Changes to IRS taxes for 2014

The extender provisions have gone out and every one of those touches somebody. Among the more popular disappearing breaks is the deduction for tuition and fees. Until the end of the year, couples with less than $160,000 in adjusted gross income can take a deduction if they are paying qualified higher education expenses for a dependent. The deduction, which can reach $4,000 for those with income below $130,000, will be gone in 2014. Teachers will lose out because of the expiration of a provision that lets them deduct up to $250 of their spending on classroom supplies. The National Education Association estimates that teachers spend an average of $400 annually on supplies. Homeowners who have had loans modified or forgiven in the past did not have to include that amount as income, but they will starting in 2014. The provision that lets people 70½ give up to $100,000 of an IRA distribution to charity, thereby avoiding income taxes. The qualified charitable distribution, popular with both retirees and charities, is scheduled to expire at the end of 2013. The ability to itemize and deduct sales taxes from the federal return is also expiring, impacting people living in states without income taxes or those who have made major purchases this year. Many deductions that are expiring, such as certain credits for electric vehicles, affect fewer people. Capital gains in mutual funds could be higher, as mutual fund companies have used the losses they were carrying over from the financial crisis. New taxes on wealthy households, a 3.8 percent Medicare surtax on income above $250,000 for a married couple filing jointly. The surcharge is applied to the lesser of investment income or modified adjusted gross income above that amount. Also an additional 0.9 percent Medicare tax for people above the same income thresholds, applied to wages and other compensation subject to the existing Medicare tax. Combine the new taxes on high earners with a hike in the maximum tax rate to 39.6 percent for couples with income over $450,000. Many business tax breaks will also end. Small businesses will feel the pain when the amount they can deduct for qualified equipment drops from a maximum of $500,000 this year to $25,000 in 2014.

IRS mileage rates for 2014

The Internal Revenue Service today issued the 2014 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes. Beginning on Jan. 1, 2014, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be: • 56 cents per mile for business miles driven • 23.5 cents per mile driven for medical or moving purposes • 14 cents per mile driven in service of charitable organizations The business, medical, and moving expense rates decrease one-half cent from the 2013 rates. The charitable rate is based on statute. The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs. Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously. These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51. Notice 2013-80 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan. Remember that the IRS requires a mileage log that includes where you drove, why you went there, the business purpose and the miles. In the event of an audit the IRS also wants to see repair receipts, oil changes or smog certificates that show the odometer readings. The IRS calls this third party verification of the miles the car traveled. You don't want your mileage log to show you drove 15,000 miles and the third party verification shows 10,000 miles for the year. Any questions or more information please call KatTax at 702-796-1040

The IRS warns consumers not to fall for bogus charity scams. Scams often occur in the wake of major disasters like the recent tornadoes in the Midwest or the typhoon in the Philippines. Thieves play on the goodwill of people who want to help disaster victims. They pose as a real charity in order to steal money or get private information to commit identity theft. The scams use different tactics. Offering charity relief, criminals often: • Claim to be with real charities to gain public trust. • Use names similar to legitimate charities. • Use email to steer people to bogus websites that often look like real charity sites. • Contact people by phone or email to get them to ‘donate’ money or give their financial information. The IRS offers the following tips to help taxpayers who wish to donate to victims: • Donate to qualified charities. Use the Exempt Organizations Select Check tool at IRS.gov to find qualified charities. Only donations to qualified organizations are tax-deductible. You can also find legitimate charities at the Federal Emergency Management Agency website, fema.gov. For more information about the kinds of charities that can receive deductible contributions, see Publication 526, Charitable Contributions. • Don’t give out information. Don’t give your Social Security number, credit card and bank account numbers or passwords to anyone. Scam artists use this information to steal your identity and money. • Don’t give or send cash. For security and tax record purposes, don’t give or send cash. Contribute by check, credit card or another way that provides documentation of the donation. • Report suspected fraud. If you suspect tax or charity-related fraud, visit IRS.gov and click on ‘Reporting Phishing’ at the bottom of the home page.

