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11 posts from March 2013

03/29/2013

Free Tax Extension Filing Offer

McRuer CPAs is offering special pricing relief for our clients who must request a tax filing extension due to IRS delays in making all necessary tax forms available.  This offer applies to clients who have suffered delays and setbacks in getting their tax records and necessary tax forms compiled in time for processing and submission by the April 15th deadline.

1040 man

We have been updating McRuer CPAs The ReSource eNewsletter subscribers throughout the past several weeks about the unprecedented delays caused by Congress and the administration as the “Fiscal Cliff” negotiations delayed the final 2012 tax law.

The delays have caused the IRS to release final forms and other guidance necessary to complete income tax returns weeks later than usual.  31 forms were affected.  This included forms necessary for reporting depreciation; affecting virtually every business.   Many of the forms also  had to do with tax credits.

Accordingly, McRuer CPAs and other tax preparation services were prevented from starting their tax filing season processing for several weeks.  This delay that is beyond our control will also likely force us to request filing extensions for more returns than in the past.

To date, the IRS has not offered any filing deadline relief.  That means, although the tax filing season is now significantly shorter, 2012 individual income tax returns must still be filed on or before April 15, 2013, or an extension of time to file must be secured.

Protests about the delays were filed on behalf of taxpayers by the American Institute of CPAs.  In response, the IRS is providing a waiver that may be available for taxpayers incurring late-filing penalties caused by the federal government delays.

However, be aware; the IRS relies on an automated assessment process for the late-payment penalty, and it says affected taxpayers will still receive an automatic assessment notice and demand for payment.  The taxpayer will have to then respond in writing explaining why they believe they are eligible for penalty relief and which forms caused their late payment.

McRuer CPAs has further expanded its hours, added team members, and extended all team members’ availability to serve our clients during the now shortened filing season.

Our Offer:   As part of our continuing focus on providing the best customer service, for those clients whose returns we cannot complete by the filing deadline due to the delays, we are offering to prepare their tax filing extension requests free of charge.

We appreciate our clients’ confidence and will do everything we can to accommodate their tax filing obligations during this unusual season.  If you have any questions, please do not hesitate to contact us.

03/26/2013

Mortgage Debt Forgiveness & Tax Consequences

House with dollar signIf your lender cancelled or forgave your mortgage debt in 2012, the debt forgiveness generally results in taxable income.  If you’re already enduring a financial crisis in which you lost your home to foreclosure, this may seem like a double whammy.  Yet there is some tax relief for those who qualify.

If the cancelled debt is for your main home and the debt was used to buy, build or substantially improve your principal residence, the cancelled debt may be excluded as income.  The maximum qualified debt excludable under this exception is $2 million ($1 million for married filing separate). 

You may also qualify for an exclusion if the cancelled mortgage was a refinanced loan you used only to buy, build or substantially improve your main home.  That exclusion is limited to the amount of the principal of the old mortgage before refinancing.

The past five years have resulted in record-breaking numbers of foreclosed and cancelled primary residence debts throughout America.  Lawmakers continue to debate ways to help those who have lost their home from enduring more financial struggles including unanticipated tax obligations.  At this point, the limited 2007 income tax exclusions have been extended through 2013.

For more information on the tax consequences there is an online IRS “assistant” or you may contact McRuer CPAs for help determining the tax you may owe.

03/25/2013

List of 31 Tax Forms in Delayed Release

Closeup of clockMany of you are asking which specific income tax forms are affected by delays in availability caused by the late passage of the American Taxpayer Relief Act. 

The IRS shows there are 31 forms that were not yet available for processing at the official opening of the 2012 tax preparation tax season.  Many of the forms have to do with tax credits that can decrease the amount of tax owed.

As we have reported, some of the forms were only made available in the second week of March. Typically, such forms are ready weeks in advance of the launch of a tax season, not weeks after a tax season has begun.  This year, these forms needed to be updated and processed by the IRS following changes made in the ATRA which was passed in mid-January.  Tax preparers filed complaints with the IRS concerned that the delayed forms could affect the ability of many taxpayers to determine their tax obligation and make payments by the April 15th deadline.

Late last week, the IRS announced it will now allow a waiver of late-payment penalties if that taxpayer can show that their payment(s) delay is directly linked to the tax forms delay.

