WASHINGTON — March 22

Refunds totaling just over $917 million may be waiting for an estimated 984,400 taxpayers who did not file a federal income tax return for 2009, the Internal Revenue Service announced today. However, to collect the money, a return for 2009 must be filed with the IRS no later than Monday, April 15, 2013.

The IRS estimates that half the potential refunds for 2009 are more than $500.

Some people may not have filed because they had too little income to require filing a tax return even though they had taxes withheld from their wages or made quarterly estimated payments. In cases where a return was not filed, the law provides most taxpayers with a three-year window of opportunity for claiming a refund. If no return is filed to claim a refund within three years, the money becomes property of the U.S. Treasury.

For 2009 returns, the window closes on April 15, 2013. The law requires that the return be properly addressed, mailed and postmarked by that date. There is no penalty for filing a late return qualifying for a refund.

The IRS reminds taxpayers seeking a 2009 refund that their checks may be held if they have not filed tax returns for 2010 and 2011. In addition, the refund will be applied to any amounts still owed to the IRS or their state tax agency, and may be used to offset unpaid child support or past due federal debts such as student loans.

By failing to file a return, people stand to lose more than refund of taxes withheld or paid during 2009. In addition, many low-and-moderate income workers may not have claimed the Earned Income Tax Credit (EITC). For 2009, the credit is worth as much as $5,657. The EITC helps individuals and families whose incomes are below certain thresholds. The thresholds for 2009 were:

$43,279 ($48,279 if married filing jointly) for those with three or more qualifying children,

$40,295 ($45,295 if married filing jointly) for people with two qualifying children,

$35,463 ($40,463 if married filing jointly) for those with one qualifying child, and

$13,440 ($18,440 if married filing jointly) for people without qualifying children.

For more information, contact us.

Internal Revenue Service - April 2013

April 15 is the annual deadline for most people to file their federal income tax return and pay any taxes they owe. By law, the IRS may assess penalties to taxpayers for both failing to file a tax return and for failing to pay taxes they owe by the deadline.

Here are eight important points about penalties for filing or paying late.

1. A failure-to-file penalty may apply if you did not file by the tax filing deadline. A failure-to-pay penalty may apply if you did not pay all of the taxes you owe by the tax filing deadline.

2. The failure-to-file penalty is generally more than the failure-to-pay penalty. You should file your tax return on time each year, even if you’re not able to pay all the taxes you owe by the due date. You can reduce additional interest and penalties by paying as much as you can with your tax return. You should  explore other payment options such as getting a loan or making an installment agreement to make payments. The IRS will work with you.

3. The penalty for filing late is normally 5 percent of the unpaid taxes for each month or part of a month that a tax return is late. That penalty starts accruing the day after the tax filing due date and will not exceed 25 percent of your unpaid taxes.

4. If you do not pay your taxes by the tax deadline, you normally will face a failure-to-pay penalty of ½ of 1 percent of your unpaid taxes. That penalty applies for each month or part of a month after the due date and starts accruing the day after the tax-filing due date.

5. If you timely requested an extension of time to file your individual income tax return and paid at least 90 percent of the taxes you owe with your request, you may not face a failure-to-pay penalty. However, you must pay any remaining balance by the extended due date.

6. If both the 5 percent failure-to-file penalty and the ½ percent failure-to-pay penalties apply in any month, the maximum penalty that you’ll pay for both is 5 percent.

7. If you file your return more than 60 days after the due date or extended due date, the minimum penalty is the smaller of $135 or 100 percent of the unpaid tax.

8. You will not have to pay a late-filing or late-payment penalty if you can show reasonable cause for not filing or paying on time.

Note: The IRS recently announced special penalty relief to many taxpayers who requested an extension of time to file their 2012 federal income tax returns and some victims of the recent severe storms in parts of the South and Midwest. For details about these relief provisions, call us anytime.

Saving for your retirement can make you eligible for a tax credit worth up to $2,000. If you contribute to an employer-sponsored retirement plan, such as a 401(k) or to an IRA, you may be eligible for the Saver’s Credit. 

