Our Taxing Times

Oklahoma DIsaster- Tax Relief.

The IRS has announced (IR-2013-53) its tax relief for victims of the Oklahoma tornados on Monday. Taxpayers in Cleveland, Lincoln, McClain, Oklahoma and Pottawatomie counties (possibly more to be added later) will be able to postpone tax and payment filings until September 30^th.The IRS will abate failure to file and failure to pay penalties for taxpayers who have to delay their tax filings.

The tax and payment filings include any due from May 18^th. This will include 2^nd and 3^rd quarter estimates for individuals and a wide variety of business taxes. The IRS will also work with taxpayers whose books and records are in the disaster area and workers with recognized relief organizations but live outside the disaster area. (They can contact the IRS at 866-562-5227.)

The IRS also reminds taxpayers who might qualify to take a casualty loss that they don’t have to wait until filing their 2013 tax return. Since they are in a federal disaster area, they have the option of taking the loss on their 2012 return. They can file an amended return or, if they haven’t filed a return yet, original 2012 return.

For more disaster relief, tax and otherwise, check out the disaster website.

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Storm Tax Relief

I started to write a quick post about the IRS giving extra filing time because of the recent weather and discovered that Taxgirl has a great post about just that. I can’t think of anything to add to her post, so read all about it here.

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While I Was Working

While I was busy with taxes the last few days, several things happened I want to share.

First the IRS motion to suspend the injunction against the Loving Decision was countered by the plaintiffs. On Friday, Judge Boasberg ruled that the injunction would remain in place during the appeal. He didn’t agree with the IRS claim of harm. And he did clarify his earlier decision because he felt that the IRS was making it more restrictive than he intended. The PTIN registration can continue as it has been authorized by Congress. And preparers who wish can take the test and qualify to be RTRPs.

The PTIN system has been closed due to the original decision but is scheduled to re-open on Monday. Do take a look at the alert that is on the page concerning the CE requirements and follow the instructions. Paper PTIN applications will begin to be processed again on Monday.

The IRS has extended filing deadlines for taxpayers living in certain New York and New Jersey counties to April 1, 2013. This extension can also include those whose books, records or tax pro are in those counties. In New Jersey, the counties are Monmouth and Ocean. New York counties are Nassau, Queens, Richmond and Suffolk. Details.

The IRS has opened e-filing for most 2012 tax returns but pulled Form 8863- Education Credits at the last minute. They expect the form to be released for use mid-February. That leaves about 30 forms to be released.

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Tax's Perfect Storm

Yesterday was not a fun day.

It had nothing to do with it being the day after Christmas or that it was bitterly cold here. The problem was I couldn’t do my job. The reason is the fiscal cliff.

I received several calls from clients with questions I couldn’t really answer. I could explain about how the fiscal cliff is leaving the fate of tax rates, deductions and credits hanging. I could point out that AMT has expired and if it’s not extended by the end of the year the client could get a nasty tax surprise. But I couldn’t give them the answer they needed. All I could do for my clients was to give them a very rough estimate with the warning that there was a good chance I would be wrong. Not what clients expect of me.

The other problem I had yesterday, and to a lesser degree today, was that I can’t get motivated to get pre-season work done. If there is not AMT patch, the start of tax season will be delayed. Acting IRS Commissioner Steven Miller has been telling Congress that since November. Normally this time of the year, I would be working on my newsletter updating office documents and checking supplies. Some of that can be done without knowing what Congress will do. But I can’t get motivated. Why do it now when I’ll probably have until March to get it done?

Congress only has 4 days to do something about taxes (if they’re willing to work the weekend). And the situation has gotten more complicated with Treasury Secretary Geithner’s announcement that the US will reach our debt ceiling on December 31^st.  4 days to do what they refused to do earlier in the year and haven’t been able to do in the last few weeks. I’m not hopeful.

The House has spent most of the year on vacation. They’ve only worked about 100 days this year. I’d like to take a vacation for a few days to get away from the depressing tax news. It would be worth catching up missed work if a miracle happens and we get a compromise. But a vacation costs money I should save to the pay bills that will still come in if the tax season is delayed.

