Tax Guru – Ker$tetter Letter

Helping real people win the tax game.

Archive for October 4th, 2012

Posted by taxguru on October 4, 2012

 

 

 

 

 

 

 

 

 

 

 

 

From BlogComix3

 

 

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Posted by taxguru on October 4, 2012

 

 

 

 

 

 

 

 

 

 

 

 

 

 

From BlogComix3

 

 

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Posted by taxguru on October 4, 2012

 

 

 

 

 

 

 

 

 

 

From BlogComix3

 

 

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Debating Taxes – In Song

Posted by taxguru on October 4, 2012

It’s been a while since I have posted a songified video from the creative folks at Schmoyoho.  They have posted a songified version of last night’s debate, including this section on taxes.

 

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Will Calif voters raise their own taxes?

Posted by taxguru on October 4, 2012

You can see some of Governor MoonBeam’s TV ads for Prop 30 to raise taxes on the evil rich.  It must have taken several tries, but they actually are able to keep a straight face while claiming that this new tax increase will be used only for schools and fully accountable, will be kept away from Sacramento politicians and audited with the reports posted on the web. 

Anyone who knows the history of specially designated taxes and fees knows that it doesn’t take long for that money to be commingled for everything else.  Social Security and Medicare taxes are perfect examples of how politicians routinely break their promises to use certain taxes only for certain purposes.  Revenues from this new tax will end up being spent on the rulers’ idiotic programs, such as the boondoggle corrupt high speed rail that nobody wants.

 

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Impossible task…

Posted by taxguru on October 4, 2012

This is a funny video of Rudy Giuliani attempting to explain the effects of the upcoming expiration of the Bush tax rates to the lefty retardos on MSNBC, who refuse to let facts get in the way of their class warfare rhetoric. 

I agree with others on the net that Rudy would make an excellent Attorney General in the Romney administration.  Of course, anyone would be an improvement over the criminal currently occupying that office, Eric Holder. 

 

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Tax Breaks Expiring 12/31/12

Posted by taxguru on October 4, 2012

Another handy summary from the CFS Tax Corresponder program.

The so-called Bush tax cuts are scheduled to expire at the end of this year, and while you may already know that, you may not fully understand what’s in store for you and your family.

Here’s what to expect.

Income tax brackets – rates will rise with the lowest bracket rising from 10% to 15%, the current 25% bracket being replaced by the 28% bracket, the 28% increasing to 31%, the 33% increasing to 36%, and the highest bracket increasing from 35% to 39.6%.

Dividends – depending upon your tax rate, this kind of income will be taxed at the same rate as ordinary income instead of today’s 15% maximum rate (up to 39.6%).

Capital gains rates – generally speaking, the maximum rate would rise to 20% from the current 15%. For assets held over 5 years and acquired after December 31, 2000, the rate will be 18%. For those in the lowest two tax rate brackets, currently there is an unbeatable 0% rate that applies to long-term gains and dividends collected by folks in those lowest two rate brackets of 10% and 15%. Starting next year, folks in the lowest two brackets will pay 10% on long-term gains (or 8% on gains from assets acquired after Dec. 31, 2000, and held for over five years) and 15% and 28% on dividends (compared to 0% now).

Harsher marriage penalty – the expiration of features meant to address a so-called “marriage penalty” will reduce standard deductions and push many couples into higher tax brackets. The penalty can cause a two-earner married couple to pay more in taxes than when they were single.

Return of phase-out rule for itemized deductions – before the Bush tax cuts, a phase-out rule could eliminate up to 80% of a higher-income individual’s itemized deductions for mortgage interest, state and local taxes, and charitable donations. The rule was gradually eased and finally eliminated in 2010. Next year, however, the phase-out will be back in full force unless Congress takes action and the president approves. So if you itemize and have 2013 adjusted gross income above about $175,000 (or about $87,500 if you use married filing separate status), your deduction will be reduced.

Return of phase-out rule for personal exemptions – before the Bush tax cuts, another phase-out rule could eliminate some or all of a higher-income individual’s personal exemption deduction (for 2012, the personal exemption deduction is $3,800 each). The rule was gradually cut back and finally eliminated in 2010. But it will be back next year unless Congress takes action and the president approves.

