10 Tax Breaks Reauthorized for Tax Year 2015

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Congress finally took action in late December and passed a tax extender bill formally known as the Protecting Americans from Tax Hikes Act of 2015 (PATH), which was then signed into law. Retroactive to January 1, 2015, many tax provisions were made permanent while others were extended through 2016 or 2019. Let’s take a look at some of the tax provisions most likely to affect taxpayers when filing their 2015 tax returns.

1. Teachers’ Deduction for Certain Expenses
Primary and secondary school teachers buying school supplies out-of-pocket may be able to take an above-the-line deduction of up to $250 for unreimbursed expenses. An above the line deduction means that it can be taken before calculating adjusted gross income. This deduction was made permanent and indexed for inflation.

2. State and Local Sales Taxes 
The deduction for state and local sales taxes was made permanent by PATH. Taxpayers that pay state and local sales tax can deduct the amounts paid on their federal tax returns (instead of state and local income taxes)–as long as they itemize.

3. Mortgage Insurance Premiums
Mortgage insurance premiums (PMI) are paid by homeowners with less than 20 percent equity in their homes. These premiums were deductible in tax years 2013, 2014, and now, once again in 2015. This deduction was extended through 2016. Mortgage interest deductions for taxpayers who itemize are not affected.

4. Exclusion of Discharge of Principal Residence Indebtedness
Typically, forgiven debt is considered taxable income in the eyes of the IRS; however, this tax provision has been extended through 2016, allowing homeowners whose homes have been foreclosed on or subjected to short sale to exclude up to $2 million of canceled mortgage debt. Also included are taxpayers seeking debt modification on their home.

5. Distributions from IRAs for Charitable Contributions
Taxpayers who are age 70 1/2 or older can donate up to $100,000 in distributions from their IRA to charity. Some people do not want to take the mandatory minimum distributions (which are counted as income) upon reaching this age and instead can contribute it to charity, using it as a strategy to lower income enough to take advantage of other tax provisions with phaseout limits. This deduction was made permanent by PATH.

6. Parity for Mass Transit Fringe Benefits
This tax extender allows commuters who used mass transit in 2015 to exclude from income (up to $250 per month), transit benefits paid by their employers such as monthly rail or subway passes, making it on par with parking benefits (also up to $250 pre-tax). Like many other tax extenders, this provision was made permanent.

7. Energy Efficient Improvements (including Appliances
This tax break has been around for a while, but if you made your home more energy efficient in 2015, now is the time to take advantage of this tax credit on your 2015 tax return. The credit reduces your taxes as opposed to a deduction that reduces your taxable income and is 10 percent of the cost of building materials for items such as insulation, new water heaters, or a wood pellet stove.

Note: This tax is cumulative, so if you’ve taken the credit in any tax year since 2006, you will not be able to take the full $500 tax credit this year. If, for example, you took a credit of $300 in 2013, the maximum credit you could take this year is $200.

8. Qualified Tuition and Expenses
The deduction for qualified tuition and fees, extended through 2016, is an above-the-line tax deduction, which means that you don’t have to itemize your deductions to claim the expense. Taxpayers with income of up to $130,000 (joint) or $65,000 (single) can claim a deduction for up to $4,000 in expenses. Taxpayers with income over $130,000 but under $160,000 (joint) and over $65,000 but under $80,000 (single) can take a deduction up to $2,000; however, taxpayers with income over those amounts are not eligible for the deduction.

Qualified education expenses are defined as tuition and related expenses required for enrollment or attendance at an eligible educational institution. Related expenses include student-activity fees and expenses for books, supplies, and equipment as required by the institution.

9. Donation of Conservation Property
Also made permanent was a tax provision that allowed taxpayers to donate property or easements to a local land trust or other conservation organization and receive a tax break in return. Under this tax provision, deductions of qualified conservation contributions up to 50 percent of a taxpayer’s contribution base (100 percent for qualified farmers and ranchers) are allowed.

10. Small Business Stock
If you invested in a small business such as a start-up C-corporation in 2015, consider taking advantage of this tax provision on your 2015 tax return. If you held onto this stock for five years, you can exclude 100 percent of the capital gains–in other words, you won’t be paying any capital gains. This deduction was made permanent by PATH.

If you’re wondering whether you should be taking advantage of these and other tax credits and deductions, please call us  at (877)305-1040 or email info@onts9.com TODAY!

