It’s Tax Time! Are You Ready?

If you’re like most taxpayers, you find yourself with an ominous stack of “homework” around TAX TIME! Unfortunately, the job of pulling together the records for your tax appointment is never easy, but the effort usually pays off when it comes to the extra tax you save! When you arrive at your appointment and are fully prepared, you’ll have more time to:

•  Consider every possible legal deduction;
• Better evaluate your options for reporting income and deductions to choose those that are best suited to your situation;
• Explore current law changes that affect your tax status;
• Talk about possible law changes and discuss tax planning alternatives that could reduce your future tax liability.

Choosing Your Best Alternatives

The tax law allows a variety of methods for handling income and deductions on your return. Choices made at the time you prepare your return often affect not only the current year, but future returns as well. When you’re fully prepared for your appointment, you will have more time to explore all avenues available for lowering your tax.

For example, the law allows choices in transactions like:

Sales of property:  If you’re receiving payments on a sales contract over a period of years, you are sometimes able to choose between reporting the whole gain in the year you sell or over a period of time as you receive payments from the buyer.

Depreciation:  You’re able to deduct the cost of your investment in certain business property using different methods. You can either depreciate the costs over a number of years; or, in certain cases, you can deduct them all in one year.

Where to Begin?

Ideally, preparation for your tax appointment should begin in January of the tax year you’re working with. Right after the New Year, set up a safe storage location – a file drawer, a cupboard, a safe, etc. As you receive pertinent records, file them right away, before they’re forgotten or lost. By making the practice a habit, you’ll find your job a lot easier when your actual appointment date rolls around.

Other general suggestions to consider for your appointment preparation include:

• Segregate your records according to income and expense categories. For instance, file medical expense receipts in an envelope or folder, mortgage interest payment records in another, charitable donations in a third, etc. If you receive an organizer or questionnaire to complete before your appointment, make certain you fill out every section that applies to you. (Important: Read all explanations and follow instructions carefully to be sure you don’t miss important data – organizers are designed to remind you of transactions you may miss otherwise.)
• Be sure to call our attention to any foreign bank account, foreign financial account or foreign trust in which you have an ownership interest, signature authority or control over. We also need to know about foreign inheritances and ownership of foreign assets. Generally any foreign financial dealings should be brought to our attention so we can determine if you have any special reporting requirements. The penalties for not making and submitting the required reports can be draconian.
• Keep your annual income statements separate from your other documents (e.g., W-2s from employers, 1099s from banks, stockbrokers, etc., and K-1s from partnerships). Be sure to take these documents to your appointment, including the instructions for K-1s!
• Write down questions you may have so you don’t forget to ask them at the appointment. Review last year’s return. Compare your income on that return to the income for the current year. For instance, a dividend from ABC stock on your prior-year return may remind you that you sold ABC this year and need to report the sale or that you haven’t yet received the 1099-DIV form for the current year.
• Make certain that you have social security numbers for all your dependents. The IRS checks these carefully and can deny deductions for returns filed without them.
• Compare deductions from last year with your records for this year. Did you forget anything?
• Collect any other documents and financial papers that you’re puzzled about. Prepare to bring these to your appointment so you can ask about them.

Accuracy Even for Details

To ensure the greatest accuracy possible in all detail on your return, make sure you review personal data. Check name(s), address, social security number(s) and occupation(s) on last year’s return. Note any changes for this year. Although your telephone number isn’t required on your return, current home and work numbers are always helpful should questions occur during return preparation.

Marital Status Change

If your marital status changed during the year, if you lived apart from your spouse or if your spouse died during the year, list dates and details. Bring copies of prenuptial, legal separation, divorce or property settlement agreements, if any, to your appointment. If your spouse passed away during the year, you should have a copy of his or her trust agreement or will available for review.

Dependents

If you have qualifying dependents, you will need to provide the following for each:

• First and last name
• Social security number
• Birth date
• Number of months living in your home
• Their income amount (both taxable and nontaxable)

If you have dependent children over age 18, note how long they were full-time students during the year. To qualify as your dependent, an individual must pass five strict dependency tests. If you think a person qualifies as your dependent (but you aren’t sure), tally the amounts you provided toward his/her support vs. the amounts he/she provided. This will simplify making a final decision about whether you really qualify for the dependency deduction.