Child Tax Credit – this credit will fall from $1,000 to $500 per child under the age of 17.

Education savings – The annual contribution limit for Coverdell Education Savings Accounts would fall from $2,000 to $500 and qualified withdrawals would no longer be permitted for K-12 expenses.

Adoption Credit – Maximum credit would fall from $13,360 to $6,000 and would only be available for special needs children.

Other popular tax breaks – Deductions for state and local sales taxes, higher education and teachers’ classroom supplies all would vanish.

Estate taxes – Maximum estate tax rate would rise to 55% from the current 35%; estates valued at more than $1 million would face the tax (versus the current $5 million).

Payroll taxes – Unrelated to the expiration of the Bush Tax Cuts, individuals’ share of Social Security taxes would return from the temporary 4.2% to the normal 6.2%; the self-employment tax rate would rise from 10.4% to 12.4%.

Adding to the pressure, members of Congress will grapple with these broad-reaching tax expirations while facing national elections and a related showdown over what they should do when the nation again reaches its debt ceiling. That is the amount of debt the federal government is authorized to have. Will Congress act before the elections? It is unlikely.

That being said, some elements of the Bush tax cuts have gained bipartisan support and will probably be continued beyond this year. Examples include inflation-indexed alternative minimum tax (AMT) exemption amounts, the ability to use nonrefundable personal tax credits to offset your AMT bill, and the deduction for qualified higher education tuition and fees. The current versions of the child tax credit, earned income credit, dependent care credit, and adoption credit are also more-likely-than-not to be continued. The Bush tax cut legislation liberalized these credits, and later legislation liberalized them even more.

So, what can you do? Because the decisions Congress will eventually make are not clear, you should not make big financial decisions based upon what you think may happen.

 

TaxCoach Software: Are you giving your clients what they really want?
 

 

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New ObamaCare Taxes

Posted by taxguru on October 4, 2012

I was just reviewing the latest update to the very useful Tax Corresponder program from CFS and noticed this handy recap of upcoming new taxes that will be coming into play soon.

The U.S. Supreme Court ruled on June 28, 2012, that President Obama’s Health Care Act is constitutional and that the government can and will require individuals to purchase health insurance. This provision takes effect January 1, 2014, and there are other provisions that phase in January 1, 2013.

The health insurance provision means that beginning January 2014, non-exempt U.S. citizens and legal residents who are required to file a tax return are required to have health insurance. Individuals who fail to maintain minimum essential coverage are subject to the following penalty(s) per uninsured household adult: 2014 – the greater of $95 or a 1% penalty of the amount of household income that is over the threshold amount of income required for income tax return filing; 2015 – $325 or 2% penalty; and 2016 and after $695 (indexed for inflation) or 2.5% penalty.

There are three additional and potentially expensive provisions to this law that take effect in 2013:

1. If you are single and your compensation (salary, wages, self-employment income) is $200,000 or more ($250,000 for married couples), you will pay an additional 0.9% tax on your earned income. What can you do about this? Consider accelerating a bonus or other income that is scheduled to be paid to you in 2013 by rescheduling it to be paid in 2012.

2. There is a 3.8% tax on investment income (interest, dividends, net rental income, capital gains, etc.) for individuals, estates, and trusts. The tax is 3.8% of the lesser of your investment income or your adjusted gross income that is over the threshold amounts of $200,000 for singles and $250,000 for married couples. For estates and trusts, the tax is 3.8% of undistributed net investment income or the excess of AGI over the dollar amount at which the highest estate and trust income tax bracket begins. For 2012, that estate/trust bracket begins at $11,650. What can you do about this provision? Consider accelerating this type of income from 2013 to 2012. If you are managing an estate or trust, consider distributing net investment income to the beneficiary(s) each year.

3. You probably recall that if you itemize your deductions, you can deduct any medical expenses that exceed 7.5% of your adjusted gross income. This changes with the Health Care Act because the medical deduction threshold will increase from the current 7.5% of your adjusted gross income to 10% for taxpayers under the age of 65. In 2017 it will be 10% for all taxpayers regardless of age. To avoid the increased AGI threshold, try to lump the payment of medical expenses into 2012 instead of paying them in 2013.

 

 

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