 2013 returns. Insurance companies will be required to issue statements regarding your coverage to you and to the IRS. As you may know, tax preparers are now licensed, and the IRS also holds us liable for many enforcement issues. If you do not bring us the health insurance proof of coverage, we will be required to calculate that you had no coverage and whether a penalty is due, and to only file with the form.
Penalties for Errors
One interesting note that affects people who use tax software to prepare their own returns: The IRS is cracking down on common errors. You may not claim exemption from penalties or interest due to errors in your taxes because of miscalculations, or for not understanding the software or tax laws. This has actually always been the case, but it has been expanded to include taxpayer reliance on phone services offered by self-prepared tax software. Even when you pay for “extra” protection, tax-software companies only pay penalties if the software failed in calculations that they can reproduce on their own computers—which is so highly unlikely you are more likely to win the lottery. Some relevant cases that resulted in criminal penalties just this year are:
- Brenda Frances Bartlett v. Commissioner
- Hopson v. Commissioner
- Parker v. Commissioner
- Lam and Chang v. Commissioner
- Au v. Commissioner
Penalties for such claimed errors are 20% of the taxes under paid and can have a minimum penalty of $5,000 if the court determines you are unreasonable in your claims.
Good News for Consumers of Tax Preparation Services
Finally tax preparers are not only being licensed but have both education and competency testing. Sadly the competency testing was not required of CPA’s, lawyers, most people do not realize that the average CPA exam only contains 10 questions about taxes and the Bar exam one. Off course if they choose to practice taxes they can take education but it is purely voluntary and they do not need to take tests or prove competency. Enrolled Agents are exempt but they have taken an IRS administered exams and have high annual education requirements in tax to start with. Actuaries and registered benefit officers are limited to only preparing taxes in their field without a license. Supervised staff i.e. anyone working under someone licensed or exempt also does not have to be tested however they officially cannot sign returns. This practice is actually common at most CPA firms and franchises anyways as they hire additional staff during tax time and the owner signs the return when they have completed the work and bill you as if they did the work versus some $10-$15 an hour data entry person.
AATABS in Brewer
I believe the move to Brewer from downtown Bangor has been beneficial to everyone. It is much easier to get to, is a lot roomier, has plenty of parking, and offers more privacy and a professional appearance. I am hoping to start to gain new customers this year and would welcome any input you may have.
Referrals. One suggestion that I have received is that I offer a cash discount and or payment for referrals. I know this happens at many franchises, but I have resisted this type of marketing because in reality you pay for this. Every year I have my secretary go to several places with dummy data to get pricing. I am consistently half the price of the franchises or even less, and while I do not consider myself a discount service I believe I charge a fair price. I do not see the point to mark up prices just to offer a discount as many businesses do.
However, I will take any ideas into consideration and do appreciate your business—and, in many cases, the friendships that we have built over the years. Also as of 12/31/12 I will no longer be using the Deer Isle address everything will be coming through only to the Brewer office.