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2012 TAX RULES AREN’T SET YET…HERE ARE THE HIGHLIGHTS

The battle over whether to extend the Bush tax cuts for upper income filers for 2012 is in the news. Both the House and Senate have recently passed bills to extend the breaks, but those bills move in opposite directions. As you might expect, one of the bills follows the philosophy of President Obama, and the other follows the philosophy of candidate Romney.

 

Congress still must make important decisions about tax rules for this year. They are just now starting to deal with them.

 

Here are some of the highlights:

 

1).        The alternative minimum tax will be eased.

 

Senate Tax Writers have begun the process to finish the rules for the 2012 tax year, such as:

2).        It looks like Congress is going to reinstate the R&D credit, the tax credit for hiring disadvantage workers and provide for 15 year right offs for renovation of restaurants and retail stores. It also looks like they will allow businesses to expense up to $500,000 of assets that are put in use this year (this is an increase from the current limitation of $139,000).

 

3).        Delayed Refunds– Many experts are saying the final bill will not be approved to very late in the year, which means that more likely than not, refunds for many filers will be delayed. This is because the IRS will struggle to reprogram its computers. We have seen this happen before in 2007 and 2011.

 

For example:

In 2011, anyone who itemized deductions had to wait until mid February to file.

 

4).        IRS Lawyers have confirmed that self-employed individuals can deduct Medicare premiums. Premiums paid for all parts of Medicare are included in the deduction for health insurance on the front page of the 1040 form. This also applies to partners provided the partnerships paid the premiums, or reimburse the partner in the amounts reported as guaranteed payments that are taxed as income.

5).        The Tax Court has ruled that a woman, suffering from depression, migraines, and pain from being fired from her job, who received a $100,000 settlement from her employer in order to avoid a wrongful termination suit, must pay tax on the money received from the corporation.

 

6).        The new health care law and additional penalties.

 

Starting in 2014, businesses with 50 or more employees, that don’t offer a health plan, or that sponsor a deficient health plan, must pay a penalty to IRS. If any full time worker receives a tax credit and buys his or her own health coverage through an exchange, the penalty is $3,000.00 for each employee that does that.

 

The Supreme Court ruled that states could opt to reject the health care laws expansion of Medicaid. If a state does opt to reject the health care law expansion, more employees would qualify for the credit to buy insurance. This would mean higher penalties for Employers.

 

7).        The IRS has recently shown the way to give your corporation to your children and still get a tax break. In a particular case a man owned 100 percent of the business. He wanted to retire and have his children, who were grown, and also directors of the corporation take over the business. He gave some stock in the company to the two kids and the business redeemed his remaining shares in exchange for a promissory note. In other words, his children ended up with 100 percent of the company. The IRS ruled that when the company redeemed his stock, that qualified for a capital gain treatment (i.e.… lower tax rate).  This was a private ruling by the IRS, but it determined that ending the owner’s interest in the company except as a creditor, allowed this to happen. The IRS did point out that the motive in gifting the stock to the children was not made primarily to avoid taxes.

 

8).        Payroll Taxes

 

Businesses in many states will pay higher FUTA taxes for 2012. Believe it or not, there is a 5.4% credit against FUTA tax which is reduced for companies and states that have not repaid loans from the Federal jobless fund by November 5th. Translating that into English means that if you are an employer in Alabama, Arkansas, California, Connecticut, Florida, Georgia, Illinois, Kentucky, Minnesota, Missouri, Nevada, New Jersey, New York, North Carolina, Ohio, Pennsylvania, Rhode Island, Virginia, and Wisconsin, you can pay as much as $63.00 extra in tax per employee.

 

9).        IRS will be more targeted in visiting Tax Preparers in 2013.

 

The IRS has a program where they visit and/or review tax returns prepared by certain tax preparers. The idea is to focus on those that have the highest risk of preparing returns with errors. In the past couple of years, many tax professionals have complained that the IRS was wasting their resources by not focusing its compliance on problem prepares. Apparently, the IRS, after some prodding, has seen the light of day. They are revising their program to focus on those tax professionals with a history of problems. Keep this in mind when you are looking for someone to do your tax returns. You may need to do a little bit of your own researc