Winther & Co Blog
We will be periodically releasing helpful tips on tax advice to help you and your business right here in Simi Valley.
IRS Fresh Start Program Helps Taxpayers Who Owe the IRS
IRS Tax Tip 2013-57, April 17, 2013
The IRS Fresh Start program makes it easier for taxpayers to pay back taxes and avoid
tax liens. Even small business taxpayers may benefit from Fresh Start. Here are three
important features of the Fresh Start program:
• Tax Liens. The Fresh Start program increased the amount that taxpayers can owe
before the IRS generally will file a Notice of Federal Tax Lien. That amount is now
$10,000. However, in some cases, the IRS may still file a lien notice on amounts less
When a taxpayer meets certain requirements and pays off their tax debt, the IRS may
now withdraw a filed Notice of Federal Tax Lien. Taxpayers must request this in writing
using Form 12277, Application for Withdrawal.
Some taxpayers may qualify to have their lien notice withdrawn if they are paying their
tax debt through a Direct Debit installment agreement. Taxpayers also need to request
this in writing by using Form 12277.
If a taxpayer defaults on the Direct Debit Installment Agreement, the IRS may file a new
Notice of Federal Tax Lien and resume collection actions.
• Installment Agreements. The Fresh Start program expanded access to streamlined
installment agreements. Now, individual taxpayers who owe up to $50,000 can pay
through monthly direct debit payments for up to 72 months (six years). While the
IRS generally will not need a financial statement, they may need some financial
information from the taxpayer. The easiest way to apply for a payment plan is to use
the Online Payment Agreement tool at IRS.gov. If you don’t have Web access you
may file Form 9465, Installment Agreement, to apply.
Taxpayers in need of installment agreements for tax debts more than $50,000 or longer
than six years still need to provide the IRS with a financial statement. In these cases,
the IRS may ask for one of two forms: either Collection Information Statement, Form
433-A or Form 433-F.
• Offers in Compromise. An Offer in Compromise is an agreement that allows
taxpayers to settle their tax debt for less than the full amount. Fresh Start expanded
and streamlined the OIC program. The IRS now has more flexibility when analyzing a
taxpayer’s ability to pay. This makes the offer program available to a larger group of
Generally, the IRS will accept an offer if it represents the most the agency can expect to
collect within a reasonable period of time. The IRS will not accept an offer if it believes
that the taxpayer can pay the amount owed in full as a lump sum or through a payment
agreement. The IRS looks at several factors, including the taxpayer’s income and
assets, to make a decision regarding the taxpayer’s ability to pay. Use the Offer in
Compromise Pre-Qualifier tool on IRS.gov to see if you may be eligible for an OIC.
Additional IRS Resources:
Online Payment Agreement tool
Fresh Start Notice of Federal Tax Liens
Form 12277, Application for Withdrawal
Understanding a Federal Tax Lien
Offer in Compromise Pre-Qualifier tool
Offer in Compromise
Electronic Payment Options Home Page
Payments (payment options)
Home Office Deduction: a Tax Break for Those Who Work from Home
Here is a tip from the IRS when it comes to Deductions Home Business on your tax return.
IRS Tax Tip 2013-36, March 19, 2013
If you use part of your home for your business, you may qualify to deduct expenses for the business use of your home. Here are six facts from the IRS to help you determine if you qualify for the home office deduction. Generally, in order to claim a deduction for a home office, you must use a part of your home exclusively and regularly for business purposes. In addition, the part of your home that you use for business purposes must also be:
your principal place of business, or a place where you meet with patients, clients or customers in the normal course of your business, or a separate structure not attached to your home. Examples might include a studio, workshop, garage or barn. In this case, the structure does not have to be your principal place of business or a place where you meet patients, clients or customers.
You do not have to meet the exclusive use test if you use part of your home to store inventory or product samples. The exclusive use test also does not apply if you use part of your home as a daycare facility.
The home office deduction may include part of certain costs that you paid for having a home. For example, a part of the rent or allowable mortgage interest, real estate taxes and utilities could qualify. The amount you can deduct usually depends on the percentage of the home used for business.
The deduction for some expenses is limited if your gross income from the business use of your home is less than your total business expenses.
If you are self-employed, use Form 8829, Expenses for Business Use of Your Home, to figure the amount you can deduct. Report your deduction on Schedule C, Profit or Loss From Business.
If you are an employee, you must meet additional rules to claim the deduction. For example, in addition to the above tests, your business use must also be for your employer’s convenience.
