Tax Developments

Posted 10:56AM on Friday 2nd November 2012 ( 12 years ago )

With just a few days remaining before we vote, the presidential race remains tightly tied to the battleground states. In President Obama's favor: He is tied or has small leads in most of the battleground states. He still leads in the crucial women votes though the lead has shrunk sharply from the overwhelming lead in 2008 to under 10 percent. He has the power of incumbency and can make last minute deals Romney can't. Unemployment did drop below 8 percent for the first time since his first year in office (he claims that's proof his policies are working and he needs 4 more years to get the country's budget fully back on track. The black and Latino vote is his by good margins. Third party tickets (such as Green and particularly Libertarian) will attract some votes that otherwise could have gone to Romney. In a close election, every vote counts. Remember, in the large electoral vote state of Florida, George W. Bush won by 564 votes (only a fifth of the largest Hall County precinct. Seniors in particular fear Romney will cut Medicare, Medicaid and Social Security, and seniors are most likely to vote. Finally, many evangelicals (also a strong voting block) consider Mormonism a cult and won't vote for Romney (may just not vote in the presidential race.) In Mitt Romney's favor: Obama's current term is widely seen as a failure. He has quadrupled the federal debt with welfare state policies (though in fairness we've continuously been in wars in Iran, Iraq and Afghanistan costing a lot). Romney favors a free enterprise state, shifting costs to the more thrift-minded public sector. He's got the polling lead in several battleground states and seems to be gaining ground in several of the other key states, most of them within the margin of error. Romney's supporters appear to be more motivated in going to the polls. The Romney campaign and the super pacs supporting him have more money to spend campaigning and getting voters to the polls. A number of outcome scenarios actually are within reason and clearly possible. One could win the national popular vote and the other the electoral vote. The electoral votes could be tied in which case the election would be decided not by a run-off but by the House of Representatives. In that entirely possible case, the House of Representatives would elect the presidential ticket. Short of an unlikely upset, the Republicans will control the House as they have the last two years. In that case, The House will elect Romney and the Senate elects the vice president. That actually could be Biden or Obama.. It's going to be a long, tension-filled election night. Count on it! Now to the promised mostly bad news on tax developments. They're covered in no particular order simply because some will not apply to some people's circumstances and will to others. Some just might apply to all. Just take them as they come. NUMBER ONE: You'll still be able to deduct mortgage interest, charitable contributions and state and local income and property taxes, BUT the deduction is limited to 80 percent of the total. The remaining 20 percent is to help pay for Obamacare. NUMBER TWO: The value of itemized deductions will be limited to 28 percent of Adjusted Gross Income and the two highest brackets of 36% and 39.6 percent of Adjusted Gross Income will in effect produce 11.2 percent more tax. Romney's plan is revenue neutral. NUMBER Three: Singles earning $200,000 and couples earning $250,000 must pay a 3.8 percent Medicare tax on the earnings. That's an extra $9,500. NUMBER FOUR: Installment sales MIGHT be taxed at 15 percent for the entire original full cost instead of on the account balance. This could adversely affect such businesses as car and furniture dealers and owners of various assets including homes and also those who borrow for leverage. NUMBER FIVE: On Obamacare starting in 2014 those who have no required insurance will pay a penalty of no more than the larger of $95 or 1 percent above the filing threshold. Given the soaking Oabamcare gives us elsewhere, this is at least less onerous. NUMBER SIX: Starting in 2013, converting IRA's to Roth IRA's will cost 3.8 percent more. That means if you convert only $10,000 you'll owe $380 more for the amount above the cost basis. That means you should convert before the end of the year to save money. NUMBER SEVEN: From now on instead of a simple filing for the automatic extension, you or your tax preparer must e-file directly with IRS or send it by certified mail, return receipt requested (to show you did file one by the deadline). The only reason I can think of for imposing the extra cost and time is IRS may have been getting complaints from taxpayers who claimed they or their preparer filed a timely extension request but IRS had no record of it or had ruled they received it but it was postmarked after the deadline. This could be attributable to postal schedules. Here in Gainesville, outgoing mail is not postmarked locally but is trucked to Athens, Ga. where it is postmarked. The truck doesn't arrive in Athens until after midnight. The key is go to the post office window before they close and request a hand stamp. NUMBER EIGHT: When cashing out life insurance when borrowing exceeds the tax cost basis of the policy, you'll owe tax in the amount that is more than the cash basis. NUMBER NINE: This is now a current benefit. Grandparents can make gifts of tuition payments of up to the current $13,000 tax-free individual gift tax limit directly to their grandchildren's school and it doesn't count against their lifetime estate tax exemption. Previously, when making a gift to a school one couldn't specify a specific child to credit. It was considered a gift to the school to use as it saw fit. NUMBER TEN: Appeals court ruled severance payments to laid off workers are not subject to FICA taxes .FICA payments must be tied to receipt of jobless benefits after workers are laid off. NUMBER ELEVEN: Unless Congress lets estate exemptions fall from $5.12 million to $1 million, the maximum tax rate will rise to 55% plus regular income tax rate (approaching the 80% neighborhood). On the good side, when on spouse dies the survivor can claim the remainder of the unused exemptions adding them to their own. This also applies to same sex couples in states that recognize such marriages. NUMBER TWELVE: Legally married same sex couples living in states that officially recognize them nonetheless can't file joint federal tax returns an Appeals Court ruled. This one may be headed to the Supreme Court. NUMBER THIRTEEN: If you're selling rental properties and/or second homes, doing so in 2012 will save you the 3.8% surtax. NUMBER FOURTEEN: Earmarking a charitable contribution to specific persons kills the contribution (excepting the aforementioned grandparent gift). NUMBER FIFTEEN: TWO BIG TAX BREAKS: Starting in January 2013, the ceiling on ROTH IRA contributions increases $500 to $5,500. It's $6,500 for taxpayers 50 and up. When you convert regular IRA's to ROTH you pay regular tax on the amount converted and after the account has been open 5 years, all withdrawals are tax-free. If you make a withdrawal before 5 years, you have to pay regular tax on the amount wilthdrawn. . NUMBER SIXTEEN: The annual gift tax exclusion jumps from $13,000 to $14,000 NUMBER SEVENTEEN: Buyers of NEW heavy SUV's (meaning over 6,000 pounds loaded) can get huge tax breaks if they put it in use in 2012. First they can expense $25,000 and then get 50% bonus depreciation and then deduct 20% of the balance as regular depreciation. Should Congress revives 100 percent deprecation (not a sure thing), all is depreciable. NUMBER EIGHTEEN: If your employer provides you with a cell phone for business use, you also can use it for free as your own personal cell phone. Your personal usage is considered an employee fringe benefit You and the boss benefit: You get a free cell phone and the boss gets the tax deduction. NUMBER NINETEEN: What are the chances IRS will audit your tax return? IRS enforcers plan to audit 1 percent of returns reporting under $200,000 gross income in 2013. That figure jumps to 4 percent for gross incomes between $200,000 and $1 million. When gross income exceeds $1 million, one of every 8 returns will be audited. First in line will be those returns that raise red flags; after that returns will be selected randomly. It'll be the luck of the draw. IRS can be expected to make as good use as practical mail audits where you send written proof of the issue. Failing that, it'll be face-to-face with you bringing all records.

http://accesswdun.com/article/2012/11/254763