THE TAX INSTITUTE
424 18TH ST
BAKERSFIELD CA 93301
AFFORDABLE CARE ACT (ACA) (OBAMACARE)
On March 23, 2010 a new law called The Patient Protection and Affordable Care Act (PPACA), in short Affordable Care Act (ACA) or "Obamacare" was signed into law. This new federal statue represents a significant regulatory overhaul of the U.S. healthcare system since the passage of Medicare and Medicaid in 1965.
The ACA introduces a number of mechanisms—like mandates, subsidies, and insurance exchanges— to increase coverage and affordability. The law also requires insurance companies to cover all applicants within new minimum standards and offer the same rates regardless of pre-existing conditions or sex.
The new health insurance law put into effect the Health Insurance Marketplace or Exchanges. This Health Insurance Marketplaces are administered by the federal or the state government. Individuals and small business can purchase through this marketplace their health insurance plan.
Starting in 2014, if taxpayers get their health insurance coverage through the Health Insurance Marketplace, they may be eligible for the Premium Tax Credit. This tax credit can help make purchasing health insurance coverage more affordable for people with moderate incomes.
The Premium Tax Credit
The premium tax credit is a credit that taxpayer can get in advance. This credit is a refundable tax credit designed to help eligible individuals and families with low or moderate income afford health insurance purchased through the Health Insurance Market Place.
The Health Insurance Marketplace or Exchange is the place where taxpayers can find information about private health insurance options, purchase health insurance, and obtain help with premiums and out-of-pocket costs if they are eligible.
Eligibility for the Credit
In general, taxpayers may be eligible for the credit if they meet all of the following:
If taxpayers are eligible for the credit, they can choose to:
Individual Shared Responsibility Provision
Under the Affordable Care Act, the federal government, state governments, insurers, employers and individuals are given shared responsibility to reform and improve the availability, quality and affordability of health insurance coverage in the United States
Starting in 2014, the Individual Shared Responsibility provision calls for each individual to either have minimum essential health coverage (minimum essential coverage) for each month, qualify for an exemption, or make a payment when filing his or her federal income tax return
The law prohibits the IRS from using liens or levies to collect any payment that taxpayers owe related to their individual responsibility provision, if taxpayer, taxpayer’s spouse or dependent included on the tax return does not have minimum essential coverage. However, if taxpayers owe a shared responsibility payment, the IRS may offset that liability against any tax refund due
Undocumented Individuals not subject to the Share Responsibility
In order to buy private health insurance through the Marketplace, an individual must be a U.S. citizen or be lawfully present in the United States. The term “lawfully present” includes immigrants who have:
If taxpayers are lawfully present immigrants, they can buy private health insurance on the Marketplace.
Undocumented immigrants are not eligible for federal public benefits through the Affordable Care Act. For example, undocumented immigrants cannot buy coverage through the Marketplace. Premium tax credits are not available for undocumented immigrants.
Undocumented immigrants may continue to buy coverage on their own outside the Marketplace and can get limited services for an emergency medical condition through Medicaid, if they are otherwise eligible for Medicaid in the state. Undocumented immigrants are not subject to the individual shared responsibility requirement.
Health Insurance Marketplace Calendar
There are 3 important dates on the Health Insurance Marketplace.
These deadlines do not apply to Medicaid or the Children’s Health Insurance Program (CHIP). If taxpayers qualify for Medicaid or CHIP, they can start the coverage whenever it is possible.
Small employers can start the Small Business Health Options Program (SHOP) coverage any time. Small employers generally may start offering health insurance coverage to their employees through the SHOP Marketplace at any time during the year.
Health Insurance Coverage is Mandatory
If taxpayers can afford health insurance but they do not have coverage in 2014, they may have to pay a fee. They also have to pay for all of their health care.
The fee is sometimes called the "individual responsibility payment," "individual mandate," or penalty.