IRS is more aggressive in assessing penalties on tax returns. Although the IRS rules and regulations have had the penalties listed and how they were to be applied many times the penalties were not assessed. A prime example is the extension on a tax return. The extension is an extension of time to file the return not an extension of time to pay the tax due. In past years the IRS would charge interest on the tax due from April 15th until it was paid. Currently that same return will also have a failure to pay penalty and a failure to pay proper estimated payments penalty assessed in addition to the interest. Depending on the amount of tax due, the interest is $100 and the penalties are $200. In 2013 the IRS has been agreeable to removing the penalties because of good behavior of paying timely in the past. But you can only use your "Get out of jail free" card once every 3 years. It appears the IRS will be even more aggressive in 2014 with penalties. Most of the penalties will relate to the 2012 and 2013 tax years so you also have one or two years of interest assessed also. Unfortunately the interest is not waived. Any questions please give KatTax a call at 702-796-1040 ext. 105 for Larry or 106 for Kathy

2014 Tax year updates to IRS deductions. Revenue Procedure 2013-35 provides the new inflation adjusted numbers for 2014, which include: • The standard deduction rises to $6,200 for singles and married persons filing separate returns and $12,400 for married couples filing jointly; • The personal exemption rises to $3,950; • The Alternative Minimum Tax exemption amount for tax year 2014 is $52,800 ($82,100, for married couples filing jointly); • Estates of decedents who die during 2014 have a basic exclusion amount of $5,340,000; • The annual exclusion for gifts remains at $14,000; • The annual dollar limit on employee contributions to employer-sponsored healthcare flexible spending arrangements (FSA) remains at $2,500; and • The foreign earned income exclusion rises to $99,200 for tax year 2014.

IRS Announces 2014 Pension Plan Limitations; Taxpayers May Contribute up to $17,500 to their 401(k) plans in 2014 WASHINGTON — The Internal Revenue Service today announced cost of living adjustments affecting dollar limitations for pension plans and other retirement-related items for tax year 2014. Some pension limitations such as those governing 401(k) plans and IRAs will remain unchanged because the increase in the Consumer Price Index did not meet the statutory thresholds for their adjustment. However, other pension plan limitations will increase for 2014. Highlights include the following: • 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 unchanged at $17,500. . The catch-up contribution limit for employees aged 50 and over who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $5,500. • The limit on annual contributions to an Individual Retirement Arrangement (IRA) remains unchanged at $5,500. The additional catch-up contribution limit for individuals aged 50 and over is not subject to an annual cost-of-living adjustment and remains $1,000. • The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by a workplace retirement plan and have modified adjusted gross incomes (AGI) between $60,000 and $70,000, up from $59,000 and $69,000 in 2013. For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by a workplace retirement plan, the income phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by a workplace retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s income is between $181,000 and $191,000, up from $178,000 and $188,000. For a married individual filing a separate return who is covered by a workplace retirement plan, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. • The AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return, the phase-out range is not subject to an annual cost-of-living adjustment and remains $0 to $10,000. • The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low- and moderate-income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500. Below are details on both the unchanged and adjusted limitations. Section 415 of the Internal Revenue Code provides for dollar limitations on benefits and contributions under qualified retirement plans. Section 415(d) requires that the Secretary of the Treasury annually adjust these limits for cost of living increases. Other limitations applicable to deferred compensation plans are also affected by these adjustments under Section 415. Under Section 415(d), the adjustments are to be made pursuant to adjustment procedures which are similar to those used to adjust benefit amounts under Section 215(i)(2)(A) of the Social Security Act. Effective January 1, 2014, the limitation on the annual benefit under a defined benefit plan under Section 415(b)(1)(A) is increased from $205,000 to $210,000. For a participant who separated from service before January 1, 2014, the limitation for defined benefit plans under Section 415(b)(1)(B) is computed by multiplying the participant's compensation limitation, as adjusted through 2013, by 1.0155. The limitation for defined contribution plans under Section 415(c)(1)(A) is increased in 2014 from $51,000 to $52,000. The Code provides that various other dollar amounts are to be adjusted at the same time and in the same manner as the dollar limitation of