Tax Changes for 2016: A Checklist

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Welcome, 2016! As the New Year rolls around, it’s always a sure bet that there will be changes to current tax law and 2016 is no different. From health savings accounts to retirement contributions and standard deductions, here’s a checklist of tax changes to help you plan the year ahead.

Individuals

For 2016, more than 50 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion.

For 2016, the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2015, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, “Tax Brackets, Deductions, and Exemptions for 2016,” below.

Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2016, the exemption amounts are $53,900 for individuals ($53,600 in 2015) and $83,800 for married couples filing jointly ($83,400 in 2015).

“Kiddie Tax” 
For taxable years beginning in 2016, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,050 (same as 2015). The same $1,050 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax.” For example, one of the requirements for the parental election is that a child’s gross income for 2016 must be more than $1,050 but less than $10,500.

For 2016, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,100.

Health Savings Accounts (HSAs) 
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2016, a qualifying HDHP must have a deductible of at least $1,300 for self-only coverage or $2,600 for family coverage and must limit annual out-of-pocket expenses of the beneficiary to $6,550 for self-only coverage and $13,100 for family coverage.

Medical Savings Accounts (MSAs) 
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high-deductible health plan (HDHP).

Self-only coverage. For taxable years beginning in 2016, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,250 ($2,200 in 2015) and not more than $3,350 (up $50 from 2015), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,450 (same as 2015).

Family coverage. For taxable years beginning in 2016, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,450 (same as 2015) and not more than $6,700 (up $50 from 2015), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,150 (same as 2015).

AGI Limit for Deductible Medical Expenses
In 2016, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2015) of adjusted gross income (AGI); however, if either you or your spouse were age 65 or older as of December 31, 2015, the new 10 percent of AGI threshold will not take effect until 2017. In other words, the 7.5 percent threshold that was in place in earlier tax years continues to apply for tax year 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2016, the 7.5 percent of AGI threshold applies for that year (through 2016) as well. Starting in 2017, the 10 percent of AGI threshold applies to everyone.

Eligible Long-Term Care Premiums 
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2016, the limitation is $390. Persons more than 40 but not more than 50 can deduct $730. Those more than 50 but not more than 60 can deduct $1,460 while individuals more than 60 but not more than 70 can deduct $3,900. The maximum deduction is $4,870 and applies to anyone more than 70 years of age.

Medicare Taxes 
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which went into effect in 2013, remains in effect for 2016, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,000 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts, and self-employed individuals are all liable for the new tax.

Foreign Earned Income Exclusion 
For 2016, the foreign earned income exclusion amount is $101,300, up from $100,800 in 2015.

Long-Term Capital Gains and Dividends
In 2016 tax rates on capital gains and dividends remain the same as 2015 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $415,050 ($466,950 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Pease and PEP (Personal Exemption Phase-out) 
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2016, affect taxpayers with income at or above $259,400 for single filers and $311,300 for married filing jointly.

Estate and Gift Taxes 
For an estate of any decedent during calendar year 2016, the basic exclusion amount is $5,450,000, indexed for inflation (up from $5,430,000 in 2015). The maximum tax rate remains at 40 percent. The annual exclusion for gifts remains at $14,000.

Individuals – Tax Credits

Adoption Credit 
In 2016, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,460 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit 
For tax year 2016, the maximum earned income tax credit (EITC) for low and moderate income workers and working families’ rises to $6,269, up from $6,242 in 2015. The credit varies by family size, filing status, and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credits 
For tax year 2016, the child tax credit is $1,000 per child.

The enhanced child tax credit was made permanent this year by the Protecting Americans from Tax Hikes Act of 2015 (PATH). In addition to a $1,000 credit per qualifying child, an additional refundable credit equal to 15 percent of earned income in excess of $3,000 has been available since 2009.

Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2016. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Individuals – Education

American Opportunity Tax Credit and Lifetime Learning Credits 
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA, but was made permanent by PATH in 2015. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return.

Interest on Educational Loans 
In 2016 (as in 2015), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($130,000 joint filers).

Individuals – Retirement

Contribution Limits 
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains at $18,000 . Contribution limits for SIMPLE plans remain at $12,500. The maximum compensation used to determine contributions remains at $265,000.

Income Phase-out Ranges 
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $61,000 and $71,000 (unchanged from 2015).

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range remains unchanged at $98,000 to $118,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $184,000 and $194,000, up from $183,000 and $193,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $184,000 to $194,000 for married couples filing jointly, up from $183,000 to $193,000 in 2015. For singles and heads of household, the income phase-out range is $117,000 to $132,000, up from $116,000 to $131,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.