Reasons for Applying the Fee
Under the new health care requirements the government stated that when someone without health coverage gets urgent—often expensive—medical care but does not pay the bill, everyone else ends up paying the price. Based on this point the government implemented this law. Under this health law all people who can afford health care coverage have to take the responsibility for their own health insurance by getting coverage or paying a fee.
People without health coverage who pay the penalty will also have to pay the entire cost of all their medical care. They will not be protected from the kind of very high medical bills that can sometimes lead to bankruptcy.
The Penalty in 2014 and beyond
The penalty in 2014 is calculated one of 2 ways. Taxpayer will pay whichever of these amounts is higher:
The fee increases every year. In 2015 it is 2% of income or $325 per person. In 2016 and later years it is 2.5% of income or $695 per person. After that it is adjusted for inflation.
If taxpayers are uninsured for just part of the year, 1/12 of the yearly penalty applies to each month they are uninsured. If taxpayers are uninsured for less than 3 months, they do not have a make a payment.
Deadline to Enroll in a Health Insurance
If taxpayers enroll in a health insurance plan through the Marketplace by March 31, 2014, they will not have to make the payment for any month before their coverage began.
For example, if taxpayers enroll in a Marketplace plan on March 31 their coverage begins on May 1. If they did not have coverage earlier in the year, they will not have to pay a penalty for any of the previous months of 2014.
Paying the Penalty does not give Medical Coverage
It is important to remember that someone who pays the penalty does not have any health insurance coverage. They still will be responsible for 100% of the cost of their medical care.
After open enrollment ends on March 31, 2014, they will not be able to get health coverage through the Marketplace until the next annual enrollment period, unless they have a qualifying life event.
Exemptions from the Fee
Some people with limited incomes and other situations can get exemptions from the fee.
Taxpayers may qualify for an exemption under the following circumstances:
Other Hardship Exemptions
If taxpayers have any of the following circumstances that affect their ability to purchase health insurance coverage, they may qualify for a “hardship” exemption:
1. They were homeless.
2. Taxpayers were evicted in the past 6 months or were facing eviction or foreclosure.
3. They received a shut-off notice from a utility company.
4. They recently experienced domestic violence.
5. They recently experienced the death of a close family member.
6. They experienced a fire, flood, or other natural or human-caused disaster that caused substantial damage to their property.
7. They filed for bankruptcy in the last 6 months.
8. They had medical expenses that they could not pay in the last 24 months.
9. They experienced unexpected increases in necessary expenses due to caring for an ill, disabled, or aging family member.
10. They expect to claim a child as a tax dependent who has been denied coverage in Medicaid and CHIP, and another person is required by court order to give medical support to the child. In this case, taxpayer does not have to pay the penalty for the child.
11. As a result of an eligibility appeals decision, taxpayers are eligible for enrollment in a qualified health plan (QHP) through the Marketplace, lower costs on their monthly premiums, or cost-sharing reductions for a time period when they were not enrolled in a QHP through the Marketplace.
12. Taxpayers were determined ineligible for Medicaid because their state did not expand eligibility for Medicaid under the Affordable Care Act.
How to Apply for an Exemption
1. If taxpayers are applying for an exemption based on: coverage being unaffordable; membership in a health care sharing ministry; membership in a federally-recognized tribe; or being incarcerated:
They have two options--
Note: If taxpayers get an exemption because coverage is unaffordable based on their expected income, they may also qualify to buy catastrophic coverage through the Marketplace. This may be more affordable than their other options.
2. If taxpayers are applying for an exemption based on: membership in a recognized religious sect whose members object to insurance; eligibility for services through an Indian health care provider; or one of the other hardships:
If their income will be low enough that they will not be required to file taxes:
In case taxpayers have a gap in coverage of less than 3 months, or they are not lawfully present in the U.S.:
Employer Shared Responsibility Provision
Starting in 2014, employers employing at least a certain number of employees will be subject to the Employer Shared Responsibility provisions under section 4980H of the Internal Revenue Code (added to the Code by the Affordable Care Act). Under these provisions, if these employers do not offer affordable health coverage that provides a minimum level of coverage to their full-time employees, they may be subject to an Employer Shared Responsibility payment if at least one of their full-time employees receives a premium tax credit for purchasing individual coverage on one of the new Affordable Insurance Exchanges.