Taxpayers are reminded that because the late-payment alert system is automated, affected taxpayers who can not make their payment(s) by the April 15th deadline will be receiving a notice of a penalty by mail from the IRS.  The taxpayer will be responsible for detailing how the late payment was connected to a specific delayed form or forms in order to qualify for a penalty waiver.  All taxpayers must still file their tax returns by the April 15th deadline. (See more information on this in blogs filed last week.)

Here is the list of forms: 

  1. Form 3800, General Business Credit
  2. Form 4136, Credit for Federal Tax Paid on Fuels
  3. Form 4562, Depreciation and Amortization (Including Information on Listed Property)
  4. Form 5074, Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern Mariana Islands
  5. Form 5471, Information Return of U.S. Persons With Respect to Certain Foreign Corporations
  6. Form 5695, Residential Energy Credits
  7. Form 5735, American Samoa Economic Development Credit
  8. Form 5884, Work Opportunity Credit
  9. Form 6478, Alcohol and Cellulosic Biofuels Credit
  10. Form 6765, Credit for Increasing Research Activities
  11. Form 8396, Mortgage Interest Credit
  12. Form 8582, Passive Activity Loss Limitations
  13. Form 8820, Orphan Drug Credit
  14. Form 8834, Qualified Plug-in Electric and Electric Vehicle Credit
  15. Form 8839, Qualified Adoption Expenses
  16. Form 8844, Empowerment Zone and Renewal Community Employment Credit
  17. Form 8845, Indian Employment Credit
  18. Form 8859, District of Columbia First-Time Homebuyer Credit
  19. Form 8863, Education Credits (American Opportunity and Lifetime Learning Credits)
  20. Form 8864, Biodiesel and Renewable Diesel Fuels Credit
  21. Form 8874, New Markets Credits
  22. Form 8900, Qualified Railroad Track Maintenance Credit
  23. Form 8903, Domestic Production Activities Deduction
  24. Form 8908, Energy Efficient Home Credit
  25. Form 8909, Energy Efficient Appliance Credit
  26. Form 8910, Alternative Motor Vehicle Credit
  27. Form 8911, Alternative Fuel Vehicle Refueling Property Credit
  28. Form 8912, Credit to Holders of Tax Credit Bonds
  29. Form 8923, Mine Rescue Team Training Credit
  30. Form 8932, Credit for Employer Differential Wage Payments
  31. Form 8936, Qualified Plug-in Electric Drive Motor Vehicle Credit

For more information you may wish to read the more detailed descriptions in the IRS news release.

If you have any questions about your specific tax return or this issue, please don't hesitate to contact us at McRuer CPAs.

03/21/2013

IRS Allows Late-Payment Penalty Waiver

1040 w2 photo graphicAn IRS news release today highlights the unusual tax filing season McRuer CPAs and other tax preparation firms are experiencing due to the delayed “Fiscal Cliff” resolution.

The IRS has announced it will waive the penalty normally assessed for late payment of income tax for taxpayers who are affected by the delayed release of 31 different forms commonly used for tax preparation.  The IRS notice of relief applies to taxpayers who have requested an extension of time to file their return and who use at least one of the 31 forms. 

Due to many last-minute tax law changes in the American Taxpayer Relief Act of 2012, the IRS was not able to update tax forms in time for the beginning of the tax season.  Some of the forms were made available only a week ago.  The American Institute of CPAs (AICPA) and tax preparation service providers spearheaded an effort to file complaints on behalf of taxpayers about the issue.

The IRS has now agreed that the late issuance of the 31 forms may prevent some taxpayers from calculating their 2012 taxes and make any payment due by the April 15th deadline.

However, beware; because the IRS has an automated assessment process about the late-payment penalty, it says affected taxpayers will still receive an automatic assessment notice and demand for payment.  The taxpayer will have to then respond in a letter explaining eligibility for relief and detailing which forms caused the late payment.

For more information you may wish to read an article from the AICPA in the Journal of Accountancy or the actual IRS Notice.  Due to the additional burden of proof taxpayers bear, McRuer CPAs continues its extraordinary effort to complete our clients’ returns prior to the deadline despite the unprecedented forms release delay.  Please feel free to contact us at McRuer CPAs with any questions you may have. 