Here are seven points the IRS would like you to know about the Saver’s Credit:

1. The Saver’s Credit is formally known as the Retirement Savings Contribution Credit. The credit can be worth up to $2,000 for married couples filing a joint return or $1,000 for single taxpayers.

2. Your filing status and the amount of your income affect whether you are eligible for the credit. You may be eligible for the credit on your 2012 tax return if your filing status and income are:

•        Single, married filing separately or qualifying widow or widower, with income up to $28,750

•        Head of Household with income up to $43,125

•        Married Filing Jointly, with income up to $57,500

3. You must be at least 18 years of age to be eligible. You also cannot have been a full-time student in 2012 nor claimed as a dependent on someone else’s tax return.

4. You must contribute to a qualified retirement plan by the due date of your tax return in order to claim the credit. The due date for most people is April 15.

5. The Saver’s Credit reduces the tax you owe.

6. Use IRS Form 8880, Credit for Qualified Retirement Savings Contributions, to claim the credit. Be sure to attach the form to your federal tax return. If you use IRS e-file the software will do this for you.

7. Depending on your income, you may be eligible for other tax benefits if you contribute to a retirement plan. For example, you may be able to deduct all or part of your contributions to a traditional IRA.

The term “capital asset” for tax purposes applies to almost everything you own and use for personal or investment purposes. A capital gain or loss occurs when you sell a capital asset.

Here are 10 facts from the IRS on capital gains and losses: 

1. Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. Capital assets include your home, household furnishings, and stocks and bonds that you hold as investments.

2. A capital gain or loss is the difference between your basis of an asset and the amount you receive when you sell it. Your basis is usually what you paid for the asset. 

3. You must include all capital gains in your income.

4. You may deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of personal-use property. 

5. Capital gains and losses are long-term or short-term, depending on how long you hold on to the property. If you hold the property more than one year, your capital gain or loss is long-term. If you hold it one year or less, the gain or loss is short-term.

6. If your long-term gains exceed your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a 'net capital gain.’ 

7. The tax rates that apply to net capital gains are generally lower than the tax rates that apply to other types of income. The maximum capital gains rate for most people in 2012 is 15 percent. For lower-income individuals, the rate may be 0 percent on some or all of their net capital gains. Rates of 25 or 28 percent can also apply to special types of net capital gains. 

8. If your capital losses are greater than your capital gains, you can deduct the difference between the two on your tax return. The annual limit on this deduction is $3,000, or $1,500 if you are married filing separately.

9. If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they occurred that year. 

10. Form 8949, Sales and Other Dispositions of Capital Assets, will help you calculate capital gains and losses. You will carry over the subtotals from this form to Schedule D, Capital Gains and Losses. If you e-file your tax return, the software will do this for you.

For more information about capital gains and losses, call us anytime.

January 2, 2013

The truth about the so called “Fiscal Cliff” is that the real affect is mostly on us, the people who dwell on the precipice, or depending on your income bracket, how high up the cliff you are decides how big an impact when you get pushed off.

For this year’s dire federal financial issues, the top wage earners will be the one’s pushed off the top of the cliff, hoping their increased tax bills will pay for the spending in government. But considering, the Government Accounting Office (GAO) estimates that the entire increase in tax revenue will still be less than the increase in spending planned for 2013, the rest of us will most likely experience some sort of “impact” down the road.

As of January 1, the Senate and House both passed H.R. 8 and had sent it on to President Obama for final signature. Here is what we know so far….

Extension of Bush-era tax cuts on incomes up to $400,000 for individuals, $450,000 for couples. Earnings above those amounts would increase from the current 35% to a tax rate of 39.6%. Extension of Clinton-era caps on itemized deductions and the phase-out of the personal exemption for individuals making more than $250,000 and couples earning more than $300,000.

The Estate Tax, (or as it is also known, the Death Tax) would be taxed at a top rate of 40%, with the first $5 million in value exempted for individual estates and $10 million for family estates. In 2012, such estates were subject to a top rate of 35%.