The Employer Shared Responsibility Payment is scheduled to begin in 2015.
To be subject to these Employer Shared Responsibility provisions, an employer must have at least 50 full-time employees or a combination of full-time and part-time employees that is equivalent to at least 50 full-time employees (for example, 100 half-time employees equals 50 full-time employees). As defined by the statute, a full-time employee is an individual employed on average at least 30 hours per week (so half-time would be 15 hours per week).
Employer Shared Responsibility Payment
The Employer Shared Responsibility Payment is scheduled to begin in 2015. This is true because of a transition relief given to employers.
The amount of the annual Employer Shared Responsibility Payment is based partly on whether employers offer insurance.
Unlike employer contributions to employee premiums, the Employer Shared Responsibility Payment is not tax deductible.
Covered California is partnership between Covered California and the Department of Health Care Services (DHCS). It was created to develop an easy-to-use marketplace where most Californians can get health coverage. This service is for individuals with preexisting health conditions, such as asthma or diabetes.
Covered California is the only place where Californians can use premium assistance from the federal government to reduce their health care costs. Covered California is also the place for taxpayers to see if they are eligible for Medi-Cal.
Californians will be able to buy the same health insurance plan in the private market that will be offered through Covered California. Covered California offers the option to compare different plans. It is possible to make apples-to-apples comparisons across different health insurance plans. The service was designed to work for consumers — not for health insurance companies.
Covered California also will help small businesses provide affordable health coverage to their employees. Through Covered California, businesses with one to 50 eligible employees will be able to purchase health insurance. Businesses with fewer than 25 equivalent full-time employees could qualify for tax credits. Starting in 2016, Covered California will be open for larger employers with 100 or fewer eligible employees.
2014 TAX FILING DELAY
The 2014 tax season will have a delay of approximately one to two weeks. The IRS has mentioned that they need more time to program and test tax processing systems following the 16-day federal government closure.
The IRS will not process paper tax returns before the start date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit. The April 15 tax deadline is set by statute and will remain in place. However, the IRS reminds taxpayers that anyone can request an automatic six-month extension to file their tax return.
IRS VISITS AND AUDITS ON QUESTIONABLE EITC CLAIMS
The IRS is sending letters during November and December of 2013 to preparers filing questionable EITC claims. The letters:
The IRS is also starting visits to preparers to discuss EITC Due Diligence. The visits begin in November 2013 and continue during the 2014 filing season.
The IRS visits that start in mid-November 2013 cover the 2012 returns. The audits that will be made on February of 2014 will review the 2013 returns. Both will continue through April 2014.
Paid tax preparers are required to submit the Form 8867, Paid Preparer's Earned Income Credit Checklist with every return they file electronically that claims EITC and preparers are required to attach the form to every return they prepare that claims EITC. Last year, IRS sent out warning letters to preparers who had 10 or more missing Forms 8867. This year, IRS will penalize return preparers with missing Forms 8867. The penalty is $500 per missing form.
TAX PROVISION ADJUSTMENTS FOR 2013
The following are the adjustments that apply to some tax provisions including the tax rate schedules:
· For the year 2013, there is a new top tax bracket of 39.6%. Taxpayers in the highest tax bracket of 39.6% potentially face a combined 43.4% (39.6% + 3.8%) marginal tax rate on their income.
· There are also two new surtaxes starting in 2013:
o An additional Medicare Tax of 0.9% on wages and self-employment income, and
o A Net Investment Income Tax of 3.8% on the lower of modified adjusted gross income or net investment income.
Both of these new taxes apply to individuals earning more than $200,000 (for single filers) or $250,000 (for married filing jointly).
· The Social Security tax has reverted back to its normal rate of 12.4% (it had been at 10.4% for 2011 and 2012).
