TAX UPDATES 2013
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
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
Single
$200,000
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.
Employers
Responsibility
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
Example
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.
Example
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.
Example
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.