Generally, you’ll need to file a gift tax return for 2012 if, during the tax year, you made gifts:
- That exceeded the $13,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
- That you wish to split with your spouse to take advantage of your combined $26,000 annual exclusions, or
- Of future interests — such as remainder interests in a trust — regardless of amount.
If you transferred hard-to-value property, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, preventing the IRS from challenging your valuation more than three years after you file.
There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact us for details.
The deadline for 2012 IRA contributions is April 15, 2013. The limit for total contributions to all IRAs generally is $5,000 ($6,000 if you were age 50 or older on Dec. 31, 2012). Any unused limit can’t be carried forward to make larger contributions in future years.
So if you haven’t already maxed out your 2012 limit, consider taking advantage of one of these three contribution options by April 15:
1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2012 tax return. Account growth is tax-deferred; distributions are subject to income tax.
2. Roth. Contributions to a Roth IRA aren’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.
3. Nondeductible traditional. If your income is too high for you to fully deduct a traditional IRA contribution or make the maximum Roth IRA contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.
Want to know which option best fits your situation? Contact us.
Posted in Tax
Tagged Investment, IRA
The manufacturers’ deduction, also called the “Section 199” or “domestic production activities deduction,” is 9% of the lesser of qualified production activities income or taxable income. The deduction is also limited to 50% of W-2 wages paid by the taxpayer that are allocable to domestic production gross receipts.
Yes, the deduction is available to traditional manufacturers. But businesses engaged in activities such as construction, engineering, architecture, computer software production and agricultural processing also may be eligible.
The deduction isn’t allowed in determining net self-employment earnings and generally can’t reduce net income below zero. But it can be used against the AMT.
Contact us to learn whether this potentially powerful deduction could reduce your business’s tax liability.
Previously, employers could set whatever limit they wanted on employee contributions to Flexible Spending Accounts (FSAs) for health care. But starting this year, the maximum limit is $2,500.
If you’re concerned about a lower limit and aren’t contributing to a Health Savings Account (HSA), look into whether you’re eligible — you must be covered by a qualified high-deductible health plan. As with FSA withdrawals, HSA withdrawals for qualified medical expenses are tax-free. But the HSA contribution limits are higher: $3,250 for self-only coverage and $6,450 for family coverage, plus an additional $1,000 for taxpayers age 55 or older.
HSAs also may be more beneficial because they can bear interest or be invested and can grow tax-deferred similar to an IRA. Additionally, you can carry over a balance from year to year. If you have an HSA, however, your FSA is limited to funding certain “permitted” expenses.
An HSA also can provide a way to do some post-Dec. 31 tax planning: You have until the April filing deadline to make your contribution. Please contact us to learn whether you could benefit from an HSA.
While the many revived breaks under the American Taxpayer Relief Act of 2012 (ATRA) are good news for taxpayers, they would have been better news had they been signed into law earlier.
Because many breaks were retroactively extended back to Jan. 1, 2012, numerous IRS forms have to be updated accordingly. But the IRS couldn’t get started until after the changes were signed into law Jan. 2, 2013. And this means many taxpayers will have to wait to file their 2012 returns.
Both individual and business taxpayers are affected. Forms that need to be updated include those for:
- Qualified adoption expenses
- The general business credit
- The Work Opportunity credit
- The research credit
- Empowerment Zone and Renewal Community credits
- New Markets credits
- Various energy-related tax breaks for individuals and businesses
Some of these forms might not be updated until March. Please contact us if you have questions about when you can file your 2012 tax return.
Section 179 expensing allows businesses a 100% deduction for the cost of qualifying asset purchases. Its 2012 benefits were recently enhanced by the American Taxpayer Relief Act of 2012 (ATRA).
Sec. 179 expensing is subject to an annual limit, which is phased out if purchases exceed a designated threshold. So if total purchases are large enough, a business might not be eligible for any Sec. 179 expensing.
Before ATRA, the expensing limit for 2012 was $139,000, with a $560,000 phaseout threshold. The act increases these amounts to $500,000 and $2 million, respectively (the same amounts that applied in 2010 and 2011).
These increases mean not only that many smaller businesses can enjoy a larger tax benefit, but also that some larger businesses that previously wouldn’t have been eligible because their asset purchases were too high may now qualify.
The limits had been scheduled to drop to $25,000 and $200,000, respectively, in 2013, but ATRA also extends the higher amounts through 2013.
Many rules apply, so please contact us to learn if you qualify on your 2012 return — or discuss whether you should plan purchases this year to benefit from the break on your 2013 return.
The American Opportunity credit (up to $2,500 per year per student for qualifying expenses for the first four years of postsecondary education) and the Lifetime Learning credit (up to $2,000 per tax return for postsecondary education expenses beyond the first four years) reduce taxes dollar-for-dollar. Both a credit and a tax-free Section 529 plan or Coverdell Education Savings Account distribution can be taken as long as expenses paid with the distribution aren’t used to claim the credit.
But income-based phaseouts apply to these credits. If you don’t qualify because your income is too high, your child might. However, you must forgo your dependency exemption ($3,800 for 2012) for the child — and the child can’t take the exemption.
If your family incurred postsecondary education expenses in 2012, please contact us to determine how you can make the most of these credits.