· The Medicare tax remains at 2.9%, plus there is an additional Medicare tax of 0.9% on wages and self-employment. Taxpayers will be liable of this additional Medicare tax when they exceed the following threshold amount.
o Married filing jointly $250,000
o Married filing separately $125,000
o Single $200,000
o Head of household (with qualifying person) $200,000
o Qualifying widow(er) with dependent child $200,000
· The capital gains tax rates have a new 20% top rate. There are now three tiers of tax rates on capital gains and qualified dividends: 0%, 15%, and 20%. Capital gains could also be subject to the new net investment income tax of 3.8%, making the top rate on long-term gains effectively 23.8% combined.
The 20% rate applies to income above:
o $450,000 married filing joint, qualifying widow;
o $425,000 head of household;
o $400,000 single;
o $225,000 married filing separate
0% capital gain and dividend rate still applies to taxpayers whose ordinary income is taxed below 25%
· The Alternative Minimum Tax rates remain at 26% and 28%. Permanent alternative minimum tax relief beginning in tax year 2012 (retroactive).
o Increased exemption amounts: $51,900 single, head of household; $80,800 married filing joint, qualifying widow; $40,400 married filing separate (2013 amounts shown, indexed for inflation after tax year 2012)
o Nonrefundable personal credits allowed to offset regular tax and AMT
The amounts were set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).
· The annual exclusion for gifts rises to $14,000 for 2013, up from $13,000 for 2012.
· The amount used to reduce the net unearned income reported on a child’s tax return subject to the “kiddie tax,” is $1,000, up from $950 for 2012.
· The foreign earned income exclusion rises to $97,600, up from $95,100 in 2012.
· The personal exemption amount is $3,900. The personal exemption phaseouts apply again for 2013. The limitations on itemized deductions starts at $300,000 for married taxpayers filing jointly, $275,000 for head of household, $250,000 for single taxpayers *and $150,000 in the case of a married individual filing separately.
Personal Exemption Phaseout
Single filers with adjusted gross income (AGI) in excess of $250,000 or couples who are married filing jointly and have AGI in excess of $300,000 will also face phaseouts of their deductions and personal exemptions. The phaseout of the personal exemption (sometimes called “PEP”) means for every $2,500 of AGI (or portion thereof) above $250,000 ($300,000 for married couples filing jointly), the $3,900 per-person personal exemption will be reduced by 2%. For married couples, personal exemptions will be fully phased out once their AGI exceeds $422,501, or for single filers if AGI exceeds $372,501.
Itemized Deduction Phaseout
The phaseout of itemized deductions (often called the “Pease” phaseout, for the legislator who sponsored the rule) could also raise tax bills for higher income earners by reducing the tax benefit of the mortgage interest, state income and sales tax, home office, and certain other itemized deductions. The Pease limitation reduces the value of itemized deductions by 3% of the AGI above $300,000 for couples, and $250,000 for single filers—to a maximum reduction of 80% in value. Itemized deductions for certain medical expenses, investment interest, and for casualty, theft, or gambling losses are exempt from the phaseout.
· The applicable standard deduction rates for 2013 are:
o $12,200 for married taxpayers filing jointly
o $8,950 for head of household
o $6,100 for individual taxpayers
o $6,100 for married taxpayers filing separate.
For purposes of the standard deduction, the amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,000 OR $350 plus the individual’s earned income.
The additional standard deduction amount for the aged or the blind is $1,200; that amount is increased to $1,500 if the taxpayer is single and not a surviving spouse.
· Earned Income Credit (EITC). The following is a preview of the EITC numbers for 2013:
The maximum credit for 2013 is:
o $6,044 with three or more qualifying children
o $5,372 with two qualifying children
o $3,250 with one qualifying child
o $487 with no qualifying children
The investment income must be $3,300 or less for the year.