At least we’re getting a story to tell young preparers years from now when they complain something Congress has done (or not done). “You think this is bad, you should have been in business during the Fiscal Cliff of 2012-13. That was the tax world’s perfect storm.”

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AMT, the Gift You Don't Have to Wrap!

On the way into the office this morning, I thought on what I should write about today. Something about Christmas but what? Then it dawned on me, what I want for Christmas. What do I really want most?  An AMT patch. Too tax based for you? Nope! An AMT patch is a practical gift that will benefit not just me but millions of taxpayers, tax pros and the IRS.

The real problem is that this gift is that Santa can’t deliver it. An AMT patch has to come from Congress in the last few days of the year. Since the elections, we have been waiting for them to get together and extend the Bush tax cuts and patch AMT. Not tax reform but tax fix. But here it is, Christmas Eve, and still nothing. Extending the Bush tax cuts can be done next year without affecting taxpayers but the AMT patch can’t wait. The patch has already expired so for 2012 returns AMT returns to 2001 levels.

As I’ve (and every other tax writer and blogger has) mentioned before, AMT will raise taxes on taxpayers in the middle class. A quick estimate I did found that a couple with 2 children and $75,000 in income (nothing but their standard deduction and exemptions) will pay over $600 in AMT on their 2012 return. AMT could hit 28 million returns for taxpayers with income from $75,000 to $300,000. The average increase would be about $3700.

No AMT patch will also impact the IRS. They assumed that Congress would extend the patch, so the IRS computers were not re-programmed for the original AMT. With no patch, they will have to reprogram their computers for the lower exemptions. That includes changes in a variety of credits which will no longer be allowed to offset the tax. On December 19^th, Acting IRS Commission Steven Miller sent a letter to Congress reminding them of the problems no AMT patch will cause. He estimates that 80 to 100 million of the 150 million returns that will be filed will have to be checked for AMT. He states that this would cause a delay in all return filing until at least March 31, 2013. The IRS will have to re-program two sets of computers because they are still converting to Modernized e-File. While most returns will go MeF, the IRS needs to keep the Legacy system working as a backup. Remember last February and the backup the high volume of MeF returns caused? Can you imagine what could happen once filing is opened after an eleven week delay without well tested systems?

Stuck in the middle of this mess are the tax pros. We are the ones who will have to deal with clients who can’t file for refunds they need now.  We’ll have to explain why they’re refund is lower or gone due to AMT. And since we won’t be able to file returns, we won’t get paid. Tax Preparation is a seasonal business and for many of us, there is little cash left in January. Waiting until late March, could make for a long cold winter.

So Congress, how about it? Give us, taxpayers, tax pros and the IRS, the gift we really want this year; an AMT patch. You can do it. Pull it off the fiscal cliff bill and take care of this one little thing. You have plenty of time to argue about tax rates and budget cuts next year.

I’m not the only one asking Santa for an AMT patch.

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Congressional Con

I honestly believe that tax pros and taxpayers are being held hostage by many in Congress to save face.

Yesterday, as I’m sure you know, Rep. Boehner pulled his “Plan B” House bill because he couldn’t get enough support from his own party to pass it and told the White House that they (the WH) needs to come up with a new plan. (Actually, the WH has a plan on the table Mr. Boehner. Negotiation protocol means the next proposal should be one that your people support.) Then the House closed up for Christmas. Who knows if they’ll do anything when they get back to work after Christmas. But I bet they’ll get right to work after the first of the year and the Bush tax cuts have expired. They need to make the con look good.

After January 1, 2013, the tax increases many Republicans won’t even consider will become tax cuts that will make them look so good to taxpayer voters. On January 1st, tax rates and the rest of the extenders revert to 2001 levels. Everyone’s taxes will go up. Everyone’s taxes. Then Congress can do what it has put off all year and extend the lower rates for almost everyone. The only questions will be what will the highest rate be and what will the thresholds be on that rate? That fixed, our politicians can con tell everyone, with a straight face, how wonderful they are for cutting taxes.