Saver’s Credit 
In 2016, the AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $61,500 for married couples filing jointly, up from $61,000 in 2015; $46,125 for heads of household, up from $45,750; and $30,750 for married individuals filing separately and for singles, up from $30,500.

Businesses

Standard Mileage Rates 
The rate for business miles driven is 54 cents per mile for 2016, down from 57.5 cents per mile in 2015.

Section 179 Expensing 
The Section 179 expense deduction was made permanent at $500,000 by the Protecting Americans from Tax Hikes Act of 2015 (PATH). For equipment purchases, the maximum deduction is $500,000 of the first $2 million of qualifying equipment placed in service during the current tax year. The deduction is phased out dollar for dollar on amounts exceeding the $2 million threshold amount and eliminated above amounts exceeding $2.5 million. In addition, Section 179 is now indexed to inflation in increments of $10,000 for future tax years.

The 50 percent bonus depreciation has been extended through 2019. Businesses are able to depreciate 50 percent of the cost of equipment acquired and placed in service during 2015, 2016 and 2017. However, the bonus depreciation is reduced to 40 percent in 2018 and 30 percent in 2019.

Work Opportunity Tax Credit (WOTC) 
Extended through 2019, the Work Opportunity Tax Credit has been modified and enhanced for employers who hire long-term unemployed individuals (unemployed for 27 weeks or more), and is generally equal to 40 percent of the first $6,000 of wages paid to a new hire.

Research & Development Tax Credit

Starting in 2016, businesses with less than $50 million in gross receipts are able to use this credit to offset alternative minimum tax. Certain start-up businesses that might not have any income tax liability will be able to offset payroll taxes with the credit as well.

Employee Health Insurance Expenses

For taxable years beginning in 2016, the dollar amount is $25,900. This amount is used for limiting the small employer health insurance credit and for determining who is an eligible small employer for purposes of the credit.

Employer-provided Transportation Fringe Benefits 
If you provide transportation fringe benefits to your employees, in 2016 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $255 and the monthly limitation for qualified parking is $255 (up $5 from 2015). Parity for employer-provided mass transit and parking benefits was made permanent by PATH.

While this checklist outlines important tax changes for 2016, additional changes in tax law are more than likely to arise during the year ahead. Don’t hesitate to call if you want to get an early start on tax planning for 2016!

 As we all know it is Tax Season and we are always here to help! We encourage you to send us all your tax information so we can process your tax return sooner. Please feel free to contact us for more information at (877)305-1040 or email us at info@onts9.com

Get to Know Your Taxpayer Bill of Rights

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Every taxpayer has a set of fundamental rights. The “Taxpayer Bill of Rights” takes the many existing rights in the tax code and groups them into 10 categories. You should be aware of these rights when you interact with the IRS.

Publication 1, Your Rights as a Taxpayer, highlights a list of your rights and the agency’s obligations to protect them. Here is a summary of the Taxpayer Bill of Rights:

1.The Right to Be Informed. Taxpayers have the right to know what is required to comply with the tax laws. They are entitled to clear explanations of the laws and IRS procedures in all tax forms, instructions, publications, notices and correspondence. They have the right to know about IRS decisions affecting their accounts and clear explanations of the outcomes.

2.The Right to Quality Service. Taxpayers have the right to receive prompt, courteous and professional assistance in their dealings with the IRS and the freedom to speak to a supervisor about inadequate service. Communications from the IRS should be clear and easy to understand.

3.The Right to Pay No More than the Correct Amount of Tax. Taxpayers have the right to pay only the amount of tax legally due, including interest and penalties. They should also expect the IRS to apply all tax payments properly.

4.The Right to Challenge the IRS’s Position and Be Heard. Taxpayers have the right to object to formal IRS actions or proposed actions and provide justification with additional documentation. They should expect that the IRS will consider their timely objections and documentation promptly and fairly. If the IRS does not agree with their position, they should expect a response.

5.The Right to Appeal an IRS Decision in an Independent Forum. Taxpayers are entitled to a fair and impartial administrative appeal of most IRS decisions, including certain penalties. Taxpayers have the right to receive a written response regarding a decision from the Office of Appeals. Taxpayers generally have the right to take their cases to court.

6.The Right to Finality. Taxpayers have the right to know the maximum amount of time they have to challenge an IRS position and the maximum amount of time the IRS has to audit a particular tax year or collect a tax debt. Taxpayers have the right to know when the IRS concludes an audit.