Some Transactions Deserve Special Treatment

Certain transactions require special treatment on your tax return. It’s a good idea to invest a little extra preparation effort when you have had the following transactions:

Sales of Stock or Other Property: All sales of stocks, bonds, securities, real estate and any other type of property need to be reported on your return, even if you had no profit or loss. List each sale, and have the purchase and sale documents available for each transaction.

Purchase date, sale date, cost and selling price must all be noted on your return. Make sure this information is contained on the documents you bring to your appointment.

Gifted or Inherited Property: If you sell property that was given to you, you need to determine when and for how much the original owner purchased it. If you sell property you inherited, you need to know the date of the decedent’s death and the property’s value at that time. You may be able to find this information on estate tax returns or in probate documents.

Reinvested Dividends: You may have sold stock or a mutual fund in which you participated in a dividend reinvestment program. If so, you will need to have records of each stock purchase made with the reinvested dividends.

Sale of Home: The tax law provides special breaks for home sale gains, and you may be able to exclude all (or a part) of a gain on a home if you meet certain ownership, occupancy and holding period requirements. If you file a joint return with your spouse and your gain from the sale of the home exceeds $500,000 ($250,000 for other individuals), record the amounts you spent on improvements to the property. Remember, too, possible exclusion of gain applies only to a primary residence, and the amount of improvements made to other homes is required regardless of the gain amount. Be sure to bring a copy of the sale documents (usually the closing escrow statement) with you to the appointment.

Purchase of a Home: Be sure to bring a copy of the closing escrow statement if you purchased a home.

Vehicle Purchase: If you purchased a new plug-in electric car (or cars) this year, you may qualify for a special credit. Please bring the purchase statement to the appointment with you.

Home Energy-Related Expenditures: If you installed solar, geothermal or wind power generating systems, please bring the details of those purchases and the manufacturer’s credit qualification certification to your appointment. You may qualify for a substantial energy-related tax credit.

Identity Theft: Identity theft is becoming more and more prevalent and can impact your tax filings. If you have reason to believe that your identity has been stolen, please contact this firm as soon as possible. The IRS provides special procedures for filing returns of taxpayers who have had their identity stolen.

Car Expenses: Where you have used one or more automobiles for business, list the expenses of each separately. The government requires that you provide your total mileage, business miles, and commuting miles for each car on your return, so be prepared to have them available. If you were reimbursed for mileage through an employer, know the reimbursement amount and whether the reimbursement is included in your W-2.

Charitable Donations: Cash contributions (regardless of amount) must be substantiated with a bank record or written communication from the charity showing the name of the charitable organization, date and amount of the contribution.

Cash donations put into a “Christmas kettle,” church collection plate, etc., are not deductible. For clothing and household contributions, the items donated must generally be in good or better condition, and items such as undergarments and socks are not deductible. A record of each item contributed must be kept, indicating the name and address of the charity, date and location of the contribution, and a reasonable description of the property. Contributions valued less than $250 and dropped off at an unattended location do not require a receipt. For contributions of $500 or more, the record must also include when and how the property was acquired and your cost basis in the property. For contributions valued at $5,000 or more and other types of contributions, please call this office for additional requirements.

If you have questions about assembling your tax data prior to your appointment, please give our office a call.

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Don’t Be a Victim!

Not too long ago, we cautioned you about being duped by Internet identity thieves. We want to remind you once again about this fast-growing threat and how to protect yourself from being a victim and avoid the immense amount of trouble and aggravation that accompanies identity theft.

As the tax-filing season approaches, the identity thieves are gearing up with tax scams to sucker you into providing them with your identity information, which they can then use to charge against your credit cards, tap your bank account, steal your tax refund, file a fraudulent tax return in your name . . . the list goes on and on.

These thieves are clever, and some even disguise e-mails to look as if they come from a government agency; the IRS banner has been used in many scams to steal taxpayer identities. For example, you may receive an e-mail with the IRS banner indicating that you have a refund coming and directing you to a web site where you are duped into revealing your identity to obtain the refund. During the holidays, scammers were sending out e-mails disguised as being sent by major department stores you may have received one indicating that you had won a gift card and asking you to reveal your financial information to receive the gift card.