Section 415(b)(1)(A). After taking into account the applicable rounding rules, the amounts for 2014 are as follows: The limitation under Section 402(g)(1) on the exclusion for elective deferrals described in Section 402(g)(3) remains unchanged at $17,500. The annual compensation limit under Sections 401(a)(17), 404(l), 408(k)(3)(C), and 408(k)(6)(D)(ii) is increased from $255,000 to $260,000. The dollar limitation under Section 416(i)(1)(A)(i) concerning the definition of key employee in a top-heavy plan is increased from $165,000 to $170,000. The dollar amount under Section 409(o)(1)(C)(ii) for determining the maximum account balance in an employee stock ownership plan subject to a 5 year distribution period is increased from $1,035,000 to $1,050,000, while the dollar amount used to determine the lengthening of the 5 year distribution period is increased from $205,000 to $210,000. The limitation used in the definition of highly compensated employee under Section 414(q)(1)(B) remains unchanged at $115,000. The dollar limitation under Section 414(v)(2)(B)(i) for catch-up contributions to an applicable employer plan other than a plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $5,500. The dollar limitation under Section 414(v)(2)(B)(ii) for catch-up contributions to an applicable employer plan described in Section 401(k)(11) or Section 408(p) for individuals aged 50 or over remains unchanged at $2,500. The annual compensation limitation under Section 401(a)(17) for eligible participants in certain governmental plans that, under the plan as in effect on July 1, 1993, allowed cost of living adjustments to the compensation limitation under the plan under Section 401(a)(17) to be taken into account, is increased from $380,000 to $385,000. The compensation amount under Section 408(k)(2)(C) regarding simplified employee pensions (SEPs) remains unchanged at $550. The limitation under Section 408(p)(2)(E) regarding SIMPLE retirement accounts remains unchanged at $12,000. The limitation on deferrals under Section 457(e)(15) concerning deferred compensation plans of state and local governments and tax-exempt organizations remains unchanged at $17,500. The compensation amount under Section 1.61 21(f)(5)(i) of the Income Tax Regulations concerning the definition of “control employee” for fringe benefit valuation purposes is increased from $100,000 to $105,000. The compensation amount under Section 1.61 21(f)(5)(iii) is increased from $205,000 to $210,000. The Code also provides that several pension-related amounts are to be adjusted using the cost-of-living adjustment under Section 1(f)(3). After taking the applicable rounding rules into account, the amounts for 2014 are as follows: The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for married taxpayers filing a joint return is increased from $35,500 to $36,000; the limitation under Section 25B(b)(1)(B) is increased from $38,500 to $39,000; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $59,000 to $60,000. The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for taxpayers filing as head of household is increased from $26,625 to $27,000; the limitation under Section 25B(b)(1)(B) is increased from $28,875 to $29,250; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $44,250 to $45,000. The adjusted gross income limitation under Section 25B(b)(1)(A) for determining the retirement savings contribution credit for all other taxpayers is increased from $17,750 to $18,000; the limitation under Section 25B(b)(1)(B) is increased from $19,250 to $19,500; and the limitation under Sections 25B(b)(1)(C) and 25B(b)(1)(D) is increased from $29,500 to $30,000. The deductible amount under Section 219(b)(5)(A) for an individual making qualified retirement contributions remains unchanged at $5,500. The applicable dollar amount under Section 219(g)(3)(B)(i) for determining the deductible amount of an IRA contribution for taxpayers who are active participants filing a joint return or as a qualifying widow(er) is increased from $95,000 to $96,000. The applicable dollar amount under Section 219(g)(3)(B)(ii) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $59,000 to $60,000. The applicable dollar amount under Section 219(g)(3)(B)(iii) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The applicable dollar amount under Section 219(g)(7)(A) for a taxpayer who is not an active participant but whose spouse is an active participant is increased from $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(I) for determining the maximum Roth IRA contribution for married taxpayers filing a joint return or for taxpayers filing as a qualifying widow(er) is increased from $178,000 to $181,000. The adjusted gross income limitation under Section 408A(c)(3)(B)(ii)(II) for all other taxpayers (other than married taxpayers filing separate returns) is increased from $112,000 to $114,000. The applicable dollar amount under Section 408A(c)(3)(B)(ii)(III) for a married individual filing a separate return is not subject to an annual cost-of-living adjustment and remains $0. The dollar amount under Section 430(c)(7)(D)(i)(II) used to determine excess employee compensation with respect to a single-employer defined benefit pension plan for which the special election under Section 430(c)(2)(D) has been made is increased from $1,066,000 to $1,084,000.

