Five Tips if Your Name Has Changed

IRS Tax Tip 2013-21

If you were married or divorced and changed your name last year, be sure to notify the Social Security Administration before you file your taxes with the IRS. If the name on your tax return doesn’t match SSA records, the IRS will flag it as an error and that may delay your refund.

Here are five tips for a person whose name has changed. They also apply if your dependent’s name has changed.

1. If you have married and you’re using your new spouse’s last name or you’ve hyphenated your last name, notify the SSA. That way, the IRS computers can match your new name with your Social Security number.

2. If you were divorced and are now using your former last name, notify the SSA of your name change.

3. Letting the SSA know about a name change is easy. File Form SS-5, Application for a Social Security Card, at your local SSA office or by mail with proof of your legal name change.

4. You can get Form SS-5 on the SSA’s website at, by calling 800-772-1213 or at local SSA offices. Your new card will have the same number as your former card but will show your new name.

5. If you adopted your new spouse’s children and their names changed, you’ll need to update their names with SSA too. For adopted children without SSNs, the parents can apply for an Adoption Taxpayer Identification Number by filing Form W-7A, Application for Taxpayer Identification Number for Pending U.S. Adoptions, with the IRS. The ATIN is a temporary number used in place of an SSN on the tax return.


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IRS Reminds Taxpayers to Report 2010 Roth Conversions on 2012 Returns

Issue Number:    IR-2013-21

The Internal Revenue Service reminds taxpayers who converted amounts to a Roth IRA or designated Roth account in 2010 that in most cases they must report half of the resulting taxable income on their 2012 returns.

Normally, Roth conversions are taxable in the year the conversion occurs. For example, the taxable amount from a 2012 conversion must be included in full on a 2012 return. But under a special rule that applied only to 2010 conversions, taxpayers generally include half the taxable amount in their income for 2011 and half for 2012, unless they chose to include all of it in income on their 2010 return.

Roth conversions in 2010 from traditional IRAs are shown on 2012 Form 1040, Line 15b, or Form 1040A, Line 11b. Conversions from workplace retirement plans, including in-plan rollovers to designated Roth accounts, are reported on Form 1040, Line 16b, or Form 1040A, Line 12b.

Taxpayers who also received Roth distributions in either 2010 or 2011 may be able to report a smaller taxable amount for 2012. For details, see the discussion under 2012 Reporting of 2010 Roth Rollovers and Conversions on In addition, worksheets and examples can be found in Publication 590 for Roth IRA conversions and Publication 575 for conversions to designated Roth accounts.

Taxpayers who made Roth conversions in 2012 or are planning to do so in 2013 or later years must file Form 8606 to report the conversion.

As in 2010 and 2011, income limits no longer apply to Roth IRA conversions.

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Old-Line Tax Planning Techniques Still Work

For taxpayers who scrambled to make last-minute gifts at the end of 2012 to take advantage of the gift tax exemption and lower tax rate, it was a good thing to do despite the fact that within 23 hours of year’s end, legislation passed averting the return to the old-law $1 million exemption and 55 percent maximum tax rate.

“That exemption amount of $1 million and the 55 percent rate actually became effective for 23 hours,” said Shari Levitan, a partner at Holland & Knight. “The legislation could have just as easily been limited to adjustments in income tax rates, and few were willing to bet on Congress.”

As a result of the American Taxpayer Relief Act of 2012 the exemptions for federal estate, gift and generation-skipping tax transfers will remain at $5 million, indexed for inflation. For 2013, the exemption amount will be $5,250,000. ATRA retained portability, so a surviving spouse can still use a deceased spouse’s unused exemption, provided that an estate tax return is filed and the portability election is made, Levitan observed. The maximum tax rate increased to nearly 40 percent.

“Those who thought they missed the window of opportunity to take advantage of the exemption with pre-2013 gifts have been given a second chance,” Levitan said. But while the Act’s provisions are stated to be “permanent,” this means only that the new provisions will not automatically sunset, she noted.

“I think ‘permanent’ is a word that causes people to think that they know what the rules are forever, and they won’t change,” she said. “But all it signifies is that there is not an automatic future reversion to prior and lower exemption levels and higher tax rates.”