The scams, known as phishing, have one goal: to trick you into revealing your personal and financial information. The scammers can then use that information such as your Social Security number, bank account, or credit card numbers to commit identity theft or steal your money.

Here are some tips you should know about phishing scams:

1. The IRS never asks for detailed personal and financial information such as personal identification numbers (PINs), passwords, or similar secret access information for credit card, bank, or other financial accounts.

2.  The IRS does not initiate contact with taxpayers by e-mail to request personal or financial information.  If you receive an e-mail from someone claiming to be a representative of the IRS or directing you to an IRS site:

• Do not reply to the message.
• Do not open any attachments. Attachments may contain malicious code that will infect your computer.
• Do not click on any links. If you clicked on links in a suspicious e-mail or phishing website and entered confidential information, you may have compromised your financial information. If you entered your credit card number, contact the credit card company for guidance. If you entered your banking information, contact the bank for the appropriate steps to take. The IRS website provides additional resources that can help. Visit the IRS website and enter the search term “identity theft” for additional information.

3. The address of the official IRS website is www.irs.gov. Do not be confused or misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov. If you discover a website that claims to be the IRS but you suspect it is bogus, do not provide any personal information on the suspicious site.

4. If you receive a phone call, fax, or letter in the mail from an individual claiming to be from the IRS but you suspect he or she is not an IRS employee, contact the IRS at 1-800-829-1040 to determine whether the IRS has a legitimate need to contact you. Report any bogus correspondence. You can forward suspicious e-mails to phishing@irs.gov.

If you have any questions or doubts related to a letter, phone call, or e-mail from the IRS or other taxing authorities, please call our office before responding or providing any financial or personal information. Better safe than sorry!

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Don’t Forget Those Nominee 1099s

For tax purposes, if you receive income in your name that actually belongs to someone else, you are also a nominee. Being a nominee means that you must file a 1099 form with the IRS appropriate to the type of income you received and give a copy of the 1099 to the actual owner of the income. However, if the other person is your spouse, no 1099 filing is required.

One of the most commonly encountered nominee situations is having a joint bank account or brokerage account with someone other than your spouse and all of the income from those accounts being reported under your SS number. You will need to provide the IRS and your joint account owner with a 1099 reporting the co-owner’s share of the income under his or her SS number. Then, when you file your return, you need to show all of the income but back out the co-owner’s share as “nominee amount.”

The type of 1099 to file depends upon the type of income: 1099-INT for interest, 1099-DIV for dividends, and 1099-B for the proceeds from selling stocks and bonds.

Forms 1099-INT and 1099-DIV issued by you as a nominee are supposed to be provided to the recipients by January 31, while the deadline for providing forms 1099-B to the other owner(s) is February 15. In order to avoid penalties, copies of the 1099s need to be sent to the IRS by February 28. The 1099s must be submitted on magnetic media or on optically scannable forms (OCR forms). This firm prepares 1099s in OCR format for submission to the IRS along with the required 1096 transmittal form. This service provides recipient and file copies for your records.

If you have questions about filing 1099s as a nominee, please call our office.

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American Taxpayer Relief Act

After weeks, indeed months of proposals and counter-proposals, seemingly endless negotiations

and down-to-the-wire drama, Congress has passed legislation to avert the tax side of the socalled

"fiscal cliff." The American Taxpayer Relief Act permanently extends the Bush-era tax

cuts for lower and moderate income taxpayers, permanently "patches" the alternative minimum

tax (AMT), provides for a permanent 40 percent federal estate tax rate, renews many individual,

business and energy tax extenders, and more.

The American Taxpayer Relief Act is intended to bring some certainty to the Tax Code. At the

same time, it sets the stage for comprehensive tax reform, possibly in 2013. Moreover, it creates

important planning opportunities for taxpayers, which we can discuss in detail.

Individuals

If Congress had done nothing, tax rates would have increased for all taxpayers at all income

levels after 2012. Both the White House and GOP realized that going over the fiscal cliff would

jeopardize the economic recovery, and the American Taxpayer Relief Act is, for the moment,

their best compromise.