7.The Right to Privacy. Taxpayers have the right to expect that any IRS inquiry, examination or enforcement action will comply with the law and be as unobtrusive as possible. They should expect such proceedings to respect all due process rights, including search and seizure protections. The IRS will provide, where applicable, a collection due process hearing.

8.The Right to Confidentiality. Taxpayers have the right to expect that their tax information will remain confidential. The IRS will not disclose information unless authorized by the taxpayer or by law. Taxpayers should expect the IRS to take appropriate action against employees, return preparers and others who wrongfully use or disclose their return information.

9.The Right to Retain Representation. Taxpayers have the right to retain an authorized representative of their choice to represent them in their dealings with the IRS. Taxpayers have the right to seek assistance from a Low Income Taxpayer Clinic if they cannot afford representation.

10.The Right to a Fair and Just Tax System. Taxpayers have the right to expect fairness from the tax system. This includes considering all facts and circumstances that might affect their underlying liabilities, ability to pay or ability to provide information timely. Taxpayers have the right to receive assistance from the Taxpayer Advocate Service if they are experiencing financial difficulty or if the IRS has not resolved their tax issues properly and timely through its normal channels.

We are always here to help! Call or email us today at (877)305-1040 or info@onts9.com so we can process your tax return sooner.

 

 

New W-2 Verification Code

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For filing season 2016, the Internal Revenue Service will test a capability to verify the authenticity of Form W-2 data. This test is one in a series of steps to combat tax-related identity theft and refund fraud.

The objective is to verify Form W-2 data submitted by taxpayers on e-filed individual tax returns. The IRS has partnered with certain Payroll Service Providers (PSPs) to include a 16-digit code and a new Verification Code field on a limited number of Form W-2 copies provided to employees.

The code will be displayed in four groups of four alphanumeric characters, separated by hyphens. Example: XXXX-XXXX-XXXX-XXXX.

The Verification Code will appear on some versions of payroll firms ’ Form W-2 copies B and C, in a separate, labeled box (Copy B is “To be filed with employee ’s federal tax return” and Copy C is “For employee ’s records.”)

The form will include these instructions to taxpayer and tax preparers:

Verification Code. If this field is populated, enter this code when it is requested by your tax return preparation software. It is possible your software or preparer will not request the code. The code is not entered on paper-filed returns.

Some W-2s that employees receive will have a “Verification Code” box which is blank. These taxpayers do not need to enter any code data into their tax software product.

For the purposes of the test, omitted and incorrect W-2 Verification Codes will not delay the processing of a tax return. The IRS will analyze this pilot data in a “test-and-learn” review to see if it is useful in evaluating the integrity of W-2 information.

The code will not be included in Forms W-2 or W-2 data submitted by the PSPs to the Social Security Administration or any state or local departments of revenue. Nor will this pilot affect state and local income tax returns or paper federal returns.

We hope you find this information valuable and in case of any questions call our office at 310.820.1080 or email us at info@onts9.com

IRS Delays Tax Season until End of January

The Internal Revenue Service said that it plans to open the 2013 tax filing season and begin processing individual income tax returns on Jan. 30, more than a week after the initially planned start date of Jan. 22, but some returns cannot be processed until late February or March.

 

The reason is the late passage of the fiscal cliff legislation, the American Taxpayer Relief Act, by Congress on New Year’s Day. The IRS said it would begin accepting individual tax returns on Jan. 30 after updating its forms and completing the programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers—more than 120 million households—should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension. The IRS has already begun processing some business tax returns (see IRS Begins Accepting Business Tax Returns).

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said in a statement. “This date ensures we have the time we need to update and test our processing systems.”

Miller had previously warned Congress about a delayed tax season until lawmakers decided what to do about the expiring tax rates and the alternative minimum tax (see IRS Warns Congress Tax Season Might Be Delayed until March or Later without AMT Patch).

The IRS said it would not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

“The best option for taxpayers is to file electronically,” Miller said.

The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. While the IRS worked to anticipate the late tax law changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.

The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electronically last year.

The IRS said it anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late AMT patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.

For more information: www.onts9.com

 

IRS Warns Congress Tax Season Might Be Delayed until March or Later without AMT Patch

IRS Acting Commissioner Steven T. Miller warned Congress on Wednesday that if lawmakers fail to extend the traditional alternative minimum tax patch, up to 100 million American taxpayers could be affected, and most taxpayers might not be able to file their tax returns until late March 2013 or later.