· Adoption Credit. The maximum credit allowable is $12,970. Phaseouts apply for taxpayers with modified adjusted gross income (MAGI) over $194,580 and the credit is completely phased out for taxpayers with MAGI of more than $234,580.
· American Opportunity Credit. The American Opportunity Tax Credit will be limited to $2,500. Phaseouts apply for the credit beginning with MAGI over $80,000 ($160,000 for married taxpayers filing jointly).
· 2013 Standard Mileage Rates
o Business: 56.5 cents/mile
o Medical and moving: 24 cents/mile
o Charitable: 14 cents/mile
· Depreciation provisions extended for tax years 2012 and 2013
o Increased section 179 expensing limits: $500,000 limit with a $2,000,000 phase-out
o Treatment of certain real property as section 179 property
o 50% bonus depreciation (tax year 2013 only)
o Accelerated depreciation for Indian reservation property
o 15 year straight-line method for leasehold improvements, restaurant buildings and improvements, and retail improvements
o 7 year recovery period for motorsports entertainment complexes
ITEMIZED DEDUCTIONS CHANGED FOR MEDICAL EXPENSES
Beginning with 2013 tax returns, taxpayers will be able to claim deductions for medical expenses not covered by their health insurance that exceed 10 percent of their adjusted gross income.
There is a temporary exemption from Jan. 1, 2013 to Dec. 31, 2016 for individuals age 65 and older and their spouses. If taxpayer and taxpayer’s spouse are 65 years or older or turned 65 during the tax year then they are allowed to deduct unreimbursed medical care expenses that exceed 7.5% of their adjusted gross income. The threshold remains at 7.5% of AGI for those taxpayers until Dec. 31, 2016.
Beginning Jan. 1, 2017, all taxpayers may deduct only the amount of the total unreimbursed allowable medical care expenses for the year that exceeds 10% of their adjusted gross income.
NET INVESTMENT INCOME TAX
A new Net Investment Income Tax goes into effect starting in 2013. The 3.8 percent Net Investment Income Tax applies to individuals, estates and trusts that have certain investment income above certain threshold amounts. The IRS and the Treasury Department have issued proposed regulations on the Net Investment Income Tax
Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:
Filing Status Threshold Amount
Married filing jointly $250,000
Married filing separately $125,000
Head of household (with qualifying person) $200,000
Qualifying widow(er) with dependent child $250,000
Taxpayers should be aware that these threshold amounts are not indexed for inflation.
Some common types of income that are not Net Investment Income are: Wages, unemployment compensation; operating income from a nonpassive business, Social Security Benefits, alimony, tax-exempt interest, self-employment income, Alaska Permanent Fund Dividends and distributions from certain Qualified Plans.
The Net Investment Income Tax goes into effect on Jan. 1, 2013. The NIIT will affect income tax returns of individuals, estates and trusts for their first tax year beginning on (or after) Jan. 1, 2013. It will not affect income tax returns for the 2012 taxable year that will be filed in 2013.
ADDITIONAL MEDICARE TAX
A new Additional Medicare Tax goes into effect starting in 2013. The 0.9 percent Additional Medicare Tax applies to an individual’s wages, Railroad Retirement Tax Act compensation, and self-employment income that exceeds a threshold amount based on the individual’s filing status. The threshold amounts are $250,000 for married taxpayers who file jointly, $125,000 for married taxpayers who file separately, and $200,000 for all other taxpayers. An employer is responsible for withholding the Additional Medicare Tax from wages or compensation it pays to an employee in excess of $200,000 in a calendar year.
An employer must withhold Additional Medicare Tax from wages it pays to an individual in excess of $200,000 in a calendar year, without regard to the individual’s filing status or wages paid by another employer. An individual may owe more than the amount withheld by the employer, depending on the individual’s filing status, wages, compensation, and self-employment income. In that case, the individual should make estimated tax payments and/or request additional income tax withholding using Form W-4, Employee's Withholding Allowance Certificate.