Tax Rates - The American Taxpayer Relief Act extends permanently the Bush-era income tax

rates for all taxpayers except for taxpayers with taxable income above certain thresholds:

$400,000 for single individuals, $450,000 for married couples filing joint returns, and $425,000

for heads of households. For 2013 and beyond, the federal income tax rates are 10, 15, 25, 28,

33, 35, and 39.6 percent. In comparison, the top rate before 2013 was 35 percent. The IRS is

expected to issue revised income tax withholding tables to reflect the 2013 rates as quickly as

possible and provide guidance to employers and self-employed individuals.

Additionally, the new law revives the limitation on itemized deductions and personal exemption

phase out (PEP) after 2012 for higher-income individuals, but at revised thresholds. The new

thresholds for being subject to both of these limitations after 2012 are $300,000 for married

couples and surviving spouses, $275,000 for heads of households, $250,000 for unmarried

taxpayers; and $150,000 for married couples filing separate returns.

Capital Gains - The capital gains and dividend tax rates are modified by the American Taxpayer

Relief Act. Generally, the new law increases the top rate for qualified capital gains and dividends

from 15 to 20 percent to the extent that a taxpayer's income exceeds the

$400,000/$425,000/$450,000 thresholds discussed above. The 15 percent tax rate will continue

to apply to all other taxpayers (in some cases, zero percent for qualified taxpayers within the 15

percent or lower income tax bracket).

Payroll Tax Cut - The employee-side payroll tax holiday is not extended. Before 2013, the

employee share of OASDI taxes was reduced by two percentage points from 6.2 percent to 4.2

percent up to the Social Security wage base (with a similar tax break for self-employed

individuals). For 2013, the 2 percent reduction is no longer available and employee-share of

OASDI taxes reverts to 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent.

In 2012, the payroll tax holiday could have saved a taxpayer up to $2,202 (taxpayers earning at

or above the Social Security wage base for 2012). As a result of the expiration of the payroll tax

holiday, everyone who receives a paycheck or self-employment income will see an increase in

taxes in 2013.

AMT - In recent years, Congress routinely "patched" the AMT to prevent its encroachment on

middle income taxpayers. The American Taxpayer Relief Act patches permanently the AMT by

giving taxpayers higher exemption amounts and other targeted relief. This relief is available

beginning in 2012 and going forward. The permanent patch is expected to provide some

certainty to planning for the AMT. No single factor automatically triggers AMT liability, but

some common factors are itemized deductions for state and local income taxes; itemized

deductions for miscellaneous expenditures, itemized deductions on home equity loan interest

(not including interest on a loan to build, buy, or improve a residence); and changes in income

from installment sales. Our office can help you gauge if you may be liable for the AMT in 2013

or future years.

Child Tax Credit and Related Incentives - The popular $1,000 child tax credit was scheduled to

revert to $500 per qualifying child after 2012. Additional enhancements to the child tax credit

also were scheduled to expire after 2012. The American Taxpayer Relief Act makes permanent

the $1,000 child tax credit. Most of the Bush-era enhancements are also made permanent or

extended. Along with the child tax credit, the new law makes permanent the enhanced adoption

credit/and income exclusion; the enhanced child and dependent care credit, and the Bush-era

credit for employer-provided child care facilities and services.

Education Incentives - A number of popular education tax incentives are extended or made

permanent by the American Taxpayer Relief Act. The American Opportunity Tax Credit (an

enhanced version of the Hope education credit) is extended through 2017. Enhancements to

Coverdell education savings account, such as the $2,000 maximum contribution, are made

permanent. The student loan interest deduction is made more attractive by the permanent

suspension of its 60-month rule (which had been scheduled to return after 2012). The new law

also extends permanently the exclusion from income and employment taxes of employerprovided

education assistance up to $5,250 and the exclusion from income for certain military

scholarship programs. Additionally, the above-the-line higher education tuition deduction is

extended through 2013, as is the teachers' classroom expense deduction.

