MJC Tax Chat

American Taxpayer Relief Act

MBonventure — Wed, 16 Jan 2013 16:20:10 +0000

At the last possible moment Congress and President Obama finally were able to compromise and pass legislation to avoid the increase in income tax for most taxpayers from the expiration of the Bush tax cut that was scheduled to occur on January 1, 2013. Unfortunately not all taxpayers were spared a tax increase as “higher income” taxpayers will face some significant tax increases. Below is an explanation of the major provisions of the law. One notable absence from the new legislation was the extension of the 2% payroll tax holiday that all wage earners and self-employed individuals have enjoyed the last two years. Since the holiday was allowed to expire, all wages earners and self employed individuals will see an immediate tax increase.

2012 American Taxpayer Relief Act

An Uncertain Future

MBonventure — Mon, 29 Oct 2012 19:04:43 +0000

As I sit here watching the trees bending and the rain pouring down and wondering how many people who have evacuated their homes will have a home to return to once Sandy works it way out of our region I started to contemplate an uncertain future of a whole lot less significance. At November nears the members of the Estate Planning community sit and wonder what will the landscape of the estate tax system look like when we wake up on January 1. The IRS recently provided us with a small piece of information when they let us know that the annual gift tax exclusion amount has been increased to $14,000 for 2013. But what about the estate and gift tax lifetime exclusion amount. Currently, the exclusion stands at $5,000,000 but that is set to expire on January 1, 2013 and return to $1,000,000. Will Congress let this happen or will they enact legislation to make the exemption $3,500,000 or leave it at $5,000,000? Currently we know the exemption amount is $5,000,000. We urge all of friends and clients to review their estate plan in the next two months to determine if it is appropriate to take advantage of this exemption amount before the Congressional storm hits and washes this opportunity away. As for Sandy, we wish everyone safety from the storm.

2013 IRA and 401K limits

MBonventure — Thu, 25 Oct 2012 15:33:34 +0000

The IRS recently announced the 2012 limits for Individual Retirement Accounts and 401K deferrals. Both the IRA and 401K limits have increased by $500 for 2013. For 2013 the IRA contribution limit will be $5,500 and the 401K deferral maximum will be $17,500. For those of us over 50 the catch up contribution amount remains at $5,500 for 401K plans and $1,000 for IRA’s. The catch up contribution is an additional amount that those over 50 years of age can contribute each year. We urge you to take full advantage of the maximum deferrals each year.

New Taxes Created by Affordable Health Care Act

MBonventure — Mon, 06 Aug 2012 18:13:18 +0000

Now that the Affordable Health Care Act has been upheld by the US Supreme Court we need to brace ourselves for a few new important stealth tax increases. Beginning in 2013, the new Medicare Contribution tax rate of 3.8 percent kicks in. The tax is imposed on individuals, estates and trust and applies to net investment income. The 3.8 % tax will not applied unless modified adjusted gross income exceeds $250,000 for joint returns, $125,000 for married taxpayers filing separately and $200,000 in all other cases. This 3.8-percent tax applies to the lesser of the taxpayer’s (1) “net investment income” or (2) the excess of adjusted gross income (AGI) over the applicable threshold. In addition, wages or self employment income above these thresholds will be subject to an additional .9% hospital insurance tax.

Net investment income includes interest income (excluding interest on tax exempt bonds), dividends, net capital gains, income from annuities, income from passive business activities and royalties. It also includes rents unless those rents derive from the conduct of a trade or business, unless that business is a “passive activity”.

Additionally, for tax years beginning after December 31, 2012, unreimbursed medical expenses will be deductible by taxpayers under age 65 only to the extent they exceed 10% of adjusted gross income (AGI) for the tax year. This is increased from the current 7.5% threshold. If the taxpayer or his or her spouse has reached age 65 before the close of the tax year, a 7.5 % floor applies until December 31, 2016. The 10 % floor will apply to all taxpayers for tax years ending after December 31, 2016.

Also, for tax years beginning after December 31, 2012, the maximum amount an employee can contribute under a flexible spending account will be decreased from $5,000 to $2,500.