An employer that does not deduct and withhold Additional Medicare Tax as required is liable for the tax unless the tax that it failed to withhold from the employee’s wages is paid by the employee. Even if not liable for the tax, an employer that does not meet its withholding, deposit, reporting, and payment responsibilities for Additional Medicare Tax may be subject to all applicable penalties.
Where to Report the Additional Tax
Employers will report this Additional Medicare Tax in a new line that will be added to Form 941. The existing line, on which employers report the liability for regular Medicare tax on all wages, will remain unchanged.
There will be no change to Form W-2. Additional Medicare Tax withholding on wages subject to Federal Insurance Contributions Act (FICA) taxes will be reported in combination with withholding of regular Medicare tax in box 6 (“Medicare tax withheld”).
2013 RETIREMENT PLAN CONTRIBUTIONS
The amount of salary deferrals that taxpayers can contribute to retirement plans is their individual limit each calendar year no matter how many plans they are in. This limit must be aggregated for these plan types:
Every year taxpayers must be sure that they do not exceed their individual limit. If taxpayers do and the excess is not returned by April 15 of the next year, they could be subject to double taxation:
The amount you can defer as pre-tax or designated Roth contributions to all your plans (not including 457(b) plans) is $17,500 for 2013 and 2014. Although your limit is affected by the plan terms, it does not depend on how many plans you belong to or who sponsors those plans.
Age 50 catch-ups
If taxpayers will be age 50 or older by the end of the year, their individual limit is increased by $5,500 in 2013 and 2014. This is the catch-up contribution amount. This means that the individual limit increases from $17,500 to $23,000 in 2013 and 2014 even if neither plan allows age-50 catch-up contributions.
Deferrals Limited by Compensation
Although plans may set lower deferral limits, the most that taxpayer can contribute to a plan is the greater of:
For self-employed taxpayers the compensation is the net earnings from self-employment
Taxpayer is 52 years old and participates in a 401(k) plan with Company #1 and a SIMPLE IRA plan with an unrelated employer Company #2. Taxpayer will receive $10,000 in compensation in 2013 from Company #1 and another $10,000 from Company #2. The most that can be contributed to each plan is $10,000 because the deferrals to each employer’s plan cannot exceed 100% of the compensation from that employer, even though taxpayer’s individual contribution limit for 2013 is $23,000 ($17,500 individual limit + $5,500 age-50 catch-up limit). Taxpayer cannot defer more than $10,000 to either plan (for example, $12,000 to the 401(k) plan and $8,000 to the SIMPLE IRA plan) because taxpayer deferrals to each employer’s plan cannot exceed 100% of the compensation from that employer.
15-year catch-up deferrals in 403(b) plans
The individual limit may be increased by as much as $3,000 if the 403(b) plan allows a 15-year catch-up contribution.
If taxpayers are 51 years old in 2013 and participate in a 401(k) plan and a 403(b) plan, taxpayers may contribute $23,000 in total to both plans, and up to an additional $3,000 to the 403(b) plan if the plan allows and taxpayers work for the same employer for 15 years.
The 15-year catch-up is separate from the age-50 catch-up. If taxpayers are eligible and the plan allows both types of catch-ups, taxpayers’ contributions above the annual limit are considered to have been made first under the 15-year catch-up.
Plan-based limits on elective deferrals
Although rare, the retirement plan may put a limit to the amount that taxpayers can defer. This limit can be less than the allowed deferrals for that plan type for the year.
Taxpayer is 52 years old and participates in two 401(k) plans. Each plan limits salary deferrals to the lesser of $5,000 or 100% of taxpayer’s eligible compensation. Although the eligible compensation is $10,000 from each employer sponsoring the plan and taxpayer’s individual limit allows him/her to contribute $23,000 for 2013 ($17,500 + $5,500 age-50 catch-up limit), the most that taxpayer may contribute is $5,000 to each plan because of the plans’ deferral limits set by their terms.
A plan with a 401(k) feature may also reduce the amount that taxpayer can defer to ensure the plan meets nondiscrimination requirements. The plan may return some of the deferrals even if they do not exceed the individual limit.