Capital gains and dividend income exceeding $400,000 for individuals and $450,000 for families would be taxed at 20%, an increase from 15%.

The alternative minimum tax has finally been permanently indexed for inflation to prevent nearly 30 million middle and upper-middle income taxpayers from a $3,000 tax increase. The government has been patching this back-up tax for over a decade.

Extends for five years, the expansion of the child tax credit, the earned income tax credit, and an up-to-$2,500 tax credit for college tuition.

Extends for one year accelerated "bonus" depreciation of business investments in new property and equipment, a tax credit for research and development costs and a tax credit for renewable energy such as wind-generated electricity.

Extends jobless benefits for the long-term unemployed for one more year.

Restores the Social Security payroll tax to 6.2%, removing a 2% cut from two years ago.

In all likelihood, the federal financial troubles are far from over. According to a January 2^nd article on The Tax Foundation’s website, for every dollar of new revenue created by H.R.8, we will lose $8½ in GDP. To read that article, click this link.

While President Obama has promised to work on the budget and spending next, his track record so far, hasn’t shown so well.

No matter what happens, we will keep you up to date. Just keep checking back here, or email us to get the most current updates as they happen.

January 10, 2013

Filing Status       Taxable Income                      Rate

Single               $0 to $8,925........................10%

                        $8,925 to $36,250................15%

                        $36,250 to $87,850...............25%

                        $87,850 to $183,250.............28%

                        $183,250 to $398,350............33%

                        $398,350 to $400,000............35%

                        $400,000+..........................39.6%

Joint                 $0 to $17,850......................10%

                         $17,850 to $72,500..............15%

                         $72,500 to $146,400.............25%

                         $146,400 to $223,050...........28%

                         $223,050 to $398,350...........33%

                         $398,350 to $450,000...........35%

                         $450,000+..........................39.6%

Head of             $0 to $12,750......................10%
Household        $12,750 to $48,600..............15%

                         $48,600 to $125,450.............25%

                         $125,450 to $203,150...........28%

                         $203,150 to $398,350...........33%

                         $398,350 to $425,000...........35%

                         $425,000+..........................39.6%

July 2012

Because of the proximity of these new taxes, planning and preparation is critical. Since each taxpayer’s situation is different, planning will be based on their own circumstances.

The following list of important tax events may be relevant in planning for individuals and private enterprises. You should discuss your situation with your tax professional before making any tax or investment changes.

Long-term capital gain recognition – Beginning in 2013, the statutory tax rate on long-term capital gains is scheduled to increase from 15 percent to 20 percent (and will effectively be even higher because of the scheduled reinstatement of the phase-out of personal exemptions and the itemized deduction limitation), and the net investment income tax will add an additional 3.8 percent to that rate. Based on these tax increases, after 2012, it would be wise to defer capital gains.

Installment sale elections – For 2011 and 2012 sales, you should probably consider not doing installment sales (where available) and recognize the entire amount of gain in the year of sale. This would allow you to recognize the entire gain at the lower capital gain rate, although this decision will need to take into account cash flow and tax rates, as well as many nontax factors. You might also consider negotiating an accelerated payment of any existing installment sale to realize the gain prior to 2013.

Portfolio balancing – Work with your investment adviser to look at all options such as increasing investments in growth assets and decreasing emphasis on dividend-paying assets prior to 2013. This should remove income from your earnings and reduce your exposure to the net investment income tax on top of the ordinary tax rates on dividends.

4. Interest expense carryovers – If you have an investment interest expense carryover into 2012, you might consider electing not to tax qualified dividends and long-term capital gains at ordinary tax rates on your 2012 tax return. With the higher tax rates, and the 3.8 percent net investment income tax, after 2012, this decision could save you money.

5. Passive activity grouping elections – Passive income is subject to the new 3.8 percent net investment income tax and therefore, if you have multiple passive activities, you might consider the grouping elections for each activity that may reclassify such activity from passive to active or vice versa. Passive activity losses (PALs) can be deducted only against passive activity income; regroupings may release the otherwise suspended losses, which may be even more beneficial in the post-2013 higher tax rate environment.