Charitable Giving - Congress has long used the tax laws to encourage charitable giving. The

American Taxpayer Relief Act extends a popular charitable giving incentive through 2013: taxfree

IRA distributions to charity by individuals age 70½ and older up to maximum of $100,000

for qualified taxpayer per year. A special transition rule allows individuals to re-characterize

distributions made in January 2013 as made on December 31, 2012. The new law also extends

for businesses the enhanced deduction for charitable contributions of food inventory.

Federal Estate Tax - Few issues have complicated family wealth planning in recent years, as has

the federal estate tax. Recent laws have changed the maximum estate tax rate multiple times.

Most recently, the 2010 Tax Relief Act set the maximum estate tax rate at 35 percent with an

inflation-adjusted exclusion of $5 million for estates of decedents dying before 2013. Effective

January 1, 2013, the maximum federal estate tax will rise to 40 percent, but will continue to

apply an inflation-adjusted exclusion of $5 million. The new law also makes permanent

portability between spouses and some Bush-era technical enhancements to the estate and

generation-skipping transfer taxes.

Businesses

The business tax incentives in the new law, while not receiving as much press as the individual

tax provisions, are valuable. Two very popular incentives, bonus depreciation and small business

expensing, are extended, as are many business tax "extenders."

Bonus Depreciation/Small Business Expensing - The new law renews 50 percent bonus

depreciation through 2013 (2014 in the case of certain longer period production property and

transportation property). Code Sec. 179 small business expensing is also extended through 2013

with a generous $500,000 expensing allowance and a $2 million investment limit. Without the

new law, the expensing allowance was scheduled to plummet to $25,000 with a $200,000

investment limit.

Small Business Stock - To encourage investment in small businesses, the tax laws in recent years

have allowed non-corporate taxpayers to exclude a percentage of the gain realized from the sale

or exchange of small business stock held for more than five years. The American Taxpayer

Relief Act extends the 100 percent exclusion from the sale or exchange of small business stock

through 2013.

Tax Extenders - A host of business tax incentives are extended through 2013. These include:

• Research tax credit
• Work Opportunity Tax Credit
• New Markets Tax Credit
• Employer wage credit for military reservists
• Tax incentives for empowerment zones
• Indian employment credit
• Railroad track maintenance credit
• Subpart F exceptions for active financing income
• Look-through rules for related controlled foreign corporation payments

Energy

For individuals and businesses, the new law extends some energy tax incentives. The Code Sec.

25C credit, which rewards homeowners who make energy efficient improvements, with a tax

credit is extended through 2013. Businesses benefit from the extension of the Code Sec. 45

production tax credit for wind energy, credits for biofuels, credits for energy-efficient appliances,

and many more.

Looking Ahead

The negotiations and passage of the new law are likely a dress rehearsal for comprehensive tax

reform. Both the President and the GOP have called for making the Tax Code more simple and

fair for individuals and businesses. The many proposals for tax reform include consolidation of

the current individual income tax brackets, repeal of the AMT, moving the United States from a

worldwide to a territorial system of taxation, and a reduction in the corporate tax rate. Congress

and the Obama Administration also must tackle sequestration, which the American Taxpayer

Relief Act delayed for two months. All this and more is expected to keep federal tax policy in the

news in 2013. Our office will keep you posted of developments.

If you have any questions about the American Taxpayer Relief Act, please contact our office.

We can schedule an appointment to discuss how the changes in the new law may be able to

maximize your tax savings

Sincerely,

WM. F. HORNE & CO., PLLC

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Ready For a Take-Home Pay Cut?

For two years, employees have enjoyed a 2% reduction in the FICA payroll tax. That will all come to an abrupt end beginning with their first payroll check in 2013 when the FICA rate returns to 6.2% (up from 4.2% in 2011 and 2012). Self-employed individuals will have a corresponding increase in their SE tax.

The maximum wage subject to the FICA tax in 2013 is $113,700 (up from $110,100 in 2012). Thus, if you make $113,700 or more during the year, the result will be a $2,274 increase in payroll tax for the entire year, and each paycheck will be reduced by 2% of your pay until the maximum amount has been withheld. If you make less than the maximum, simply multiply your pay for the year by 2% to determine your tax increase.