EXTENSION AND END OF SOME TAX PROVISIONS AND CREDITS
The Non-Business Energy Property Credit. This credit expires on December 2013. The credit was about to expire at the end of 2011 but it was extended two more years. The credit offered the following benefits to the eligible taxpayers
· Taxpayers may claim a credit of 10 percent of the cost of certain energy saving property that was added to their main home. This includes the cost of qualified insulation, windows, doors and roofs.
· In some cases, taxpayers may be able to claim the actual cost of certain qualified energy-efficient property. Each type of property has a different dollar limit. Examples include the cost of qualified water heaters and qualified heating and air conditioning systems.
Residential Energy Efficient Property Credit. This credit will expire on 2016. The following are the benefits that this credit offers.
The Mortgage Forgiveness Debt Relief Act and Debt Cancellation. This tax provision was enacted for cancellation or forgiveness of debt from 2007 through 2013. Taxpayers that owe a debt to someone else and they cancel or forgive that debt; the canceled amount may be taxable.
The Mortgage Debt Relief Act of 2007 generally allows taxpayers to exclude income from the discharge of debt on their principal residence. Debt reduced through mortgage restructuring, as well as mortgage debt forgiven in connection with a foreclosure, qualifies for the relief.
This provision applies to debt forgiven in calendar years 2007 through 2013. Up to $2 million of forgiven debt is eligible for this exclusion ($1 million if married filing separately). The exclusion does not apply if the discharge is due to services performed for the lender or any other reason not directly related to a decline in the home’s value or the taxpayer’s financial condition.
The amount of debt forgiven must be reported on Form 982 and this form must be attached to taxpayer’s tax return
If taxpayers are using Form 982 only to report the exclusion of forgiveness of qualified principal residence indebtedness as the result of foreclosure on your principal residence, they only need to complete lines 1e and 2. If taxpayers kept ownership of the home and modification of the terms of the mortgage resulted in the forgiveness of qualified principal residence indebtedness, then complete lines 1e, 2, and 10b. Attach the Form 982 to taxpayers’ tax return.
The lender should send a Form 1099-C, Cancellation of Debt to taxpayer. The amount of debt forgiven or cancelled will be shown in box 2. If this debt is all qualified principal residence indebtedness, the amount shown in box 2 will generally be the amount that taxpayers enter on lines 2 and 10b, if applicable, on Form 982.
American Opportunity Credit. The American opportunity credit originally modified the existing Hope credit for tax years 2009 and 2010. This credit was extended through 2017. The American Opportunity Credit was created to make the tax benefit available to a broader range of taxpayers, including many with higher incomes and those who owe no tax. It also adds required course materials to the list of qualifying expenses and allows the credit to be claimed for four post-secondary education years instead of two. Many of those eligible qualify for the maximum annual credit of $2,500 per student.
The full credit is available to taxpayers with a modified adjusted gross income of $80,000 or less, or $160,000 or less for married couples filing a joint return. The credit is phased out for taxpayers with incomes above these levels. These income limits are higher than under the existing Hope and lifetime learning credits.
Business Provisions Extended for Tax Years 2012 and 2013
CTEC has Legislative Authority over Tax Prepares
As part of a new consumer-protection law, the California Tax Education Council (CTEC) now has legislative authority to take disciplinary action against CTEC-registered tax preparers.
California Senate Bill 484 gives CTEC the ability to deny, revoke or suspend registrations from CTEC-registered tax preparers (CRTPs) who are guilty or accused of unprofessional conduct. All reports of violations or suspensions will be submitted to the FTb and the Internal Revenue Service for review.
ELIMINATION OF FORM 540A
Effective 2013 taxable year, the Form 540A California Resident Income Tax Return will no longer exist. These are some reasons why the FTB is eliminating this form:
Taxpayers who previously filed Form 540A will need to use Form 540 2EZ or Form 540 to file their 2013 tax returns.