Alternatively, an appropriate recharacterization from active to passive status may delay otherwise allowable losses, to a time when they may be more valuable to be released in future higher tax rate years. Also, if you are considering disposing of a passive activity, it may be better to delay that action given the anticipated increase in tax rates. Timing of dispositions of passive activities and PAL carryforwards should be carefully coordinated.

Passive activity planning is a complicated area of the tax law – one that you should discuss with your tax adviser as it relates to each of these matters.

September 2012

From the IRS:

Farmers and ranchers who previously were forced to sell livestock due to drought, like the drought currently affecting much of the nation, have an extended period of time in which to replace the livestock and defer tax on any gains from the forced sales, the Internal Revenue Service announced today.

Farmers and ranchers who, due to drought, sell more livestock than they normally would may defer tax on the extra gains from those sales. To qualify, the livestock generally must be replaced within a four-year period. The IRS is authorized to extend this period if the drought continues.

The one-year extension of the replacement period announced today generally applies to capital gains realized by eligible farmers and ranchers on sales of livestock held for draft, dairy or breeding purposes due to drought. Sales of other livestock, such as those raised for slaughter or held for sporting purposes, and poultry are not eligible.

The IRS is providing this relief to any farm located in a county, parish, city or district, listed as suffering exceptional, extreme or severe drought conditions by the National Drought Mitigation Center (NDMC), during any weekly period between Sept. 1, 2011, and Aug. 31, 2012. All or part of 43 states are listed. Any county contiguous to a county listed by the NDMC also qualifies for this relief.

As a result, farmers and ranchers in these areas whose drought sale replacement period was scheduled to expire at the end of this tax year, Dec. 31, 2012, in most cases, will now have until the end of their next tax year. Because the normal drought sale replacement period is four years, this extension immediately impacts drought sales that occurred during 2008. But because of previous drought-related extensions affecting some of these localities, the replacement periods for some drought sales before 2008 are also affected. Additional extensions will be granted if severe drought conditions persist.

November 2012

Section 6702(d) of the Internal Revenue Code authorizes the Internal Revenue Service (IRS) to reduce the amount of the frivolous tax submission penalty assessed or if the IRS determines that a reduction would promote compliance with and administration of the Federal tax laws.

Generally, if a person is current all tax returns and paying all outstanding taxes, penalties and related interest, the IRS will reduce all unpaid section 6702 penalties assessed against that person to $500. The person must make a payment of at least $250 in advance of the IRS reductions of the penalties.

After experience with the application of this revenue procedure, the IRS and the Treasury Department plan to assess whether the revenue procedure is successfully promoting compliance with and administration of the Federal tax laws and may revise this revenue procedure as necessary to further those goals.

From IRS Webwire
July 2012

Military personnel and their families face unique life challenges with their duties, expenses and transitions. The IRS wants active members of the U.S. Armed Forces to be aware of all the special tax benefits that are available to them.

Here are 10 of those special tax benefits:

1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you may be able to deduct some of your unreimbursed moving expenses.

2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service during that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received. You can also elect to include your nontaxable combat pay in your "earned income" for purposes of claiming the Earned Income Tax Credit.

3. Extension of Deadlines The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.

4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive. 

5. Joint Returns Generally, joint income tax returns must be signed by both spouses. However, when one spouse is unavailable due to military duty, a power of attorney may be used to file a joint return.

6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.

7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.

March 2012
You are in the business of farming if you cultivate, operate or manage a farm for profit, either as an owner or a tenant. A farm includes livestock, dairy, poultry, fish, fruit and truck farms. It also includes plantations, ranches, ranges and orchards.

The IRS has 10 key points for farmers regarding federal income taxes.

1. Crop insurance proceeds You must include in income any crop insurance proceeds you receive as the result of crop damage. You generally include them in the year you receive them.

2. Sales caused by weather-related condition If you sell more livestock, including poultry, than you normally would in a year because of weather-related conditions, you may be able to postpone until the next year the reporting of the gain from selling the additional animals.

