Jan 28

Who has to file a 2012 tax return?

If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits.

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why:

1. Federal Income Tax Withheld. If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year’s tax, you could be due a refund. File a return to claim any excess tax you paid during the year.

2. Earned Income Tax Credit.  If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891 dollars. You can’t get the credit unless you file a return and claim it. Use the EITC Assistant to find out if you qualify.
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3. Additional Child Tax Credit. If you have at least one qualifying child and you don’t get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit.

4. American Opportunity Credit. If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of postsecondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit.

5. Health Coverage Tax Credit. If you’re receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. If you’re eligible, you can receive a 72.5 percent tax credit on payments you made for qualified health insurance premiums.

Jan 24

IRS Provides Penalty Relief to Farmers

The IRS announced last week that it will issue guidance to provide relief from the estimated tax penalty for farmers and fishermen unable to file and pay their 2012 taxes by the March 1 deadline due to the delayed start for filing returns.

Teh delay stems from enactment of the American Taxpayer Relief Act (ATRA) earlier this year. Under the ATRA, many form changes were needed and testing of the IRS system and release of the forms has delayed taxpayers’ ability to file.

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As always, check back here and I, your southwest Oklahoma estate planning attorney, will keep you up to date on tax developments affecting farmers.

Jan 14

Tax item changes for 2013

From the IRS press release regarding the fiscal cliff deal.

The tax items for 2013 of greatest interest to most taxpayers include the following changes.

  • Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.
  • The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.
  • The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).
  • The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)
  • The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
  • The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.
  • Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.
  • For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

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Jan 10

Tax Code May Be the Most Progressive Since 1979

With the recent increases in income tax rates, Medicare and Obamacare surtaxes, and the Alternative Minimum Tax, the New York Times has released a study that America’s highest earners are facing the largest tax burden since Jimmy Carter (the First) was President.

As most people chase after the American dream, the tax increases for those making the hottest pursuit will make it more likely that the dream will be unattainable. For the wealthiest Americans (e.g., Bill Gates and Warren Buffett), income taxation has no meaning. If they need money, they can take a tax-free loan against their holdings or sell a tax-neutral property. These tax rates will prevent “working generations” of people from increasing their standard of living from what their parents had.
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That all being said, most people do feel a sense of patriotic duty to contribute their tax dollars to the greater good. However, the “greater good” from Washington seems to be helping those who choose not to help themselves and want to rely on handouts.

Jan 07

Newest Tax Increases More Regressive

The results are finally coming out on the newest tax deal, the so-called fiscal cliff aversion, and although the promises were that only the richest Americans would see a rate hike, the true effect is actually showing much different.

Because the tax deal allowed the Payroll Tax Holiday to lapse, the average American is seeing a 2% decrease in his/her take-home pay. Most of the richest Americans, who will only be subject to taxation on higher earnings, have yet to pass the tax rate increases. So, as we approach the first pay day of the new year, working Americans will see less in their accounts.

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From a planning perspective, the tax that is affecting most Americans is supposedly going to fund Social Security and Medicare (although this “trust fund” is really just IOUs from the government), so true income taxes have only been raised on the “rich”. However, if you  hear someone from the government saying that they want to help, and you believe them, I have ocean front property in Arizona I would like to sell you.