by steve | Oct 25, 2011 | Tax News
From the IRS Newsroom:
For tax year 2012, personal exemptions and standard deductions will rise and tax brackets will widen due to inflation.
By law, the dollar amounts for a variety of tax provisions, affecting virtually every taxpayer, must be revised each year to keep pace with inflation. New dollar amounts affecting 2012 returns, filed by most taxpayers in early 2013, include the following:
The value of each personal and dependent exemption, available to most taxpayers, is $3,800, up $100 from 2011.
The new standard deduction is $11,900 for married couples filing a joint return, up $300, $5,950 for singles and married individuals filing separately, up $150, and $8,700 for heads of household, up $200.
Nearly two out of three taxpayers take the standard deduction, rather than itemizing deductions, such as mortgage interest, charitable contributions and state and local taxes.
Tax-bracket thresholds increase for each filing status. For a married couple filing a joint return, for example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $70,700, up from $69,000 in 2011.
Credits, deductions, and related phase outs.
For tax year 2012, the maximum earned income tax credit (EITC) for low- and moderate- income workers and working families rises to $5,891, up from $5,751 in 2011. The maximum income limit for the EITC rises to $50,270, up from $49,078 in 2011.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.
The foreign earned income deduction rises to $95,100, an increase of $2,200 from the maximum deduction for tax year 2011.
The modified adjusted gross income threshold at which the lifetime learning credit begins to phase out is $104,000 for joint filers, up from $102,000, and $52,000 for singles and heads of household, up from $51,000.
For 2012, annual deductible amounts for Medical Savings Accounts (MSAs) increased from the tax year 2011 amounts; please see the table below.
Medical Savings Accounts (MSAs) Smaller number SELF Higher Number FAMILY
Self-only coverage
Family coverage
Minimum annual deductible
$2,100
$4,200
Maximum annual deductible
$3,150
$6,300
Maximum annual out-of-pocket expenses
$4,200
$7,650
The $2,500 maximum deduction for interest paid on student loans begins to phase out for a married taxpayers filing a joint returns at $125,000 and phases out completely at $155,000, an increase of $5,000 from the phase out limits for tax year 2011. For single taxpayers, the phase out ranges remain at the 2011 levels.
Estate and Gift
For an estate of any decedent dying during calendar year 2012, the basic exclusion from estate tax amount is $5,120,000, up from $5,000,000 for calendar year 2011. Also, if the executor chooses to use the special use valuation method for qualified real property, the aggregate decrease in the value of the property resulting from the choice cannot exceed $1,040,000, up from $1,020,000 for 2011.
The annual exclusion for gifts remains at $13,000.
Other Items
The monthly limit on the value of qualified transportation benefits exclusion for qualified parking provided by an employer to its employees for 2012 rises to $240, up $10 from the limit in 2011. However, the temporary increase in the monthly limit on the value of the qualified transportation benefits exclusion for transportation in a commuter highway vehicle and transit pass provided by an employer to its employees expires and reverts to $125 for 2012.
Several tax benefits are unchanged in 2012. For example, the additional standard deduction for blind people and senior citizens remains $1,150 for married individuals and $1,450 for singles and heads of household.
Details on these inflation adjustments can be found in Revenue Procedure 2011-52, which will be published in Internal Revenue Bulletin 2011-45 on November 7, 2011.
by steve | Oct 20, 2011 | Tax News
2.1 Million Taxpayers May Have Received $3.2 Billion In Erroneous Education Tax Credits
An estimated 2.1 million taxpayers may have received $3.2 billion in erroneous education credits, according to a new report from the Treasury Inspector General for Tax Administration (TIGTA).
The American Recovery and Reinvestment Act of 2009 created a refundable tax credit called the American Opportunity Tax Credit (AOTC) to help taxpayers offset the cost of higher education. This credit has been extended to 2011 and 2012 returns. TIGTA assessed the effectiveness of the IRS processes to identify erroneous AOTC claims.
TIGTA found that 1.7 million taxpayers erroneously received an estimated $2.6 billion in education credits even though the Internal Revenue Service (IRS) had no supporting documentation that these taxpayers had attended an eligible institution, defined as an accredited institution of higher learning.
While the IRS initially did not agree with the amount of erroneous claims identified by TIGTA, it subsequently informed TIGTA that it has found a high percentage of the claims with no supporting documentation to indeed be erroneous. IRS management noted that they expect the percentage found to be erroneous to further grow and have increased the number of tax returns they plan to review with this condition in Fiscal Year 2012.
by steve | Oct 18, 2011 | IRS Tax Problem, Tax News, Uncategorized
With so much canceled debt going around, questions arise about which canceled debt is taxable and which debt is not. Here are the general rules regarding debt cancellation in regard to taxable income.
IN GENERAL:
If you are liable for a debt that is canceled, forgiven, or discharged, you must include the canceled amount in gross income unless you meet an exclusion or exception. However, canceled or forgiven debt is not considered income if it is intended as a gift or bequest.