As for the Alternative Minimum Tax (AMT) patch that is tied in with the Bush extenders, Congress can quickly pull it out after Christmas break and extend it or leave it with the tax provisions that die on December 31^st. AMT has already expired and will be a major problem when taxpayers file their 2012 taxes if the patch isn’t continued. If Congress doesn’t pass the AMT patch in 2012, many middle class taxpayers will find their 2012 taxes are higher than estimated. (An estimate I did a few weeks ago showed an AMT of $615 for a family of 4 with $75,000 in income.) Of course, if I was really cynical, I would say that some in Congress are playing with AMT to make their tax “cuts” look better as taxpayers forget all the details and focus on their pocketbook.

In the spirit of Christmas, I hope I’m wrong about what some in Congress are thinking. If I’m not, I really hope that they will deal with AMT separately. But right now I’m not optimistic at all. It seems like a con job to me.

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Hurricane Sandy Relief Act

While the debates on the fiscal cliff continue, there has been a tax related bill introduced in the Senate. Senators Schumer (D-NY) and Robert Menendez (D-NJ) have proposed legislation to help taxpayers who have been financially affected by Hurricane Sandy. The Hurricane Sandy Relief Act (not on Thomas yet) was introduced on Dec 9^th.

The bill includes a variety of individual programs for those who are directly affected by Sandy and for the general public. A few of the proposals include:

• Waiving the 50% limit on charitable contributions for qualified disaster contributions.
• Changes to carryback rules for NOLs.
• Reducing the limitations of casualty loss deductions.
• Waiving the 10% early withdrawal penalty on retirement plan by Sandy victims up to a $100,000 withdrawal.
• A credit for employers who keep paying employees while the business isn’t operating.
• Allows the Work Opportunity Credit to be claimed for Sandy employees.
• Increases depreciation to 50% for the first year in Sandy affected areas.
• Allows EIC and Child Tax Credit to be calculated on previous year’s income for people whose 2012 income was affected by Sandy.

These are just a few of the proposals in the bill. All the details can be found in a press release on Senator Schumer’s website.

 

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IRS and Sandy

The IRS has released information on a variety of programs to help the victims of Hurricane Sandy.

If you have created a charity to benefit hurricane victims, you will still have to complete Form 1023 to apply for tax-exempt status but the IRS will expedite processing. All you have to do is write “Disaster Relief, Hurricane Sandy on the top of the form. If you have already mailed your application, you can fax a request with the same heading and the organization’s name, EIN, contact name and phone number to 513-263-4554. If you are still thinking about starting a charity organization for Sandy, check you Pub. 3833 – Disaster Relief: Providing Assistance through Charitable Organization.

The IRS has also temporarily suspended the rules for low income housing. Owners can rent to Sandy victims who don’t meet the income guideline or just need temporary housing. There is no mention, at this time, how long the suspension will be in effect.

To encourage employers and employees to donate leave time to qualified charities for disaster relief, the IRS will allow these types of contributions to be deductible by employers but not included in the employee’s W-2. Say a taxpayer donates one day of vacation from their paid leave bank, the employer gives the cash equivalent for that day to an eligible charity for the employee. The employer can still deduct the money as wages but not include it as compensation on the employee’s W-2. Of course, the employee can’t include the cost of that day’s wages as a charitable contribution since it wasn’t treated as income.

The IRS has a webpage for all the tax changes for Hurricane Sandy.

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Sandy Adjustments

As with any natural disaster, Sandy has caused some problems and adjustments for taxpayers and preparers.

The IRS has announced that taxpayers in the Mid-Atlantic and North Eastern states have until November 7the to file and pay tax returns which are due today. This is mostly payroll and excise taxes and the extension is automatic. If the taxpayer does receive a penalty notice for this period, they should contact the IRS and they will abate the penalties. See IR-2012-82.

From TaxPro Today, the IRS said that the PTIN system was down yesterday (I assume that means it’s up now but don’t be surprised if it’s not.) Also Prometric has cancelled tests for both RTRP and SEE in some East Coast areas for Wednesday. They will contact test takes by email with notice of the closures and how to reschedule.

If you aren't in a Sandy affected area, think about making a contribution to the Red Cross, Salvation Army or other disaster relief organization. It might be tax deductible for you. If not, it'll make you feel good.

McIntire Tax Center - on Facebook - on Google+ - or Twitter @ mactax.