03/20/2013

H&R Block Faces Lawsuit Due to Filing Error

The recent filing mistake by large-volume tax preparation provider H&R Block has now resulted in a class action lawsuit.  The mistake has to do with how boxes were checked on tax forms for education tax credits. It is affecting more than 600,000 H&R Block customers.  

The IRS announced last week that the tax returns will take much longer than usual to process and refund checks from those returns may arrive several weeks later than expected.

Both the Kansas City Star and the Kansas City Business Journal have updated articles on the lawsuit.  You may also wish to review our blog on the story filed on the day the IRS notified taxpayers of the problem.

03/19/2013

4% Retirement Spending Rule - is it Outdated?

Is the “4% Rule” meaningless for retirement planning today?  Many financial planning experts say a combination of extreme marketplace fluctuations, unpredictable inflation, decreasing income growth and increasing taxes prove the spending rule for retirement is antiquated.

Retired couple 1In a recent survey by The Conference Board, thousands of 45 to 60 year old Americans were asked
about their retirement plans.  Nearly two-thirds of the respondents expect they will have to work well into their retirement years in order to afford to pay basic expenses. The majority said this is because their ability to save is too low and the general living expenses that their savings will have to cover are too high.  They also expect to live longer and endure higher health costs.

Many of tomorrow’s pending retirees say they wouldn’t be able to afford to be sick, make a repair or upgrade to their home, nor be able to make a purchase like an updated vehicle, without making a major dent in their retirement savings.

In the past, the conventional wisdom said you can take 4% from your savings the first year of retirement, and then that amount plus more to account for inflation each year.  This practice was supposed to keep you from running out of money for at least 30 years.

In a recent online Wall Street Journal article, Say Goodbye to the 4% Rule, financial reporter Kelly Greene wrote the 4% rule was conceived by a financial planner in the 1990s who, quoting from the article, “analyzed historical returns of stocks and bonds and found that portfolios with 60% of their holdings in large-company stocks and 40% in intermediate-term U.S. bonds could sustain withdrawal rates starting at 4.15%, and adjusted each year for inflation, for every 30-year span going back to 1926-55.”

But the article shows had you retired with the above portfolio and then endured the actual market drops of the past decade, your accounts would have declined by a third and you would have less than a 30% chance of having enough money.

So, what is the answer?  Most experts agree that today, more than ever before, a customized approach is best.  You must determine realistic retirement goals and develop a spending plan that matches your lifestyle expectations with your ability to earn and save.

Because there are so many unknowns and changes, planning for how taxes will affect your savings and your retirement income has become an annual ‘must do’.  No matter how close you are to retirement, consider these common-sense tips offered through Investopedia as you schedule your retirement investment planning session with McRuer CPAs:

  • Avoid too much risk.
  • Avoid too little risk.
  • Don’t retire too soon.
  • Try not to retire all at once.
  • Buy long-term care insurance.
  • Do live within your means.

03/14/2013

More Refund Frustrations

Stack of dollarsThe IRS reports an estimated 600,000 tax returns filed by the nation’s biggest tax preparation service, H&R Block, will take longer than usual to process because of an error by the tax preparation company.  It has to do with forms filed for education tax credits.

The IRS has updated the way it accepts information on electronic forms for “yes” and “no” answers.  In the past, automated tax filers have marked “yes” when needed, but have left both the “yes” and “no” fields blank, when the answer was “no”.

Now, the IRS requires preparers to enter an “N” for “no” and many automated systems were not picking up that change.

In this case, MarketWatch reports about 10% of the 6.6 million tax returns that have already been filed by H&R Block are affected.  The company has not yet shared how it is correcting the returns.

The IRS predicts the error could delay refunds to the affected taxpayers by several weeks.

In fairness to H&R Block and other tax preparers struggling with this issue, this year’s “Fiscal Cliff” negotiations have produced unprecedented income tax filing delays.  Some forms necessary to complete 2012 income tax returns have been available no more than a few days. 

In the past, proposed forms were made available to tax preparers, tax software vendors and other stakeholders weeks in advance of when they would be used to file returns.

McRuer CPAs provides its individual and business clients with tailored, one-on-one tax preparation and planning services and does not follow the same practices as many more high-volume, automated tax preparation systems.  Our clients are not affected by this issue.