“For example, it would be entirely possible for Congress to decide that the exemption level is fine for death transfers, but that lifetime transfers will be limited to, say, a million dollars, as was the case prior to 2011,” she said. “Also, Congress has the ability to change the rates in the future up or down. So, when we say ‘permanent,’ it still bears watching because budgetary concerns have not eased, and will certainly be discussed further this calendar year.”

Taxpayers may consider making taxable gifts above the exemption limits, Levitan said. “While the transfer tax has increased from 35 percent to 40 percent, gifting during lifetime remains a more efficient manner of shifting wealth than testamentary bequests,” she said.

“To illustrate, if a taxpayer makes a testamentary bequest of $1 million, the estate tax, which comes off the top, is $400,000, and the beneficiary receives $600,000,” she explained. “Effectively, the beneficiary bears the burden of estate tax. By comparison, the donor bears the burden of the gift tax. To make an equivalent gift during lifetime, the donor can make a gift of $600,000, which results in gift tax of $240,000. In short, for a beneficiary to receive $600,000, the total outlay is $840,000 when making the lifetime gift, as compared to the $1 million bequest at death. Even better, if the taxpayer lives more than three years from the date the gift is made, the gift taxes paid are excluded from the donor’s taxable estate for federal estate tax purposes.”

Contrary to some prior proposals, ATRA does not curtail a taxpayer’s ability to take advantage of the transfer techniques that that have worked well in the current low interest environment, Levitan indicated. “For example, the Obama administration previously made broad proposals, including requiring a minimum term for Grantor Retained Annuity Trusts (GRATs), substantially revising the grantor trust rules.”

ATRA contained no such limitations, so many planning techniques are still in effect, Levitan observed. “These include planning techniques such as short duration GRATs, sales to grantor trusts, loans to family members and trusts at the applicable federal rate (0.87 percent for mid-term loans made in January, 2013), and gifts of non-marketable minority interests in entities.”

However, she said that clients who are thinking about making gifts should do them sooner rather than later, so the attractive planning is not legislated away. “It would not be surprising to see some of the administration’s prior proposals reappear in further tax reform. It would be unlikely, though not impossible, for any such legislation to be retroactive. Taxpayers who have not made use of these beneficial transfer opportunities might consider doing so early in 2013, so that if adverse legislation is introduced, such gifts may be grandfathered,” she cautioned. “This will bear careful watching.”

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Eight Tax Benefits for Parents

IRS Tax Tip 2013-11

Your children may help you qualify for valuable tax benefits, such as certain credits and deductions. If you are a parent, here are eight benefits you shouldn’t miss when filing taxes this year.

1. Dependents. In most cases, you can claim a child as a dependent even if your child was born anytime in 2012.   For more information, see IRS Publication 501, Exemptions, Standard Deduction and Filing Information.

2. Child Tax Credit. You may be able to claim the Child Tax Credit for each of your children that were under age 17 at the end of 2012. If you do not benefit from the full amount of the credit, you may be eligible for the Additional Child Tax Credit. For more information, see the instructions for Schedule 8812, Child Tax Credit, and Publication 972, Child Tax Credit.

3. Child and Dependent Care Credit. You may be able to claim this credit if you paid someone to care for your child or children under age 13, so that you could work or look for work. See IRS Publication 503, Child and Dependent Care Expenses.

4. Earned Income Tax Credit. If you worked but earned less than $50,270 last year, you may qualify for EITC. If you have qualifying children, you may get up to $5,891 dollars extra back when you file a return and claim it. Use the EITC Assistant to find out if you qualify. See Publication 596, Earned Income Tax Credit.

5. Adoption Credit. You may be able to take a tax credit for certain expenses you incurred to adopt a child. For details about this credit, see the instructions for IRS Form 8839, Qualified Adoption Expenses.

6. Higher education credits. If you paid higher education costs for yourself or another student who is an immediate family member, you may qualify for either the American Opportunity Credit or the Lifetime Learning Credit. Both credits may reduce the amount of tax you owe. If the American Opportunity Credit is more than the tax you owe, you could be eligible for a refund of up to $1,000. See IRS Publication 970, Tax Benefits for Education.