 

Miller sent a letter to leaders of the House Ways and Means Committee warning of the trouble ahead. He has warned Congress in the past about not patching the AMT, but he has increased his estimates for how many taxpayers could be affected (see IRS Warns AMT Could Affect 60 Million Taxpayers Unless Patched).

“In my previous letter, I estimated that more than 60 million taxpayers might be prevented from filing their tax returns while we are reprogramming our computers,” he wrote. “As we consider the impact of the current policy uncertainty on the upcoming tax filing season, it is becoming apparent that an even larger number of taxpayers —80 to 100 million of the 150 million total returns expected to be filed—may be unable to file.”

Without enactment of a new patch in the near future, he warned, “nearly 30 million additional taxpayers will become subject to the AMT on their 2012 income tax returns.”

House Ways and Means Committee ranking member Sander Levin, D-Mich., concurred with the warning. “There could be no clearer warning that failure to act on the fiscal cliff will throw the 2013 tax filing season into chaos,” he said in a statement. “The consequences of inaction would be enormous. Extending the AMT patch will prevent needless delays and tax increases on millions of middle-class Americans.”

Miller warned about a delayed start to tax season unless Congress fixes the AMT and resolves other pressing tax matters.

“If an AMT patch is not enacted by the end of this year, the IRS would need to make significant programming changes to conform our systems to reflect the expiration of the patch,” he wrote. “In that event, given the magnitude and complexity of the changes needed, I want to reiterate that most taxpayers may not be able to file their 2012 tax returns until late in March of 2013, or even later.”

Miller noted that the most recent AMT patch, and the exemption amounts of $74,450 for joint filers and $48,450 for single taxpayers, expired at the end of 2011. For 2012, the current-law AMT exemption amounts are much lower: $45,000 for joint filers and $33,750 for single taxpayers.

Miller also warned that the unpatched AMT could lead to delays in tax refunds and higher taxes for many taxpayers. “This situation would create two significant problems: lengthy delays of tax refunds and unexpectedly higher taxes for many taxpayers, who will be unaware that they are newly subject to AMT liability,” he wrote. “Moreover, if Congress were to act at some point next year to enact a new AMT patch, the time and substantial expense necessary for the IRS to reprogram its systems to reflect expiration of the patch would ultimately be wasted.”

Miller noted that the IRS might need to limit filing by those who might be potentially affected. “The IRS cannot process the returns of any taxpayers whose return characteristics do not allow us to differentiate them from those whose tax liability would be altered by the AMT expiration,” he pointed out. “This means that there are certain forms and schedules we could not accept from any taxpayer—even those who ultimately may not have additional AMT liability. Similarly, returns of any taxpayers whose income levels may subject them to the AMT could not be processed.”

He added that it might not be possible even to process some returns that are clearly not subject to or affected by the AMT. “Allowing only some taxpayers to file as we reprogram could substantially increase the risk of fraud and error in initial filings as well as create the potential for a large number of amended returns,” he noted. “We continue to work diligently to review scenarios and to assess the impact of these factors on the 2013 filing season.”

For more information: www.onts9.com

 

Helpful Tips for the Coming Tax Season

As the holiday season begins and the year comes to an end, here are some things to keep in mind for your federal tax filings:

  1.  Maximize your tax savings by contributing to your retirement account.  Contributions can be made to your traditional IRA for a year at any time during the year or by the due date for filing your return for that year, not including extensions. For most people, this means that contributions for 2012 must be made by April 15, 2013.    For additional information, see:   http://www.irs.gov/Retirement-Plans/Plan-Participant,-Employee/Retirement-Topics-IRA-Contribution-Limits. 

2.  Have you made a substantial gift?  If you gave money or property to someone as a gift, you may owe federal gift tax. Many gifts are not subject to the gift tax, but the IRS offers the following eight tips about gifts and the gift tax:
http://www.irs.gov/uac/Eight-Tips-to-Determine-if-Your-Gift-is-Taxable.

3. Did you know that taxpayers in your area can receive up to $5,891 when filling their tax returns and claiming the Earned Income Tax Credit (EITC)?  Consider the financial boost EITC provides for working people in a recovering economy and the impact of that influx of cash to the local economy.  The amazing part is that there are potentially eligible recipients who miss this credit because they don’t file a Federal tax return!

EITC is a refundable federal income tax credit for low to moderate income workers. When EITC exceeds the amount of taxes owed, it results in a tax refund to those who claim and qualify for the credit. To qualify, taxpayers must meet certain requirements and file a tax return, even if they owe no tax or do not have a filing requirement.

For more Information: www.onts9.com