Employees who made more than $110,100 in 2012 enjoyed a period of time with no FICA withheld, but FICA withholding will return at the full 6.2% rate with the first paycheck in 2013.

To make matters worse, as part of the Obamacare legislation, higher income taxpayers are faced with an additional 0.9% health insurance (HI) tax. Starting in 2013, this surtax is imposed upon wage earners and self-employed taxpayers whose wage and self-employment income exceeds $250,000 for married taxpayers filing jointly ($125,000 if filing separately) and $200,000 for all others.

Although each employer will withhold the additional tax, the employer is not required to account for other employment or both spouses working. Thus, in these situations when the total earned income exceeds the threshold amounts, the unpaid tax will have to be included on the 2013 tax return.

Example: John is a single individual who had two jobs in 2013. He earns $150,000 from one employer and $100,000 from the other. For the purposes of determining his liability for the extra 0.9% HI tax, his wages from both are added together, and to the extent that they exceed $200,000, he is subject to the additional 0.9% tax. Because he earned less than $200,000 from each employer, neither of them withheld any of the additional 0.9% tax. Because his total wages for the year were $250,000, John is liable for an additional $450 (0.009 x $50,000) in taxes when he files his 2013 tax return.

Example: A married couple, one earning $300,000 and the other $100,000, is subject to an additional tax of 0.9% of their combined incomes in excess of $250,000. In this case, that’s an additional 0.9% on $150,000 ($400,000 less $250,000). However, the spouse earning the $300,000 will already have had the additional tax withheld, so the amount of additional tax on their 2013 return will be $900 (0.009 x $100,000).

Employees in these situations may want to adjust their 2013 income tax withholding amounts or make estimated income tax payments to account for the additional tax. Self-employed taxpayers subject to the tax will need to increase their 2013 estimated tax payments to cover the additional amount.

Please give our office a call if you have additional questions.

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January 2013 Due Dates

January 2013 Individual Due Dates

January 4 - Time to Call For Your Tax Appointment

January is the beginning of tax season. If you have not made an appointment to have your taxes prepared, we encourage you do so before the calendar becomes too crowded.

January 10 - Report Tips to Employer

If you are an employee who works for tips and received more than $20 in tips during December, you are required to report them to your employer on IRS Form 4070 no later than January 10.

January 15 - Individual Estimated Tax Payment Due

It’s time to make your fourth quarter estimated tax installment payment for the 2012 tax year.

January 15 - Farmers & Fishermen Estimated Tax Payment Due

If you are a farmer or fisherman whose gross income for 2011 or 2012 is two-thirds from farming or fishing, it is time to pay your estimated tax for 2012 using Form 1040-ES. You have until April 15, 2013 to file your 2012 income tax return (Form 1040). If you do not pay your estimated tax by January 15, you must file your 2012 return and pay any tax due by March 1, 2013 to avoid an estimated tax penalty.

January 31 - File 2012 Return to Avoid Penalty for Not Making 4th Quarter Estimated Payments

If you file your prior year’s return and pay any tax due by this date, you need not make the 4th Quarter Estimated Tax Payment (January calendar).

January 2013 Business Due Dates

January 15 - Employer’s Monthly Deposit Due

If you are an employer and the monthly deposit rules apply, January 15 is the due date for you to make your deposit of Social Security, Medicare and withheld income tax for December 2012. This is also the due date for the nonpayroll withholding deposit for December 2012 if the monthly deposit rule applies. employment tax deposits must be made electronically (no more paper coupons), except employers with a deposit liability under $2,500 for a return period may remit payments quarterly or annually with the return.

January 31 - 1099s Due To Service Providers

If you are a business or rental property owner and paid $600 or more for the services of individuals (other than employees) during a tax year, you are required to provide Form 1099 to those workers by January 31st. "Services" can mean everything from labor, professional fees and materials, to rents on property. In order to avoid a penalty, copies of the 1099s need to be sent to the IRS by February 28, 2013 (April 1, 2013 if filed electronically). They must be submitted on optically scannable (OCR) forms. This firm prepares 1099s in OCR format for submission to the IRS with the 1096 submittal form. This service provides both recipient and file copies for your records. Please call our office for preparation assistance.