Deductions Home Business On Your Taxes
For more information, see Publication 587, Business Use of Your Home.
It’s available at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:
Form 8829, Expenses for Business Use of Your Home
Schedule C, Profit or Loss From Business
Publication 587, Business Use of Your Home
IRS YouTube Videos:
Home Office Deduction – English | Spanish | ASL
Page Last Reviewed or Updated: 18-Mar-2013
Get Living Trust Forms Online
Living Trust Forms are very easy to find online. There are many businesses that offer Living Trust Forms online, or you can talk to a Living Trust Lawyer that can help you file a revocable living trust for your family. We have found many companies that offer Living Trust lawyers, and the best, and most affordable lawyers were those at Legal Zoom. There are lots of reasons to have a lawyer. There is a lot to think about, like effective communication and payment structure. When it comes to filling for your Living Trust, you need many forms, and you must know how to correctly fill them out. This is why we suggesting using a revocable Living Trust Lawyer that we have provided by clicking any of the pictures or links to talk to a lawyer quick and affordable.
Living Trust Forms Online
Your case may languish if your attorney is too busy to help you deal with Living Trust Forms. Ask your lawyer up front whether they have adequate time for your case. They should be honest with regards to their schedule so you’re able to find a lawyer who has the time you need to get the job done of filling out your Living Trust Forms. Just because a lawyer is technically qualified doesn’t mean you need to work with them. You need their professional skills, but it’s important to also remember you will spend lots of time with them working. You need to get along personally if you wish for things to work out with your Living Trust.
Ask your attorney if he should come with you to every court appearances. Sometimes a court dates will just be formalities that you can deal with alone. If they are overconfident, consider hiring somebody else to handle your revocable Living Trust. Lawyers do a lot more than handle all sorts of cases. If you are filing for divorce or bankruptcy, you can call an attorney. They will help you on your feet and to a better place. If you think you’re lawyer isn’t giving it their best shot, remember that they also want to win. They have lots of experience in situations like these cases and know how to produce a winning outcome of getting your Living Trust Forms filled out correctly. There are certain cases where you absolutely must hire an attorney. These include any cases where a crime is charged, or if you are a party to some other case.
Filling out your Living Trust Forms and doing the correctly, Hire a Lawyer!
The state bar keeps records of any problems or complaints against the attorney. You should hire an honest attorney that’s going to represent you professionally and ethically when it comes to filling out your Living Trust Forms. You might not realize that lawyers must keep your attorney will be kept in strictest confidence. For instance, if you share a very personal matter that you do not want others to know, nothing can be discussed with your Living Trust Lawyer. Interview multiple Living Trust lawyers, even if the first one seems like they’ll work. Legal issues can sometimes take a long time; therefore, and you’ll need a lawyer you can stand to be around. Choosing well in the right lawyer can make a big difference.
Think about how much time and money you want to spend on a lawyer is going to cost you. You need to factor all of this into your finances. You don’t need to pay thousands of dollars for a case that just needs a much smaller amount of Living Trust Forms. You need to contact your lawyer of any changes in your situation changes. Regardless of the fact that these changes might have a negative impact on your case, your lawyer has to be made aware of what happened. The more time you give them to try to fix things, the less likely it is to hurt your case down the road when it comes to seeing your Living Trust Forms filled out correctly. Whatever reason brought you to hiring a lawyer, you must be ready for whatever comes. Be sure you do not forget the tips discussed here when you are ready to hire an attorney. You have been given great advice which will help create a smooth decision-making process of getting your Living Trust Forms filled out correctly with your lawyer.
Tips to Filing A DBA Online For Your Business
DBA Filing Online is a new legal way to get your fictitious business name under your corporation or limited liability corporation for doing business as a new name. We have scoured the internet for some of the best DBA Filing Online companies and found that Legal Zoom is the best source to file your DBA online. Do you have memories of the days when you decided to open a business? You likely poured in hours and read whatever you could about home businesses in the niche. Take the tips and tricks from this piece to heart so that you can be on top of your field. Discuss your expenses with an accountant or tax professional.Things like work spaces in the home and mileage are able to be written off so be sure you’re keeping track of your DBA Filing Online. Keep track of the miles you have to drive for business purposes.You can end up getting a large tax write off for your new filing of DBA.
