2012 tax returns: Important changes to note
It’s tax time and with all the recent and ongoing changes to rules and regulations in the tax code, it’s a smart move to invest in the services of a tax professional rather than try to tackle them on your own. Seriously, don’t you have enough to worry about? As a certified public accountant, the most common questions I have received so far this year are: “How is the fiscal cliff going to affect me?” and “What happened to my pay check – why is it lower?”
Bad news and good news
Everyone’s financial situation is unique and the tax code affects everyone in a different way. However, anyone receiving a paycheck in 2013 likely noticed that it’s slightly lower than their 2012 paychecks. Why? Among the regulations that were scheduled to change at midnight on Dec. 31, 2012 were the end of last year’s temporary payroll tax cuts and a two-percentage-point drop in employees’ share of Social Security tax. Because of this, your paycheck is lower. Even though a two-percentage-point drop doesn’t seem like much, for many, it’s costing them as much as their weekly coffee at Starbucks.
But there were also some good things that happened as a result of the American Taxpayer Relief Act of 2012 being signed into law on Jan. 2, 2013. Many of the Bush Administration’s tax cuts were extended, including the Residential Energy Tax Credit program. The residential energy credit remains at 10 percent, with a $500 maximum, and any credits taken in previous years are counted against the $500. No more than $150 can be claimed for qualifying furnaces and water heaters, $200 for qualifying windows, and $300 for qualifying biomass fuel stoves. It is also wise to check with your utility provider to see if they offer additional credits or rebates for upgrading to more energy efficient equipment.
Tax filing delays
Some other good news, the AMT exemptions were increased retroactively for 2012, the adoption credit for 2013 is higher than expected, and special rules will affect direct transfers from IRA’s to charity, qualifying them for tax free treatment. With all the late changes, the start of this year’s filing season was delayed to January 30th for many taxpayers; however, even more taxpayers will have to wait until late February to file at the earliest.
Related article: 2012 tax return
Who are these taxpayers? Anyone who will file IRS form No. 4562 for depreciation, 5695 for residential energy credits, 8582 for passive losses, 8839 for the adoption credit, 8863 for education credits and many more. For a complete list of forms subject to the filing delay visit the IRS website.
Aside from the many changes that may affect your 2012 tax return, there are a few longstanding tax codes that will be under direct scrutiny by the IRS for 2012, especailly if you are a business owner or work for a business owner. One such issue is the question of designating yourself as an employee versus contractor. Are you an employee or a contractor? More importantly did your business hire an employee or a contractor? Do you know why you should care?
There are very specific rules concerning this classification and the IRS plans to single out business returns and schedule C’s claiming contract labor expenses, making sure 1099-MISC forms have been filed and workers are properly classified. Another area under scrutiny will be schedule C losses and reported officer compensation of S-corporation shareholders. Many S-corporation shareholders are not aware that they need to receive a legitimate W-2 wage and make sure their shareholder dividends do not exceed their basis in the company.
No matter what your situation, it’s wise to invest in the advice of a professional. I say invest because chances are you will save more money than you spend by hiring a tax pro to tackle your specific tax situation. Make sure the person you hire takes time to get to know you personally. Taxes are a very complex, personal matter that is best handled by someone who knows and cares about how they affect you personally.