A debt includes any indebtedness for which you are personally liable or for which you are liable only to the extent of the property securing the debt. Cancellation of all or part of a debt that is secured by property may occur because of a foreclosure, a repossession, a voluntary return of the property to the lender, abandonment of the property, or a principal residence loan modification.
You must report any taxable amount of a debt that is canceled, as ordinary income from the cancellation of debt, on Form 1040 or Form 1040NR and associated sub-schedules, as advised in IRS Publication 4681, Canceled Debts, Foreclosures, Repossessions, and Abandonment (for Individuals).
Caution: If your debt is secured by property and that property is taken by the lender in full or partial satisfaction of your debt, you will be treated as having sold that property and may have a reportable gain or loss. The gain or loss on such a deemed sale of your property is a separate issue from whether any canceled debt also associated with that same property is includable in gross income.
See IRS Publication 544, Sales and Other Dispositions of Assets, for detailed information on reporting gain or loss from repossession, foreclosure or abandonment of property.
If a federal government agency or an applicable financial entity cancels or forgives a debt you owe of $600 or more, you should receive a Form 1099-C (PDF), Cancellation of Debt, showing amounts and other information relating to the cancellation. The amount of canceled debt is shown in Box 2 of the form.
Canceled Debts that meet the requirements for any of the following exceptions or exclusions are not taxable.
Canceled Debt that Qualifies for Exception to Inclusion in Gross Income:
Amounts specifically excluded from income by law such as gifts or bequests
Cancellation of certain qualified student loans
Canceled debt that if paid by a cash basis taxpayer is otherwise deductible
A qualified purchase price reduction given by a seller
Canceled Debt that Qualifies for Exclusion from Gross Income:
Cancellation of qualified principal residence indebtedness
Debt canceled in a Title 11 bankruptcy case
Debt canceled due to insolvency
Cancellation of qualified farm indebtedness
Cancellation of qualified real property business indebtedness
The exclusion for “qualified principal residence indebtedness,” provides canceled debt tax relief for many American home owners involved in the mortgage foreclosure crisis currently affecting much of the country. The exclusion allows taxpayers to exclude up to $2,000,000 ($1,000,000 if married filing separately) of “qualified principal residence indebtedness”.
Generally, if you exclude canceled debt from income under one of the exclusions listed above, you must also reduce your tax attributes (certain credits, losses, and basis of assets) by the amount excluded. You must file Form 982 (PDF), Reduction of Tax Attributes Due to Discharge of Indebtedness (and Section 1082 Basis Adjustment), to report the exclusion and the corresponding reduction of certain tax attributes.
by steve | Oct 17, 2011 | Tax News, Uncategorized
Can you go to Jail for not filing your tax returns? How many times are we asked this question. Call us to get back in the system worry free!
With so many people not filing there tax returns this question always comes up in teaching events we put on. There is no one simple answer because IRS can do what ever it want to do and go after any body they wish too. However our firm can get you back in the tax system worry free because of extensive history with the IRS.
With that said there is an official IRS Policy Statement found on there website:
IRS Policy Statement
A long-standing practice of the IRS has been not to recommend criminal prosecution of individuals for failure to file tax returns, provided they voluntarily file, or make arrangements to file, before being notified they are under criminal investigation. The taxpayer must make an honest effort to file a correct return and have income from legal sources. A letter from the IRS concerning taxes is not a notice that a taxpayer is under criminal investigation.
The IRS helps to get people back into the system as part of its long-term plan to improve voluntary tax compliance. The IRS wants to get people back into the system, not prosecute ordinary people who made a mistake. However, flagrant cases involving criminal violations of tax laws will continue to be investigated.
by steve | Oct 17, 2011 | IRS Tax Problem, Tax News
If someone is using your social security number what you do, report the fraud as soon as possible. Your tax refund is probably in jeopardy!
Reporting Tax Fraud to the Internal Revenue Service:
What can you do if I think someone has filed a tax return using my social security number?
Answer:
The IRS has security measures in place to verify the accuracy of tax returns and the validity of social security numbers submitted.
If you receive a notice from the IRS that leads you to believe someone may have used your social security number fraudulently, please notify the IRS immediately by responding to the name and number printed on the notice or letter.
You can contact the Federal Trade Commission (FTC) Identity Theft Hotline toll-free at 877-438-4338 if you suspect someone else is using your social security number, or to secure information on how to prevent identity theft.
If you are an actual or potential victim of identity theft and would like the IRS to mark your account to identify any questionable activity, please complete Form 14039 Identify Theft Affidavit available on irs.gov.
by steve | Oct 17, 2011 | Representation, Tax News
Canadian & U.S. Tax Issues
Question: You are a U.S. citizen and move to Canada to live and work there as a Canadian permanent resident, do you pay both U.S. and Canadian Taxes?
Answer: United States citizens living abroad:
1. Are required to file annual U.S. income tax returns.
2. Must report their worldwide income if they meet the minimum income filing requirements for their filing status and age.
3. Must contact the Canadian Government to determine whether you must file a Canadian tax return and pay Canadian taxes.
3. May be able to elect to exclude some or all of their foreign earned income, if certain requirements are met, or to claim a foreign tax credit if Canadian income taxes are paid.