3. Farm income averaging You may be able to average all or some of your current year's farm income by allocating it to the three prior years. This may lower your current year tax if your current year income from farming is high, and your taxable income from one or more of the three prior years was low. This method does not change your prior year tax, it only uses the prior year information to determine your current year tax.

4. Deductible farm expenses The ordinary and necessary costs of operating a farm for profit are deductible business expenses.  An ordinary expense is an expense that is common and accepted in the farming business. A necessary expense is one that is appropriate for the business.

5. Employees and hired help You can deduct reasonable wages paid for labor hired to perform your farming operations. This includes full-time and part-time workers. You must withhold Social Security, Medicare and income taxes for employees.

6. Items purchased for resale You may be able to deduct, in the year of the sale, the cost of items purchased for resale, including livestock and the freight charges for transporting livestock to the farm.

7. Net operating losses If your deductible expenses from operating your farm are more than your other income for the year, you may have a net operating loss. You can carry that loss over to other years and deduct it. You may get a refund of part or all of the income tax you paid for past years, or you may be able to reduce your tax in future years.

8. Repayment of loans You cannot deduct the repayment of a loan if the loan proceeds are used for personal expenses. However, if you use the proceeds of the loan for your farming business, you can deduct the interest that you pay on the loan.

9. Fuel and road use You may be eligible to claim a credit or refund of federal excise taxes on fuel used on a farm for farming purposes.

10.  Farmers Tax Guide More information about farm income and deductions is in IRS Publication 225, Farmer’s Tax Guide, which is available at www.irs.gov.

Based on the proposed new federal debt ceiling of $16.7 trillion dollars, which would give the Federal government the ability to continue to borrow money through 2012.

FOX News has developed an interesting Debt Calculator. This online tool helps you to see in real numbers what your portion of the federal debt would be is the ceiling is raised. The tool is at http://www.foxnews.com/topics/politics/possible-new-federal-debt-limit.htm.

Just put in your annual household income and click the submit button to be scared out of your mind. Example: $55,000 annual household income, owes $73,295!!! We're not sure how scientific the calculator is, but it does give you a good idea of just how much trouble the country is in.

Here are 10 IRS tax tips military members can keep in mind to help with filing a tax return next year.

1. Moving Expenses If you are a member of the Armed Forces on active duty and you move because of a permanent change of station, you can deduct the reasonable unreimbursed expenses of moving you and members of your household.

2. Combat Pay If you serve in a combat zone as an enlisted person or as a warrant officer for any part of a month, all your military pay received for military service that month is not taxable. For officers, the monthly exclusion is capped at the highest enlisted pay, plus any hostile fire or imminent danger pay received.

3. Extension of Deadlines The time for taking care of certain tax matters can be postponed. The deadline for filing tax returns, paying taxes, filing claims for refund, and taking other actions with the IRS is automatically extended for qualifying members of the military.

4. Uniform Cost and Upkeep If military regulations prohibit you from wearing certain uniforms when off duty, you can deduct the cost and upkeep of those uniforms, but you must reduce your expenses by any allowance or reimbursement you receive.

5. Joint Returns Generally, joint returns must be signed by both spouses. However, when one spouse may not be available due to military duty, a power of attorney may be used to file a joint return.

6. Travel to Reserve Duty If you are a member of the US Armed Forces Reserves, you can deduct unreimbursed travel expenses for traveling more than 100 miles away from home to perform your reserve duties.

7. ROTC Students Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay – such as pay received during summer advanced camp – is taxable.

8. Transitioning Back to Civilian Life You may be able to deduct some costs you incur while looking for a new job. Expenses may include travel, resume preparation fees, and outplacement agency fees. Moving expenses may be deductible if your move is closely related to the start of work at a new job location, and you meet certain tests.

9. Tax Help Most military installations offer free tax filing and preparation assistance during the filing season.

10. Tax Information: IRS Publication 3, Armed Forces’ Tax Guide, summarizes many important military-related tax topics.  Publication 3 is available for download at IRS.gov.