Tax changes for 2013

A number of tax law changes will occur on January 1, 2013 as existing tax rules expire. The existing tax law has a number of sunset provisions that effect the average taxpayer. I don't expect congress to do anything to extend these provisions prior to the elections in November. Congress may change some or all of these provisions in 2013 and make them retoactive to January 1. The 10% tax rate for lower income amounts will go away and the 15% bracket will be the lowest. The 25% bracket increases to 28%, the 28% goes to 33%, the 33% goes to 36% and the top bracket goes from 35% to 39.6%. Capital gains tax rate increases from 15% to 20%; 18% is held over 5 years. Dividends will be taxed at ordinary income rates. Coverdale Education Savings accounts have the maximum contribution reduced to $500 per year. Student loan interst will only be deductable for the first 60 months of interest payments on the loans. Deductions for adoptions will be decreased. Marriage penalty is back. Standard deduction of married filing joint is 167% of the standard deduction for single filers. It was 200%. Likewise the 15% tax rate applies to 167% of the income spread of the single filers 15% tax table. Again it was 200%. The child tax credit drops from $1,000 per child under 17 years old to $500. Payroll tax cut for social security to 4.2% from 6.2% will return to the 6.2% Likewise the self employment tax rate increases from 10.4% to 12.4%. Hope credit for education drops from $2,000 plus 25% of the next $2,000 in education expenses to $1,000 and 50% of the next $1,000. From a maximum credit of $2,500 to a maximum of $1,500. Exclusion for the discharge of qualified personal residence debt goes away. The short sale or forclosure on your personal residence may result in taxable income. In the past we were able to exclude from income any 1099C issued for cancellation of debt on the personal residence. We may be able to exclude some but not all in the future. A number of other changes are going to happen as well but the changes are more complex and don't effect but a few people. As you can see from the list all these changes result in more taxes being collected. If you have any questions please call KatTax at 702-796-1040 and we will be happy to discuss these issues with you and how they may impact your taxes.

Repairs or Replacement

The following is from CCH Inc. which publishes a number of tax related books and software. They put together a very nice explination of an area the has created confusion in the past with IRS. The IRS and Treasury have issued long-awaited, comprehensive regulations on the capitalization of amounts paid to acquire, produce or improve tangible property. The regulations, released at the end of 2011 and effective immediately for most taxpayers, provide the standards that businesses must now apply to determine whether expenditures can be deducted as repairs or must be capitalized and then recovered over a period of years. The regulations are broad and far-reaching – they apply to every business taxpayer that uses tangible property, whether owned or leased, regardless of the form of entity that operates the business, and regardless of the entity’s foreign or domestic status. They apply to manufacturers, wholesalers, distributors, and retailers. The new regulations have taken effect and steps must be taken to comply with them. They generally apply to amounts paid or incurred in tax years beginning on or after January 1, 2012. Thus, for calendar year taxpayers, the rules already apply. Some of the rules build upon rules already in place; other requirements, however, are completely new. The IRS will take comments and consider further changes, so any plans set forth to respond to these new regulations must themselves be ready for fine tuning. In the meantime, however, the new regulations must be followed precisely or the loss of tax benefits and imposition of penalties can ensue. The regulations are generally beneficial to most businesses, but they also add complexity. They provide a more defined framework for determining capital expenditures, along with some clarifications of the law and some simplifying conventions. The regulations make significant and substantial changes to previous regulations issued by the government in 2008. In many cases, the tax treatment of an expenditure will vary from its treatment for book purposes, putting an additional burden on taxpayers to apply new tax accounting systems to track and collect data. The regulations will require many decisions by taxpayers in determining the appropriate tax treatment. In some cases, taxpayers are given an explicit election to decide what type of tax treatment to follow, creating new opportunities as well as challenges. In other cases, taxpayers must make a de facto election. In either case, once the taxpayer adopts a particular method of accounting for particular assets, that business must continue to follow that method of accounting, and will not be able to change it without the IRS’s permission. There will be more guidance from the IRS. Most taxpayers must now change their method of accounting for certain covered items to comply with the new regulations. The IRS has issued revenue procedures that provide transition rules for taxpayers changing their method of accounting. When changing accounting methods, however, the regulations require that taxpayers make so-called Code Section 481(a) adjustments to prevent duplicated or omitted tax benefits. Because of this requirement, taxpayers will in effect have to apply the new rules to costs incurred prior to the effective date of the regulations. As a result, some taxpayers may have to capitalize amounts they previously deducted, and recognize income based on the difference in treatment. Conversely, other taxpayers may be able to deduct amounts previously capitalized, and take a deduction for the difference. The retroactive impact of these changes can be significant for many businesses. Our firm is here to help you determine how the regulations affect your business, what you must do to comply, what changes are necessary, what decisions must be made, and what opportunities are available. Please call or e-mail me so that we can arrange to discuss how this important development directly affects your business.