25 Accounting Terms You Should Know for QuickBooks

25 Accounting Terms You Should Know It’s back-to-school time. Why not take a page from the kids’ books and do some learning of your own? QuickBooks is easy to use, intuitive and flexible. But it is not an accounting manual or class or tutorial. If your business is exceptionally uncomplicated, you might get by without knowing a lot about the principles of bookkeeping. Still, it helps to understand the basics. Here’s a look at some terms and phrases you should understand. Account. You’ll set up financial accounts like checking and savings in QuickBooks, but in accounting terms, this refers to the accounts in your Chart of Accounts: asset, liability, owners’ equity, income and expense. QuickBooks Chart of Accounts Accounts Payable (A/P). Everything that you owe to vendors, contractors, consultants, etc. is tracked in this account. Accounts Receivable (A/R). This account tracks income that hasn’t been realized yet, like outstanding invoices. Accrual Basis. This is one of two basic accounting methods. Using it, you record income as it is invoiced, not when it’s actually received, and you records expenses like bills when you receive them. Using the other method, Cash Basis, you would report income when you receive it and expenses when you pay the bills. Asset. What physical items do you own that have value? This could be cash, office equipment and real estate. In QuickBooks you’ll be managing two types. Current Assets are generally used within 12 months (or you could convert them to cash in that length of time). Fixed Assets refers to belongings like vehicles, furniture and land, property that you probably won’t use up in a year and which usually depreciates in value. Depreciation is very complex; you may need our help with that. Average Cost. This is the inventory costing method that programs like QuickBooks Pro and Premier use to calculate the value of your stock. QuickBooks provides a Statement of Cash Flows report. Cash Flow. This refers to the relationship between incoming and outgoing funds during a specific time period. Double-Entry Accounting. This is the system that QuickBooks uses – that all legitimate small business accounting software uses. Every transaction must show where the funds came from and where they went. Each has a Credit (decreases asset and expense accounts) and Debit (decreases liability and income accounts) which must balance out (other types of accounts can be affected). Equity. This refers to your company’s net worth. It’s the difference between your assets and liabilities. General Journal. QuickBooks handles this in the background, so it’s unlikely you’ll ever be exposed to it. We sometimes have to create General Journal Entries, transactions required for various reasons (errors, depreciation, etc.) that contain debits and credits. Please leave that to us. Item Receipt. You’ll create these when you receive inventory from a vendor without a bill. Job. QuickBooks often associates customers with multi-part projects that you’ve taken on, like a kitchen remodel. Net income. This is your revenue minus expenses. Non-Inventory Part. When you purchase an item but don’t sell it or you buy something and resell it immediately to a customer, this is what it’s called. It’s merchandise that isn’t stored by you for future sales. Payroll Liabilities Account. QuickBooks tracks federal, state and local withholding taxes, as well as Social Security and Medicare obligations, that you’ve deducted from employees’ paychecks and will remit to the appropriate agencies. QuickBooks helps you track and remit Payroll Liabilities. Post. You won’t run into this term in QuickBooks. It simply refers to recording a transaction within one of your accounts. Reconcile. QuickBooks helps you with this. It’s the process of making sure your records and those of your financial institutions agree. Sales Receipt. This is how you record a sale when payment is made in full during the transaction. Statement. You’ll generally use invoices to bill customers in QuickBooks, but you can also send statements, which contain transaction information for a given date range. Trial Balance. This standard financial report tells you whether your debits and credits are in balance. Should you run this report and find a problem, let us know right away. Vendor. With the exception of employees, QuickBooks uses this term to refer to anyone who you pay as a part of your business operations. These are just a few of the terms you should recognize and understand. We hope you’ll contact us when you need help understanding how the accounting process fits into your workflow.