7. Student loan interest. You may be able to deduct interest you paid on a qualified student loan, even if you do not itemize your deductions. For more information, see IRS Publication 970, Tax Benefits for Education.

8. Self-employed health insurance deduction – If you were self-employed and paid for health insurance, you may be able to deduct premiums you paid to cover your child. It applies to children under age 27 at the end of the year, even if not your dependent.

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Small Business Owners Feeling More Optimistic in 2013

Small business owners are feeling more optimistic as 2013 begins after the Wells Fargo/Gallup Small Business Index dropped to the most pessimistic level in two years in November.

The January index improved 20 points to positive 9 in January 2013, up from negative 11 in November 2012, indicating an improvement in optimism since the November elections. Key drivers of this improvement in the survey, conducted Jan. 7-11, 2013, include increased business owner optimism about revenues, capital spending, and jobs over the past 12 months and more optimism about their overall financial situation, revenues, cash flow, and jobs over the next 12 months. A year ago, in January 2012, the index was at positive 15.

While optimism improved from the fourth quarter, the survey paints a mixed picture with respect to jobs and hiring. More business owners (71 percent) expect the number of jobs at their companies to stay the same over the next 12 months, and business owners planning to add jobs during the same period remained unchanged at 17 percent. Among those who hired new employees the past 12 months, 35 percent of owners are hiring fewer employees than they need, up from 29 percent in January 2012, but below the 42 percent of November 2010.

“At a time when news headlines report mixed economic news and uncertainty in Washington, our survey shows the volatility of business owner sentiment today,” said Doug Case, small business segment manager for Wells Fargo, in a statement. “Business owners are feeling a bit more positive at the beginning of the year, but they also express concern about the operating environment that could impact future business decisions, such as hiring new employees.”

This quarter, the Index survey included additional questions on hiring and jobs. When small business owners who are not hiring were asked for the reason, the top responses were:

• Don’t need additional employees at this time (81 percent)
• Worried about the revenues and sales to justify new employees (74 percent)
• Concerned about the status of the U.S. economy (66 percent)
• Worried about the potential cost of health care (61 percent)

The number of small business owners saying they are not hiring for fear they may no longer be in business in 12 months increased to 30 percent in January, up from 24 percent from one year ago.

The top reasons small business owners said they are hiring include increased consumer or business demand (70 percent) and expanding their business operations (68 percent).

When looking for new employees, 63 percent of the small business owners polled report using word-of-mouth and 47 percent employee referrals. Twenty-three percent of owners say it is very difficult and another 30 percent say it is somewhat difficult to find qualified employees—about the same as in January 2012. Twenty-seven percent of owners say the difficulty of finding qualified employees has hurt their business over the past 12 months, up from 21 percent a year ago.

Forty percent of owners said they would look for temporary or contract workers when hiring while 36 percent say they would seek part-time employees, and 22 percent full-time employees. When they can’t afford to hire new employees, 28 percent of owners say they turn to their spouse for unpaid help, 14 percent turn to their children, 13 percent to a friend, 7 percent to another relative, and 6 percent to a student.

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Education Credit Returns on Hold Until Mid-February

The IRS said that processing of tax returns claiming education credits will begin by the middle of February.

Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits: the American Opportunity Tax Credit and the Lifetime Learning Credit.

The delayed start will have no impact on taxpayers claiming other education-related tax benefits such as the tuition and fees deduction and the student loan interest deduction, the service added. People otherwise able to file and claiming these benefits can start filing January 30.

The IRS added that it discovered during testing that programming modifications are needed to accurately process Form 8863. Filers who are otherwise able to file but use the Form 8863 will be able to file by mid-February, and no action needs to be taken by the taxpayer or their tax professional.

Typically through the mid-February period, about 3 million tax returns include Form 8863, less than a quarter of those filed during the year.

The IRS said it “remains on track” to open the tax season on January 30 for most taxpayers, including those claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction.

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