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“Taxing” is a word synonymous with “onerous” and “wearing.” Bond Beebe, Accountants & Advisors, have created a user friendly blog called “It’s Taxing” to inform and educate our clients and business associates on timely topics related to tax, estates, accounting and finance. We hope our blog answers your questions and alleviates the heavy burden and anxiety related to understanding complicated tax laws and related matters.
The IRS has introduced a new tax form (Form 8949) for reporting capital gains and losses from stocks, bonds, mutual funds and similar investments. Starting with the 2011 tax year, investment transactions will be reported on the new Form 8949, Sales and Other Dispositions of Capital Assets.
Starting in 2011, cost basis information for “covered securities” will be included directly on the 1099-B. Brokers are required to provide cost basis for stock in a corporation acquired on or after January 1, 2011, for mutual fund shares acquired on or after January 1, 2012, for stock in a corporation purchased through a dividend reinvestment plan acquired on or after January 1, 2012, and notes, bonds, commodities (and derivatives or contracts based on commodities) acquired on or after January 1, 2013 directly on the 1099-B. Stock purchased prior to 2011, mutual fund shares purchased prior to 2012, and bonds purchased before 2013 will not have basis reported on the 1099-B. As before, this information will likely be found in other reports or data such as brokerage statements, year-end reports or trade confirmations.
As we enter the last month of the year, taxpayers are once again faced with a mountain of expiring tax provisions. There are 59 different provisions that will expire on December 31, unless Congress sees fit to extend some or all of them. It is a safe bet that some will be extended, (perhaps retroactively), but others will die.
The most likely survivor will be the extension of the social security tax payroll reduction that has been around since January, 2011. Congressional Democrats and Republicans are in favor of this extension. The sticking points are how much of a reduction and how will it be paid for. Stay tuned for that argument.
What taxes on real estate are deductible? Many people will get out their end of year mortgage statement or Form 1098 and look for the “Real Estate Taxes Paid” line on the form and use that amount. However, depending on where you live this number may contain several non-deductible fees and assessments. In order to accurately determine the deductible taxes you paid you need the actual tax bill. The state of California is making an effort to educate property owners about which taxes are deductible in an attempt to reduce the tax gap. In a time of falling revenue many governments are looking for any extra tax revenue they can find.
A deductible real estate tax is based on the assessed value of the property (called “ad valorem”) and charged uniformly against all property in the taxing authority's jurisdiction. A deductible tax must be imposed by a governmental body which could be state or local. This rules out fees and payments to homeowners associations and many utility districts as well as payments to developers or companies for maintenance of public or private areas.
Under current law, 2011 is the final year a charitable contribution can be made from an IRA, (by an individual age 70 ½ or older), directly to a qualified tax-exempt charity. This type of distribution is called a “qualified charitable distribution”. The distribution is not taxed to the donor, and counts towards fulfilling the required minimum IRA distribution amount (RMDs) that must be withdrawn each year.
If a “qualified charitable distribution” is made, no itemized deduction is allowed. However, since the distribution is not included in taxable income, the 50%-of-AGI limitation that cash contributions are generally subject to does not apply.
The IRS has announced many cost-of-living-adjustments for retirement plans, social security tax and some other tax items.
The limits on contributions to retirement plans have been increased for 2012. Participants can elect to defer up to $17,000 (up from $16,500) into 401(k) plans. The "catch-up" contributions for participants over age 50 is still the same at $5,500. The total contribution for defined contribution plans has increased to $50,000 from $49,000, using a compensation base of up to $250,000 (up from $245,000). IRA and Roth IRA contribution limits have not changed.
The Social Security wage base has been increased to $110,100 from $106,800 for 2012. The employee's share (if the tax rate reverts to 6.2%) will be $6,826.20 for 2012.
The standard deduction for 2012 was increased to $5,950 for Single filers and $11,900 for Married-Filing-Joint returns (up from $5,700 and $11,400 respectively). The personal exemption was inreased to $3,800 from $3,650.
The annual gift exlcusion remains at $13,000, but the estate tax exclusion for decedents dying in 2012 has been inreased to $5,120,000 from $5,000,000.
There were many more changes as well--you can click through to the link to read more or stay tuned for any other important changes!
In Announcement 2011-64, the IRS details an offer for settling potential worker classification issues. The IRS is offering employers a chance to reclassify workers as employees (as opposed to independent contractors) going forward. An employer who wishes to avail themselves of this settlement offer will pay 10% of the employment taxes (as calculated under IRC section 3509) that would have been due for the most recent tax year (if the worker had been classified as an employee), but will not be charged any interest or penalties. Further, the IRS will not subject the employer to an employment tax audit related to worker classification for those workers for any prior year.
The employer must apply with the IRS, and the IRS retains discretion on whether to accept the settlement. However, this could be a unique opportunity to correct misclassification issues with very little cost. The IRS has increasingly been focusing on worker classification issues, and the Obama administration seems to be particularly aggressive about pursuing misclassified workers.
First, the bad news. Effective October 1, 2011, DC residents with taxable income above $350,000 in a tax year will be subject to a new 8.95% tax rate on that income. This is up from a top rate of 8.5% on income over $40,000. This rate will be effective for 4 years only, then expire.
Now, the good news. The higher rate was implemented as an offset to pay for delaying the taxation of out-of-state municipal bond income. Municipal bond income from any jurisdiction outside of DC was scheduled to be taxed in DC starting January 1, 2011. That income will now be taxed starting January 1, 2012, providing a one-year delay to the inevitable taxation of this income, and eliminating the need to adjust estimated taxes for 2011.
Mayor Vincent Gray will sign the emergency budget amendment as soon as it hits his desk.
UPDATE: 9/22/2011: The new law changes the taxation of non-DC municipal bond income in one additional way. Previously, the tax, when it took effect, applied to all non-DC municipal bond income. With this new law change, the tax applies only to non-DC municipal bonds purchased after the effective date of January 1, 2012. This "grandfathers" in existing bonds but creates additional complexity in determining which bonds are subejct to the new tax.
With all the debt discussions and economic uncertainty of recent, demand for precious metals has seen a major increase. With any rise in demand there is often a similar rise in price further emphasized by the value of gold, which has risen to record levels on a global scale. There are many reasons to hold and/or invest in gold including preserving one’s wealth, fighting against inflation, and maintaining a level of diversification just to name a few among the many other reasons to invest in this precious metal.
You can, also, own gold in a variety of ways such as purchasing gold coins, bullion, jewelry, even through a futures market and exchange-traded funds (ETFs). It is important to remember the IRS classifies gold as a capital asset and more specifically as a collectible. A collectible is defined by the IRS, in regards to capital gains and losses, as art, rugs, antiques, metal, gems, stamps, and coins. When sold, net collectible gains are subject to a HIGHER tax rate of 28%, if held for more than one year rather than the current long term capital gain tax rate of 15% for other capital assets.
Just remember the IRS considers collectible gains (held for more than one year) to be subject to the 28% tax rate the next time you sell some of your valuables, artwork, and precious metals.