The following is a reprint of a grant program by Intuit the maker of QuickBooks accounting software. If you are interested in this QuickBooks and Intuit program please contact them. Intuit to Grant 15 Small Business Wishes by lsheflin As a member of the QuickBooks Online team, it's been exciting to watch the growth in Intuit's Love Our Local Business program, which is focused on spotlighting amazing business owners who are making their dreams a reality. From Elwood, Indiana's 2Guyz Boutique for Dogs and Cats, to Salem Oregon's Clockworks Cafe, Intuit has already awarded more than $1 million in grants. For the next chapter, the Love Our Local Business is launching a "Small Business, Big Wishes" campaign, where the team will grant one wish a day for 15 days. Beginning November 14th, you're invited to submit wishes online for a chance to have your wish granted. What does it take to get your wish selected? Criteria include the number of votes received, the wish's feasibility, and the transformational impact the granted wish would have on your business. The first wish will be granted December 3rd. To learn more, check out all the campaign’s details here. Best of luck in getting your business wishes granted this holiday season! Thanks Larry Eisenzimer EA Enrolled Agents “America’s Tax Experts” EAs are the only federally licensed tax practitioners who specialize in taxation and also have unlimited rights to represent taxpayers before the IRS.

IRS Takes a Beating

It seems like every news program or newspaper article these days starts off with the wrong doings at the IRS. First the non-profit status for organizations the 501(c)(4) status. The IRS code section 501 deals with non-profits. Most are 501(c)(3) which includes churches, Boy Scouts, Goodwill just to name a few. Part of the IRS code says that non-profits under the 501(c)(4) cannot have anything to do with the political election process. It appears the IRS pulled certain applications that used specific works like Tea Party in their name for additional scrutiny. The total number of applications pulled was 68 and all 68 were approved. I don't know if the delays impacted any election results but it appears to be politically motivated. Nothing happens at the IRS unless at least 2 layers of management approve it. All this happened under the former Director. To fire the interim Director who had nothing to do with the issue makes everyone involved look stupid. Second the IRS seems to have been spending over $25,000,000 of taxpayer dollars on meetings. In this day of online webinars or in house training there does not appear to be any fiscal reason to have 2500 IRS employees congregate in one location for a meeting that costs the taxpayers over $4,000,000. At $1,600 per employee that is a nice vacation. I think the managers and their superiors should be terminated. Third, the IRS is trying to get to the point where they are doing Real Time Processing of income tax returns. Real Time Processing is the ability to match the numbers on your tax return with the W2s, 1099s and 1098s that have already been sent to the IRS. For the 2011 tax year the IRS said they stopped about $200,000,000 in fraudulent tax refunds from being processed. Problem is about $200,000,000 were processed. Most of the fraudulent returns are identity theft. The thief obtains your social security number and then files a bogus tax return where all the numbers are made up so there is a big refund. The refund is deposited to a bank account. By the time the real person files their actual return it rejects because a return with that social security number has already been filed. When the IRS goes looking for the refund the bank account is closed and the address on the return is vacant. Real Time Processing would stop the bogus return because none of the information would match what was already on file at the IRS. Maybe the tax filing season would start in July and end November 15th. That way everyone has their refund by December 25th. The IRS has not give Real Time Processing project status yet. Project status means the IRS is working on what it would take to implement the program. At this point they are still discussing.