Sales Tax Collection on Internet Sales is Coming

MBonventure — Thu, 19 Jul 2012 13:51:59 +0000

In 1992 the Supreme Court ruled that Internet retailers do not have to collect state sales tax in states that they ship their goods into if they do not have a physical presence in that state. This ruling gave Internet retailers a significant advantage over their brick and mortar competitors. Since 1992, Internet sales have grown from a fledgling industry to a $200 billion a year one, a fact that has not gone unnoticed by state governors. Until recently, legislators were leery about altering this ruling for fear that people would view them negatively for raising taxes. State governors have now begun to rethink their strategy in an effort to combat declining revenues due to a sluggish economy. More Republican governors have started enter into deals with online companies to provide them with a short-term sales tax collection holiday in exchange for the online company’s promise to locate distribution facilities which will create jobs in their state. The 1992 Supreme Court ruling left open the possibility that legislation could overturn the ruling. It appears that legislatures are now more willing to level the playing field between Internet retailers and traditional brick and mortar retailers by imposing the duty to collect state sales tax on all Internet sales shipped into each state. If this movement continues to pick up momentum, you can expect to begin to pay sales tax on your entire Internet shopping sometime in the next year.

Breaking news: Penalty ruled a Tax

MBonventure — Fri, 29 Jun 2012 12:01:40 +0000

Yesterday, in a 5-4 decision, the Supreme Court upheld President Obama’s Health Care Law. This law requires Americans to carry health insurance or pay a penalty to the government. The government’s main argument was that the law was constitutional under the Commerce Clause. The Supreme Court rejected that argument but upheld the law based on another of the government’s arguments that assessing a penalty on those who did not carry insurance falls within Congress’ power to tax. Does this mean we can start deducting penalties on our tax returns since the Supreme Court has ruled that levying penalties falls under Congress’ right to tax?

The health care mandate portion of the law will not kick in until 2014 but the 3.8% Medicare tax on investment income begins in 2013. Right now the only way the law changes is through new legislation which would more than likely only occur if Mr. Romney is elected President.

Philadelphia Homestead Rebate

MBonventure — Mon, 25 Jun 2012 23:39:38 +0000

On June 1, 2012 Mayor Nutter and the City of Philadelphia launched the Philadelphia Homestead Exemption for all Philadelphia homeowners. All homeowners in Philadelphia can qualify for a reduction in your home’s tax assessment (up to $30,000) and thus reduce your real estate tax bill. There aren’t any restrictions due to income, age or length of ownership. To be eligible you must own your home and live in it, and complete the Homestead Exemption application by July 31, 2012.

The pamphlet can be view at www.phila.gov/pdfs/homestead_Brochure.pdf that further details the exemption. In addition, you can reach the application directly at www.phila.gov/pdfs/homestead-applicationv2.pdf .

Longer Life for Bush Tax Cuts?

MBonventure — Wed, 20 Jun 2012 17:48:36 +0000

As we have written about in this blog before, the President Bush era tax cuts from 2001, 2003 and 2009 as well as the patch on the alternative minimum tax and other key tax provisions are set to expire at the end of 2012. It has been widely assumed that new tax provisions will be enacted that increase income tax rates at least for individuals earning more than $250,000. On June 19, Senate Finance Committee Chairman Max Baucus opened the door just a crack that the Bush era tax cuts may not go away after all. Chairman Baucus suggested a deal to retain the tax cuts is possible if it were done in conjunction with an overhaul of the tax code. These comments follow former President Clinton’s suggestion that the tax cuts should be temporarily extended (see our blog entry from June 7).

Social Security Statements

MBonventure — Tue, 12 Jun 2012 12:37:00 +0000

We are not sure if you noticed but the Social Security Administration discontinued mailings of paper earnings statements in 2011. These were the statements you received every year a few months before your birthday, that showed how much you were eligible to receive under the social security system. More importantly the statement included a history of your earnings. This was your opportunity to notify social security if you had been credited with an incorrect wage amount. Social Security has now reinstated the mailing of these statements to workers 60 years of age and older who aren’t currently receiving benefits and also for workers at age 25. Everyone else should go to www.ssa.gov/mystatement and create a “My Social Security Account”. This will provide you access to your social security information to check and see if there are any discrepancies and provide you with the amount of your potential social security benefits.

Tax year election politics heat up

MBonventure — Thu, 07 Jun 2012 18:28:05 +0000

If you are a reader of our blog you will recall that we have written in the past about the expiring Bush tax cuts that threaten to raise income and estate taxes on January 1, 2013. This is going to be a hot button topic throughout the 2012 Presidential election campaign. The latest shot across the bough came from an unlikely source. Former President Bill Clinton suggested that Congress temporarily extend the Bush-era tax cuts. This statement is totally opposite to President Obama’s stance that he will veto any bill that extends lower tax rates for families earning more than $250,000 per year. After President Obama’s campaign asked Mr. Clinton to “correct” his statements he quickly amended his statement to state his opinion that he didn’t believe the tax cuts for the wealthiest Americans should be extended again. We are sure there will be plenty of more fireworks on this heavily debated topic.