January 31, 2014

Due to the changes brought about by the American Taxpayer Relief Act of 2012, the Affordable Care Act Changes for Tax Year 2013 and the Defense of Marriage Act, the IRS, tax software providers and accountants are hurrying to be sure the tax forms and software match the provisions of these new laws.  Some forms have been delayed beyond the tax season opening date – when the IRS actually starts accepting 2013 tax returns.

In the meantime, it’s time to start the process…

Tax Organizer  

Enclosed is your Tax Organizer.  This booklet is designed to assist you in organizing the tax information necessary for us to use in preparing your 2013 tax return.  The booklet contains a summary of various items from your 2012 tax return to serve as a memory jogger for items you may have forgotten.  In addition, pages two and three of the enclosed organizer contain a short questionnaire (General Information) and a place to verify names, addresses, phone numbers, and birthdates, etc. (Personal Data).  Please review this information and note any changes.

You do not have to fill-out the enclosed organizer!  It is merely provided to assist you in gathering your tax information.  Whether or not you choose to complete the organizer, please bring it with you to your tax appointment.

Electronic Filing  

We are now required to electronically file your tax return unless you tell us not to do so - in writing.  A form will be available when you drop off your organizer to sign if you prefer to file (and mail) a paper tax return and not file your tax return electronically. 

Appointments-

Our 2013 tax software is installed and working and we are accepting appointments now.  We schedule appointments Monday through Friday from 8:00 a.m. to 5:00 p.m., Tuesday, Wednesday and Thursday evenings and all day Saturday.  Just call our office at 622-1100 and we will be glad to set an appointment around your schedule.

Engagement Letter  

Due to changes in privacy laws and tax preparer penalties that can be levied by the Internal Revenue Service, we now are required to have an engagement letter regarding the preparation of federal and state income tax returns.  The engagement letter appears after this letter and should be signed by you and your spouse, if applicable. 

Please remember to sign and return the engagement letter which follows this letter.

Rushed for Time?

If you are accustomed to or would like to just drop off your tax information, feel free to do so.  We will call you if we need any additional information.

Please keep in mind that we may need to file an extension if we do not receive your tax information by April 7^th .

Checklist

Also enclosed is a 13-item checklist to remind you of those some of the specific items we will need from you. 

Please feel free to use the checklist in lieu of the enclosed organizer.

TAX LAW CHANGES

The American Taxpayer Relief Act of 2012 extended most of the tax breaks that were set to expire at the end of 2012.  Most of those tax breaks were extended to 2013.  However, the Affordable Care Act Changes for Tax Year 2013 and the Defense of Marriage Act modified some of those changes and brought about many other changes to the tax law for 2013.  Here is a brief rundown of some of the changes.  (Some good, some bad.)

• The “Bush tax cuts” have been made permanent.  However, beginning in 2013 this a new 39.6% tax rate that will apply to taxpayers with incomes over: $400,000 (single), $425,000 (head of households), $450,000 (joint filers and qualifying widow(er)s), and $225,000 (married filing separately).  These dollar amounts will be inflation-adjusted for tax years after 2013.

• Reduced Capital Gains Rates continue for another year for Capital Gains and Qualified Dividends. (0% if your taxable income rate is below 25%, 15% otherwise.)  Beginning in 2013 there is a new 20% Capital Gains Rate is your income falls into the 39.6% tax rate bracket.

• Beginning in 2013, there is a personal exemption phase-out and itemized deduction limitation for taxpayers with an adjusted gross income over $250,000 filing single, $275,000 those filing as head of household, $300,000 for those who are married and filing jointly and $150,000 for those who are married but filing separately.  These dollar amounts will be adjusted for inflation after 2013.

• The Alternative Minimum Tax was "patched" in 2012 and the patch was made permanent.  The threshold rates were adjusted and indexed for inflation starting in 2013.  The increased exemption amounts for 2013 are $80,800 for married filing joint returns and qualifying widows, $51,900 for single and head of household returns and $40,400 for married filing separate returns.

• Credits for energy-efficient home improvements were previously extended to 2013.  Energy credits also apply to energy-efficient appliances, two or three-wheeled plug-in electric vehicles and biodiesel fuels.

• Cancellation of debt income on a principal residence can be excluded if the debt is discharged (for 2013 only).

• Mortgage insurance premiums can be deducted as interest on your primary residence.

• And finally, 2013 Standard Mileage Rates:

Business: 56.5 cents per mile

Medical and moving: 24 cents per mile

Charitable: cents 14 per mile

And, here are some of the changes that are all bad:

• First, and this one is huge and for some of us – quite costly!  The floor (exclusion) for deducting medical expenses was raised from 7.5% to 10% of your Adjusted Gross Income (AGI).  However, is you are 65 or older the floor will remain unchanged at 7.5% until 2016.

• Additional Medicare Tax on Individuals (AdMT).  Beginning in 2013 there is an additional 0.9% additional Medicare Tax on wages, compensation and self-employment income in excess of: $250,000 for those who are married and filing jointly, $125,000 on those who are married but filing separately and $100,000 for single individuals and for those filing as qualifying widows.

Employers should have been collecting on the 0.9% tax on wages over $200,000.

There is no employer match.

You may need to increase you withholding or estimates for this additional tax.

• Medicare Tax will now apply to investment income.  

One new tax that came out of previous legislation (the Affordable Health Care Act) is the so-called “the unearned income Medicare contribution tax” on investment income when the Modified Adjusted Gross Income is over $200,000 (single filers) or $250,000 (married filing jointly) Beginning in 2013, the tax is 3.8% on the excess above the threshold amounts.  In addition, a .9% “Medicare” tax is being imposed on earned income in excess of the threshold amounts. In 2013, employers will start withholding the additional .9% on any salaries that exceed $200,000.  This is called a Medicare tax, but no provision is made for the transfer of this tax from the general fund of the U.S. Treasury to any trust fund..

Last, but Certainly Not Least…

We want to provide you with the best possible service.  We will strive to make filing your taxes as painless as possible, while keeping your tax bill