The following is a recap of the new tax bill. It is from the National Society of Accountants. If you wan to see the full bill you can access it at www.irs.gov 1. Key Provisions Permanent AMT patch. The Act increases the exemption amounts for 2012 to $50,600 (individuals) and $78,750 (married filing jointly) and indexes the exemption and phaseout amounts thereafter. The Act also allows the nonrefundable personal credits against the AMT. The provision is effective for taxable years beginning after December 31, 2011. Permanently extend the 10% bracket. The Act extends the 10% individual income tax bracket for taxable years beginning after December 31, 2012. Permanently extend the 25%, 28%, and 33% income tax rates. The Act extends the 25%, 28%, 33% rates on income at or below $400,000 (individual filers), $425,000 (heads of households) and $450,000 (married filing jointly) for taxable years beginning after December 31, 2012. Permanently repeal the Personal Exemption Phaseout for certain taxpayers. Due to the Personal Exemption Phase-out (“PEP”), the exemptions are phased out for taxpayers with AGI above a certain level. The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) repealed PEP for 2010. The Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010 (TRUIRJCA) extended the repeal through 2012. The Act extends the repeal of PEP on income at or below $250,000 (individual filers), $275,000 (heads of households) and $300,000 (married filing jointly) for taxable years beginning after December 31, 2012. Permanently repeal the itemized deduction limitation for certain taxpayers. Since 1991, the amount of itemized deductions that a taxpayer may claim has been reduced, to the extent the taxpayer’s AGI is above a certain amount. This limitation is generally known as the “Pease limitation.” The EGTRRA repealed the Pease limitation on itemized deductions for 2010. The TRUIRJCA extended the repeal through 2012. The Act extends the repeal of the Pease limitation on income at or below$250,000 (individual filers), $275,000 (heads of households) and $300,000 (married filing jointly) for taxable years beginning after December 31, 2012. Permanently extend the capital gains and dividend rates. Under current law, the capital gains and dividend rates for taxpayers below the 25% bracket is equal to zero percent. For those in the 25% bracket and above, the capital gains and dividend rates are currently 15%. These rates expire at the end of 2012. Upon expiration, the rates for capital gains become 10% and 20%, respectively, and dividends are subject to the ordinary income rates. The Act extends the current capital gains and dividends rates on income at or below $400,000 (individual filers), $425,000 (heads of households) and $450,000 (married filing jointly) for taxable years beginning after December 31, 2012. For income in excess of $400,000 (individual filers), $425,000 (heads of households) and $450,000 (married filing jointly), the rate for both capital gains and dividends will be 20%. 2. General Provisions Permanently extend the 2001 modifications to the child tax credit. The EGTRRA increased the child tax credit from $500 to $1,000 and expanded refundability. The amount that may be claimed as a refund was 15% of earnings above $10,000. The Act extends this provision for taxable years beginning after December 31, 2012. Permanently extend marriage penalty relief. The Act extends the marriage penalty relief for the standard deduction, the 15% bracket, and the EITC for taxable years beginning after December 31, 2012. Permanently extend expanded Coverdell Accounts. The EGTRRA increased the annual contribution limits to Coverdell Education Savings Accounts from $500 to $2,000 and expanded the definition of education expenses to include elementary and secondary school expenses. The Act extends the changes to Coverdell accounts for taxable years beginning after December 31, 2012. Permanently extend the expanded exclusion for employer-provided educational assistance. An employee may exclude from gross income up to $5,250 for income and employment tax purposes per year of employer-provided education assistance. Prior to 2001, this incentive was temporary and only applied to undergraduate courses. The EGTRRA expanded this provision to graduate education and extended the provision for undergraduate and graduate education. The Act extends the changes to this provision for taxable years beginning after December 31, 2012. Permanently extend the expanded student loan interest deduction. Subject to some limitations, individuals who have paid interest on qualified education loans may claim an above-the-line deduction for such interest expenses up to $2,500. Prior to 2001, this benefit was only allowed for 60 months and phased-out for taxpayers with income between $40,000 and $55,000 ($60,000 and $75,000 for joint filers). The EGTRRA eliminated the 60-month rule and increased the income phase-out to $55,000 to $70,000 ($110,000 and $140,000 for joint filers). The Act extends the changes to this provision for taxable years beginning after December 31, 2012. Permanently extend the expanded dependent care credit. The EGTRRA increased the amount of expenses eligible for the dependent care credit from $2,400 for one child and $4,800 for two or more children to $3,000 and $6,000, respectively. The EGTRRA also increased the applicable percentage from 30% to 35%. The Act extends the changes to the dependent care credit made by EGTRRA for taxable years beginning after December 31, 2012. Permanent estate, gift and generation skipping transfer tax relief. The EGTRRA phased-out the estate and generation-skipping transfer taxes so that they were fully repealed in 2010, and lowered the gift tax rate to 35 percent and increased the gift tax exemption to $1 million for 2010. In 2010, the TRUIRJCA set the exemption at $5 million per person with a top tax rate of 35 percent for the estate, gift, and generation skipping transfer taxes for two years, through 2012. The exemption amount was indexed beginning in 2012. The Act makes permanent the indexed TRUIRJCA exclusion amount and indexes that amount for inflation going forward, but sets the top tax rate to 40 percent for estates of decedents dying after December 31, 2012. Temporarily extend the American Opportunity Tax Credit. Created under the American Recovery and Reinvestment Act of 2009 (ARRA), the American Opportunity Tax Credit is available for up to $2,500 of the cost of tuition and related expenses paid during the taxable year. Under this tax credit, taxpayers receive a tax credit based on 100% of the first $2,000 of tuition and related expenses (including course materials) paid during the taxable year and 25% of the next $2,000 of tuition and related expenses paid during the taxable year. Forty percent of the credit is refundable. This tax credit is subject to a phase-out for taxpayers with adjusted gross income in excess of $80,000 ($160,000 for married couples filing jointly). The Act extends the American Opportunity Tax Credit for five additional years, through 2017. Temporarily extend the 2009 modifications to the child tax credit. The ARRA provided that earnings above $3,000 would count towards refundability. The Act extends the ARRA child tax credit expansion for five additional years, through 2017. Temporarily extend third-child EITC. Under current law, working families with two or more children currently qualify for an earned income tax credit equal to 40% of the family’s first $12,570 of earned income. The ARRA increased the earned income tax credit to 45% for families with three or more children and increased the beginning point of the phase-out range for all married couples filing a joint return (regardless of the number of children) to lessen the marriage penalty. The Act extends for five additional years, through 2017, the ARRA expansions that increased the EITC for families with three or more children and increased the phase-out range for all married couples filing a joint return. 3. Individual Tax Extenders Deduction for certain expenses of elementary and secondary school teachers. The Act extends for two years the $250 above-the-line tax deduction for teachers and other school professionals for expenses paid or incurred for books, supplies (other than non-athletic supplies for courses of instruction in health or physical education), computer equipment (including related software and service), other equipment, and supplementary materials used by the educator in the classroom. Mortgage Debt Relief. Under current law, taxpayers who have mortgage debt canceled or forgiven after 2012 may be required to pay taxes on that amount as taxable income. Under this provision, up to $2 million of forgiven debt is eligible to be excluded from income ($1 million if married filing separately) through tax year 2013. Employer-provided mass transit and parking benefits. The Act extends through 2013 the increase in the monthly exclusion for employer-provided transit and vanpool benefits from $125 to $240, so that it would be the same as the exclusion for employer-provided parking benefits. Premiums for mortgage insurance deductible as interest that is qualified residence interest. The provision extends the ability to deduct the cost of mortgage insurance on a qualified personal residence. The deduction is phased-out ratably by 10% for each $1,000 by which the taxpayer’s AGI exceeds $100,000. The Act extends this provision for two additional years, through 2013. Deduction for state and local general sales taxes. The Act extends for two years the election to take an itemized deduction