03/12/2013

"Healthy" Medical Deductions

Taxpayers who itemize their deductions may deduct medical expenses they paid in 2012 exceeding 7.5% their adjusted gross income (AGI) as calculated on their Schedule A (Form 1040).  This limitation increases to 10% of AGI in 2013.

Doctor figure with patient formMedical expenses include the cost of diagnosis, cure, treatment, or prevention of disease.  Payments for medical services rendered by physicians, surgeons, dentists, and other medical practitioners may be included.  Costs of equipment, supplies, and diagnostic devices are also deductible.

The premiums you pay for health insurance may be deductible as well as the amount you pay for transportation to receive medical care.  Qualified long-term care services may also be claimed as a tax deduction.

Though sometimes taxpayers try to list such expenses, costs associated with general health practices, such as taking vitamins or going on a vacation, are not considered medical expenses and cannot be deducted. (That’s true even if a medical professional recommends you go on a stress-relieving weekend getaway.)

IRS Publication 502 explains the details.  If you have any questions, please give us a call at McRuer CPAs and we'll help you review your choices.

03/11/2013

ATRA & AMT -OMG!

The American Taxpayer Relief Act (ATRA), enacted in January 2013, has a provision that relieves millions of taxpayers from having to pay the Alternative Minimum Tax (AMT) in the 2012 and 2013 tax years.

For years Congress has passed temporary “patches” to address who must pay AMT.  Those are now made permanent.  Without a patch, the Tax Policy Center reports 30 million more Americans would have had to pay AMT.

Generally, AMT is designed to prevent affluent taxpayers who may enjoy “tax preference items” like large deductions for accelerated depreciation and oil and gas well cost depletion to avoid paying ordinary tax.

AMT imposes an increasing flat tax rate with an inflation adjusted floor once incomes reach a Holding money certain threshold. The floor is called an “exemption”.  Taxpayers whose incomes exceed the floor must pay an alternative minimum tax that raises their tax liability to the regular income tax amount.  Because the floor amounts have not been regularly adjusted to reflect inflation, opponents have argued it unfairly taxes working Americans.

AMT rates and exemptions vary by filing status as standard federal income taxes do.  It may apply to you if your taxable income plus adjustments for certain tax preference items like state and local taxes paid is more than the AMT exemption amount for your filing status.

The new tax law sets a higher permanent exemption for 2012.  It also indexed the exemption and other AMT parameters for inflation. 

The IRS lists the 2012 AMT exemption amounts for each filing status as:

  • $50,600 Single and Head of Household
  • $78,750 Married Filing Joint and Qualifying Widow(er)
  • $39,375 Married Filing Separately

The new TPC report estimates more than 30 million taxpayers who would have owed AMT for 2012 are no longer facing the levy while 3.4 million taxpayers will pay AMT.

The alternative minimum tax makes tax planning much more difficult, and often taxpayers whose annual incomes have increased are unpleasantly surprised when they learn they owe AMT.  In fact, the TPC estimates the number of AMT taxpayers will increase by 35 percent in the next 5 years.

Another ATRA provision limits itemized deductions and reinstates personal exemption phase-outs.  That is also expected to increase the number of taxpayers who must pay AMT.

The IRS provides an “assistant” to help you compute the AMT.  If you’re uncertain of whether you may owe AMT, contact us at McRuer CPAs and we’ll help you interpret the complicated tax code.

03/08/2013

Deduction Instruction: Deducting State Taxes

Tax and receipt formsTaxpayers who have paid state income tax or have paid state sales taxes, and who itemize their deductions may claim the amount paid as an itemized deduction on their federal tax return, but they must choose between the two.

For example, if you made a large purchase, such as an automobile, that incurred a substantial sales tax charge, you can choose your sales taxes paid OR the your state income taxes paid in the tax year as a deduction.  Most taxpayers would choose to deduct the higher amount.

There are four types of deductible non-business taxes:

  • State, local and foreign income taxes
  • State, local and foreign real estate taxes
  • State and local personal property taxes
  • State and local general sales taxes

To claim the taxes, they must be reported as an itemized deduction.  For most people, their state and local income taxes paid exceeds sales taxes paid.

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