Payments that may be covered include the following:

• Cash payments for fish (or other aquatic life) purchased from anyone engaged in the trade or business of catching fish
• Compensation for workers who are not considered employees (including fishing boat proceeds to crew members)
• Dividends and other corporate distributions
• Interest
• Amounts paid in real estate transactions
• Rent
• Royalties
• Amounts paid in broker and barter exchange transactions
• Payments to attorneys
• Payments of Indian gaming profits to tribal members
• Profit-sharing distributions
• Retirement plan distributions
• Original issue discount
• Prizes and awards
• Medical and health care payments
• Debt cancellation (treated as payment to debtor)

January 31 - W-2 Due to All Employees

All employers need to give copies of the W-2 form for 2012 to their employees. If an employee agreed to receive their W-2 form electronically, post it on a website and notify the employee of the posting.

January 31 - File Form 941 and Deposit Any Undeposited Tax

File Form 941 for the fourth quarter of 2012. Deposit any undeposited Social Security, Medicare and withheld income tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the quarter in full and on time, you have until February 11 to file the return. January 31 - Certain Small Employers File Form 944 to report Social Security and Medicare taxes and withheld income tax for 2012. Deposit or pay any undeposited tax under the accuracy of deposit rules. If your tax liability is $2,500 or more for 2012 but less than $2,500 for the fourth quarter, deposit any undeposited tax or pay it in full with a timely filed return.

January 31 - File Form 943

All farm employers should file Form 943 to report Social Security, Medicare taxes and withheld income tax for 2012. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 11 to file the return. January 31 - W-2G Due from Payers of Gambling Winnings If you paid either reportable gambling winnings or withheld income tax from gambling winnings, give the winners their copies of the W-2G form for 2012.

January 31 - File Form 940 File Form 940 (or 940-EZ) for 2012

If your undeposited tax is $500 or less, you can either pay it with your return or deposit it. If it is more than $500, you must deposit it. However, if you deposited the tax for the year in full and on time, you have until February 11 to file the return.

January 31 - File Form 945

File Form 945 to report income tax withheld for 2012 on all non-payroll items, including back-up withholding and withholding on pensions, annuities, IRAs, gambling winnings, and payments of Indian gaming profits to tribal members. Deposit any undeposited tax. (If your tax liability is less than $2,500, you can pay it in full with a timely filed return.) If you deposited the tax for the year in full and on time, you have until February 11 to file the return.

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Congress Avoids the Fiscal Cliff

As we were going to press with this newsletter, the Senate and the House have voted on a last-minute budget deal worked out between President Barack Obama and congressional Republicans averting the so-called fiscal cliff.

Details of the deal were sketchy at press time, but here are some highlights of the compromise bill as provided by unofficial sources:

• The current tax rates will be kept in place for individuals making less than   $400,000. Incomes above $400,000 ($450,000 for married taxpayers, $425,000 for heads of household) will be taxed at 39.6%. 
• Capital gains rates will be raised from 15% to 20% for taxpayers in the 39.6% bracket.
• Qualified dividends will continue to be taxed at capital gains rates.
• The estate tax rate will rise to 40% (up from 35%) with an exemption of $5 million.
• A one-year extension of unemployment benefits will be provided.
• There will be a two-month delay on the automatic spending cuts.
• Tax credits established under President Obama’s economic recovery program will be extended for 5 years.
• The American Opportunity Tax Credit (tuition credit) will be extended for 5 years.
• The alternative minimum tax (AMT) will be made permanent with the exemption being inflation-adjusted in future years.
• Itemized deductions and personal exemptions for households will be phased out for those making more than certain amounts.
• A host of individual provisions will be extended, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for state and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
• Key business tax breaks will be extended such as depreciation provisions, including bonus depreciation, and the research and work opportunity tax credits.
• There will be no extension of the 2% payroll tax deduction.

This is an evolving story, so we will keep you updated as additional information and details become available.

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Happy New Year!

We would like to take this opportunity to thank you for your continued patronage of our firm and wish you and yours a very happy New Year. We look forward to working with you on the preparation of your 2012 returns this tax season.

If you have questions related to income, deductions, credits, or preparing for your appointment, please call.

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