One great way to find a lawyer is to ask your friends for referrals on a company that can DBA Filing Online like Legal Zoom. If a trusted friend had a good experience, then you will likely find them to be professional, courteous and follow through well on their cases. If a lawyer promises you the moon without even hearing the specifics of your issue, you should take your business elsewhere. Ask lawyers that you are considering for a list of their fees for DBA Filing Online. The charges can vary widely depending on the lawyer’s experience and skill; therefore, and it is smart to be aware of what you are going to pay before you retain him. Nothing is worse to a case than when you lose representation after a court case has begun. Companies that work with legal bigwigs may help you locate a great lawyer. For instance, if you’re dealing with small business law, talk to an estate broker, banker, an accountant, etc. These people interact with lawyers and may give a more informed DBA Filing Online forms.
DBA Filing Online Quick Easy
Figure out what you should pay a lawyer before hiring them. Most lawyers will allow you to pay their fees after your settlement has been received, but you should not hesitate to ask about payment plans for your DBA Filing Online.Look around when you visit a lawyer’s office to interview them.Are the books arranged in alphabetical order? Do you notice a messy desk full of paperwork and unkempt files on their desk? Is their coat neatly hung or just sprawled out somewhere? Regardless of the cause of your legal issue, you should always be professional and ready. This is why you should find lawyers that work for you! The information shared here with you should help you to feel more confident about the legal choices to get a DBA Filing Online.
Don’t try to operate your home business without out-of-pocket expenditures like DBA Filing Online. There are some free services you can take advantage of, but you need to be aware that sometimes you might have to pay money for certain tools in order to truly be successful. If you have youngsters in the family and find the cost associated with providing good care for them a burden, start a home business might be a good solution to get a good company for DBA Filing Online. You can work at home and take care of a child while you are able to make some money on the side as well. Choose a home based business that you like. If your business is enjoyable, you will exude enthusiasm that potential customers will take note of. This is extremely useful if you are working to broaden your products or business and need to file DBA online.
DBA Filing Online With Companies That Have Lawyers
A good rule to use for twice their cost to make the product. Some business may even charge close to three times what the cost of production. After all is said and done, you should be able to be enthusiastic about having a home business that you’re able to do well with. Although you want to be successful, you may have forgotten certain things or you may have needed motivation. Start putting these ideas to work for you right away in order to get your DBA Filing Online. go with the companies that people trust with Legal Zoom. Click on any of the banners to get started DBA Filing Online quick, easy, painless, and affordable.
How To File Divorce Online
File Divorce Online has never been easier with the legal system and the internet. If you are having marital problems and looking to File Divorce Online, the Legal Representatives at Legal Zoom and help you File Divorce Online and make it legal and official in any state that you reside in. Our legal advisors can help you File Divorce Online with our attorneys in every state. Do not spend thousands of dollars hiring an attorney to File Divorce Online, get it done quick and easy with Legal Zoom. See how we can help you by clicking the banners and filing your paper work online. Keep good records of all the contact that you interact with your lawyer. Write down any pertinent information like date and time, when you talked to each other, and what you talked about. This will allow you to take on any problems that can arise later about File Divorce Online.
File For Divorce Online
You do not always have to pay for your lawyer when you can File Divorce Online. There are quite a few public defenders who are great at their jobs at Legal Zoom. Lawyers help with things other than criminal defense. If you’re in a divorce or bankruptcy, you can use one to help you get what you deserve from the case. They will help you write out and understand contracts for Filing Divorce Online. You want to have the best communication possible with your lawyer on a regular basis.If your case has deadlines attached to it, then you need to provide all that your lawyer needs. This will only help your case to File Divorce Online with our legal representatives at Legal Zoom.
You have to be able to stay in contact with your lawyer when you are trying to File Divorce Online. One common complaints people have about lawyers is being unable to get in touch with their lawyer. You probably don’t want to wonder about things because he is out dealing with other divorce cases. If you hit another vehicle or another car hit you, you must be prepared to do what they ask of you when they ask it. There are specific legal guidelines that must be followed when it comes to automobile accident lawsuits. You can end up in a sticky situation if you fail to take your lawyer about Filing Divorce Online.
Communication is paramount when dealing with your lawyer when it comes to divorce paper work . Are they actively listening to your needs? Do they answer all the questions you comprehensive answers to your inquiries? Is your lawyer talking to you or at you? These questions are very important questions.If your lawyer is not communicating well with you, you should seek out a new one when you are trying to File Divorce Online.
