Although the 2013 Income Tax filing season is now in full effect, there may be a number of taxpayers whom will not be able to file their personal income taxes just yet.  After the 112th Congress passed legislation to avoid the much publicized and infamous Fiscal Cliff this past January, the Internal Revenue Service found they had to work quickly to ensure their ability to process the estimated 120 million tax returns in accord with the laws laid out by the American Taxpayer Relief Act (ATRA). Considering the immensity of the task, although they had to push back the original kick-off date of January 22^nd, the IRS did a pretty good job of setting the groundwork for processing the bulk of the tax returns beginning on January 30^th.   However, certain aspects of the legislature caused a number of forms to require additional attention.  As a result, a number of forms dealing with a wide array of credits and other reporting (such as the education credit, among others) have been delayed, and are being release individually.  To help alleviate the confusion brought on by this, the service has published a website listing all the forms affected and their estimated release dates.  The list is long, and many of the forms you not even realize you need.  Be sure to contact your tax preparer to learn whether this will affect you, and how.  As usual, feel free to contact anyone on our staff with questions regarding this.

The American Taxpayer Relief Act of 2012 (ATRA) extended the qualified charitable distribution (QCD) provisions for 2012 and 2013. Several special transition rules were included in ATRA to enable taxpayers to have a donation made before February 1, 2013, treated as a 2012 QCD.

A QCD is an otherwise taxable distribution from an IRA (other than an ongoing SEP or SIMPLE IRA) owned by an individual who is age 70½ or over that is paid directly from the IRA to a qualified charity. An IRA owner can exclude from gross income up to $100,000 of a QCD made for a year, and a QCD can be used to satisfy any IRA required minimum distributions (RMDs) for the year. Also, the amount of a QCD excluded from gross income is not taken into account in determining any deduction for charitable contributions. (See Notice 2007-7, Section IX, for additional information on QCDs.)

2012 QCDs Made in January 2013

An IRA owner can treat a contribution made to a qualified charity in January 2013 as a 2012 QCD in either of the following circumstances:

• The contribution is a cash contribution to the charity of all or a portion of an IRA distribution made to the IRA owner in December 2012, provided that the contribution would have been a 2012 QCD if it had been paid directly from the IRA to the charity in 2012.
• The contribution is paid directly from the IRA to the charity, provided that the contribution would have been a 2012 QCD if it had been paid in 2012.

IRA owners should keep records to substantiate the timing of contributions and distributions regarding any 2012 QCD made in January 2013.

A QCD made in January 2013 that is treated as a 2012 QCD will satisfy the IRA owner’s unmade 2012 RMD if the amount of the QCD equals or exceeds the 2012 RMD. However, no part of such a QCD can be used to satisfy the 2013 RMD, even if the 2012 RMD had already been made. In determining the RMD for 2013, the 2012 QCD must be subtracted from the December 31, 2012, IRA account balance(s).

Reporting

Form 1099-R – IRA trustees must report distributions as follows:

• Distributions made in 2012 are reported on a 2012 Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc.; and
• Distributions made in 2013, including any 2012 QCDs made in January 2013, are reported on a 2013 Form 1099-R.

Form 1040 – IRA owners must report 2012 QCDs made in January 2013 on their 2012 Form 1040 by:

• including the full amount of the 2012 QCD (even if in excess of $100,000) on line 15a; and
• not including any amount on line 15b, but writing “QCD” next to line 15b.

Note.  A 2012 QCD made in January 2013 must also be reported on the IRA owner’s 2013 Form 1040. These reporting requirements will be reflected in the 2013 Instructions for Form 1040.

IRA owners must file a 2012 Form 8606, Nondeductible IRAs, with their 2012 Form 1040 if:

• the 2012 QCD was from a traditional IRA, there was basis in the IRA owner’s traditional IRA(s), and the IRA owner received a distribution from a traditional IRA in 2012, other than the 2012 QCD; or
• the 2012 QCD was from a Roth IRA.

If a 2012 Form 8606 must be filed, the instructions to the form will describe how to report any 2012 QCD made in January 2013.

Source: http://www.irs.gov/Retirement-Plans/Charitable-Donations-from-IRAs-for-2012-and-2013

Updated information will be posted on IRS.gov.

IRS Plans Jan. 30 Tax Season Opening For 1040 Filers

IR-2013-2, Jan. 8, 2013

WASHINGTON — Following the January tax law changes made by Congress under the American Taxpayer Relief Act (ATRA), the Internal Revenue Service announced today it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30.

The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers — more than 120 million households — should be able to start filing tax returns starting Jan 30.

The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension.

“We have worked hard to open tax season as soon as possible,” IRS Acting Commissioner Steven T. Miller said. “This date ensures we have the time we need to update and test our processing systems.”

The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file with direct deposit.

“The best option for taxpayers is to file electronically,” Miller said.

The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. While the IRS worked to anticipate the late tax law changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns.

The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electronically last year.

Who Can File Starting Jan. 30?

The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.

Who Can’t File Until Later?

There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future.

The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.

As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances.

*Sourse: http://www.irs.gov/uac/Newsroom/IRS-Plans-Jan.-30-Tax-Season-Opening-For-1040-Filers

Here's a little bit of valuable information in a format that is easy to read.  Remember, the numbers on this table are what is known as net taxable income.  Your net taxable income may be very different from your Gross Income and your Adjusted Gross Income (AGI). Consult your tax preparer or contact us for more information.

We keep you informed of the most important changes:

Extension of the tax cut through 2012 will reduce taxes for nearly three-quarters of tax units by an average of about $770.* Average tax savings rise with income from an average of about $140 for tax units in the bottom quintile with workers to nearly $1,900 for those in the top quintile.

Extend the Payroll Tax Cut through 2012

Funds to pay Social Security benefits come from two sources, the Federal Insurance Contributions Act (FICA) imposed on workers and the Self Employment Contributions Act (SECA) imposed on people who run their own businesses. Workers and their employers each pay 6.2 percent of wages up to a maximum, $110,100 in 2012. Self-employed workers pay 12.4 percent of wages up to the same maximum, equal to the combined employee-employer rate.

The Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of 2010 reduced both FICA and SECA tax rates by 2 percentage points for 2011 in order to increase workers’ take-home pay and thus stimulate the economy through higher consumer spending. In December 2011, Congress extended the rate cut for two additional months through February 2012.

In the 2013 budget, the president proposed further extending the rate cut through all of 2012 at an estimated cost of $94 billion in fiscal years 2012 and 2013. Congress subsequently enacted that extension in the "Middle Class Tax Relief and Job Creation Act of 2012."

*source: http://taxpolicycenter.org

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