for State and local general sales taxes in lieu of the itemized deduction permitted for State and local income taxes. Special rules for contributions of capital gain real property made for conservation purposes. The Act extends for two years the increased contribution limits and carryforward period for contributions of appreciated real property (including partial interests in real property) for conservation purposes. Above-the-line deduction for qualified tuition related expenses. The Economic Growth and Tax Relief Reconciliation Act (EGTRRA) created an above-the-line tax deduction for qualified higher education expenses. The maximum deduction was $4,000 for taxpayers with AGI of $65,000 or less ($130,000 for joint returns) or $2,000 for taxpayers with AGI of $80,000 or less ($160,000 for joint returns). The Act extends the deduction to the end of 2013. Tax-free distributions from individual retirement plan for charitable purposes. The Act extends for two years the provision that permits tax-free distributions to charity from an Individual Retirement Arrangement (IRA) held by someone age 70½ or older of up to $100,000 per taxpayer, per taxable year. The provision contains a transition rule under which an individual can make a rollover during January of 2013 and have it count as a 2012 rollover. Also, individuals who took a distribution in December of 2012 will be able to contribute that amount to a charity and count as an eligible charitable rollover to the extent it otherwise meets the requirements for an eligible charitable rollover. Disclosure of prisoner return information to certain prison officials. The IRS is authorized to disclose certain limited return information about tax violations identified by the IRS, so that prison officials could punish and deter the prisoner’s conduct through administrative sanctions. The provision expired on December 31, 2011. The Act makes the provision permanent. It also modifies and expands the provision to permit disclosure of the actual tax return as well as tax return information, allow disclosure to prison officials directly, expand disclosure to include private contractors administering prisons, and provide disclosure to representatives of the prisoners. The Act makes the provision permanent. 4. Business Tax Extenders 15-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements. The Act extends through 2013 the temporary 15-year cost recovery period for certain leasehold, restaurant, and retail improvements, and new restaurant buildings, which are placed in service before January 1, 2014. The extension is effective for qualified property placed in service after December 31, 2011. Temporarily extend increase in the maximum amount and phase-out threshold under section 179. Under current law, a taxpayer with a sufficiently small amount of annual investment may elect to deduct the cost of certain property placed in service for the year rather than depreciate those costs over time. The 2003 tax cuts temporarily increased the maximum dollar amount that may be deducted from $25,000 to $100,000. The tax cuts also increased the phase-out amount from $200,000 to $400,000. The Act increases the maximum amount and phase-out threshold in 2012 and 2013 to the levels in effect in 2010 and 2011 ($500,000 and $2 million respectively). Within those thresholds, the Act also allows a taxpayer to expense up to $250,000 of the cost of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property. This provision expires at the end of 2013 and the amounts revert to $25,000 and $200,000, respectively. Bonus depreciation. Under current law, businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. For 2008 through 2010, Congress allowed businesses to take an additional depreciation deduction allowance equal to 50 percent of the cost of the depreciable property. The TRUIRJCA expanded this provision to allow 100 percent bonus depreciation for investments placed in service after September 8, 2010 and before 2012 and 50 percent bonus depreciation for investments placed in service during 2012. This provision extends the current 50 percent expensing provision for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015 for certain longer-lived and transportation assets) and also allow taxpayers to elect to accelerate some AMT credits in lieu of bonus depreciation. Tax credit for research and experimentation expenses. The Act extends for two years, through 2013, the research tax credit equal to 20 percent of the amount by which a taxpayer’s qualified research expenses for a taxable year exceed its base amount for that year and provides an alternative simplified credit of 14 percent. The Act also modifies rules for taxpayers under common control and rules for computing the credit when a portion of a trade or business changes hands.