There are countless lawyers out there who want your business, so you must take some time and see how one website compares to another, or just take our word for it, and choose Legal Zoom . Ask your lawyer about things that you can personally perform to cut down your expenses. You might be able to prepare the paperwork for your case. You may personally pick up any documents so your law office doesn’t add doing that to the courthouse when needed to cut down on expenses when it comes to File Divorce Online.
File Divorce Online Once and For All And Move On With Your Life
A useful tip to remember if you are skeptical about your lawyer is that you can always get another opinion. A second opinion can be a good idea before making any decisions to File Divorce Online. Ensure that you regularly contact your lawyer.If your lawyer takes a long time to get in touch, or does not properly explain what he is doing, or you did not make clear your expectations. If you haven’t set expectations, thank him and let him know to keep you apprised of anything that is happening to your case. If the second reason applies, you may have to find someone else to File Divorce Online.
Agree on when you will pay your lawyer before hiring a lawyer. Most lawyers will allow you to pay their fees after your settlement has been received, but you should not hesitate to ask about payment plans.
Take different factors in consideration when looking for a good lawyer. Use the information you have now gathered to help you make the best decision. Be a winner with the help of a great lawyer with your wants to File Divorce Online. Take our word for it, and choose a system that is easy to use, quick, painless, and our legal representatives at Legal Zoom with help you with your needs to File Divorce Online!
Important Facts about Mortgage Debt Forgiveness
If your lender cancelled or forgave your mortgage debt, you generally have to pay tax on that amount. But there are exceptions to this rule for some homeowners who had mortgage debt forgiven in 2012.
Here are 10 key facts from the IRS about mortgage debt forgiveness:
1. Cancelled debt normally results in taxable income. However, you may be able to exclude the cancelled debt from your income if the debt was a mortgage on your main home.
2. To qualify, you must have used the debt to buy, build or substantially improve your principal residence. The residence must also secure the mortgage.
3. The maximum qualified debt that you can exclude under this exception is $2 million. The limit is $1 million for a married person who files a separate tax return.
4. You may be able to exclude from income the amount of mortgage debt reduced through mortgage restructuring. You may also be able to exclude mortgage debt cancelled in a foreclosure.
5. You may also qualify for the exclusion on a refinanced mortgage. This applies only if you used proceeds from the refinancing to buy, build or substantially improve your main home. The exclusion is limited to the amount of the old mortgage principal just before the refinancing.
6. Proceeds of refinanced mortgage debt used for other purposes do not qualify for the exclusion. For example, debt used to pay off credit card debt does not qualify.
7. If you qualify, report the excluded debt on Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness. Submit the completed form with your federal income tax return.
8. Other types of cancelled debt do not qualify for this special exclusion. This includes debt cancelled on second homes, rental and business property, credit cards or car loans. In some cases, other tax relief provisions may apply, such as debts discharged in certain bankruptcy proceedings. Form 982 provides more details about these provisions.
9. If your lender reduced or cancelled at least $600 of your mortgage debt, they normally send you a statement in January of the next year. Form 1099-C, Cancellation of Debt, shows the amount of cancelled debt and the fair market value of any foreclosed property.
10. Check your Form 1099-C for the cancelled debt amount shown in Box 2, and the value of your home shown in Box 7. Notify the lender immediately of any incorrect information so they can correct the form.
Use the Interactive Tax Assistant tool on IRS.gov to check if your cancelled debt is taxable. Also, see Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments. IRS forms and publications are available online at IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:
Interactive Tax Assistant tool
Publication 4681, Canceled Debts, Foreclosures, Repossessions and Abandonments
Mortgage Forgiveness Debt Relief Act and Debt Cancellation
Form 982, Reduction of Tax Attributes Due to Discharge of Indebtedness
IRS YouTube Videos: Mortgage Debt Forgiveness
Beware of IRS Scam Emails
The IRS receives thousands of reports every year from taxpayers who receive emails out-of-the-blue claiming to be from the IRS. Scammers use the IRS name or logo to make the message appear authentic so you will respond to it. In reality, it’s a scam known as “phishing,” attempting to trick you into revealing your personal and financial information. The criminals then use this information to commit identity theft or steal your money.
The IRS has this advice for anyone who receives an email claiming to be from 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; and
- Do not click on any links in a suspicious email or phishing website and do not enter confidential information. Visit the IRS website and click on ‘Identity Theft’ at the bottom of the page for more information.
Here are five other key points the IRS wants you to know about phishing scams.
1. The IRS does not initiate contact with taxpayers by email or social media channels to request personal or financial information;
2. The IRS never asks for detailed personal and financial information like PIN numbers, passwords or similar secret access information for credit card, bank or other financial accounts;
3. The address of the official IRS website is www.irs.gov. Do not be misled by sites claiming to be the IRS but ending in .com, .net, .org or anything other than .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 their site and report it to the IRS;
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 they are not an IRS employee, contact the IRS at 1-800-829-1040 to determine if the IRS has a legitimate need to contact you. Report any bogus correspondence. Forward a suspicious email to email@example.com;
5. You can help the IRS and other law enforcement agencies shut down these schemes. Visit the IRS.gov website to get details on how to report scams and helpful resources if you are the victim of a scam.
Investment Tips For Retirement
Even very experienced investors can find the stock market difficult to navigate AND LEARN THESE investment tips for retirement. There is the chance to see big returns, but you can also see massive losses. Investing your money wisely will be easy thanks to the advice you’ve read here, so get started today!When you do buy stock, establish yourself a stopping point. When your stocks get to that point, sell immediately. However, if you think the stocks will rise again, hang on to them and wait a while. However, selling to minimize your losses is usually the best choice.Participate in an Internet investing forum. This type of forum will let you interact with other investors, and give you different strategies. You can share experiences and provide help for one another. If you join a forum, you’ll gain lots of investment tips that is not available elsewhere. Call Winther & company, Inc today at 805-5832720 to schedule an appointment on how you can plan for retirement with our certified financial advisors.
You should invest money in stocks that are damaged, but you should avoid companies that are. While you can get a great price on stocks during a temporary downturn, it is important to ascertain that it is indeed temporary. If a company misses a deadline because of a temporary situation, its stock can plummet as investors flee these investment tips. Some circumstances such as a financial scandal usually mean a company will never recover.Follow dividends of any business from which you purchase stock. This goes double for an investor who needs a steady income and can’t handle large losses, such as a retiree. When a company is profitable it usually pours the money back to the business or offers dividends to shareholders. It’s extremely important to know a dividend’s yield. This can be calculated by just knowing the annual dividends and dividing this number by the stock’s price.
When you start trading stocks, remember this cardinal rule of investment: Never invest money you cannot afford to lose. This is especially important when it comes to high-risk investments. Even if your investment choices are very safe ones, never forget that a total loss is always a possibility. The stock market is no place for money that you need for your everyday life expenses. When you first start out, keep things simple as you invest. It could be tempting to do the things you have learned right away, but if you’re new in investing it is good to focus on one thing that truly works and stick to it. This will reward you with smaller losses, bigger profits and a solid base of experience.
Cash isn’t necessarily profit. The flow of cash is vital to all financial operations, from your life to your investment portfolio. While is it nice to be able to reinvest some cash or spend some of your gains, you have to keep money on had so you can afford paying your bills. Try to retain a six month emergency savings balance, as a “just in case” precaution.There are many options for safe investment when it comes to investing in stocks. Use this advice to make safer and more successful stock market investments. Have you ever noticed that the things you buy every week at the grocery and hardware stores go up a few cents between shopping trips? Not by much…just by a little each week but they continue to creep up and up if you don’t use our investment tips.
You will be surprised at how much you can save by buying a twenty pound bag of rice as opposed to a one pound bag but don’t forget that it must be kept in a rat proof container. You can buy some clothing items such as men’s socks and underwear because those styles don’t change, avoid buying children’s and women’s clothing, those styles change and sizes change too drastically. Try to acquire and keep a two year supply of these items and you can save hundreds of dollars with these investment tips.
Call Winther & company, Inc today at 805-5832720 to schedule an appointment on how you can plan for retirement with our certified financial advisors
Fiscal Cliff Has Been Averted – The Tax Implications And Changes
The “Fiscal Cliff” has been averted as Congress passed the American Taxpayer Relief Act of 2012 on January 1, 2013. The Act allows the Bush-era tax rates to sunset after 2012 generally for individuals with income over $400,000 and families with incomes over $450,000, permanently “patches” the alternative minimum tax (AMT), revives many now-expired tax extenders, including the research tax credit and the American Opportunity Tax Credit, and provides for a maximum estate tax rate of 40 percent with a $5 million exclusion, as adjusted for inflation. What are the fiscal cliff tax changes from these implications?
In addition to an extension for most taxpayers of the lower individual income and capital gains tax rates, marriage penalty relief and more than 50 other tax benefits popularly referred to as the “Bush Tax Cuts,” the legislation makes over 100 changes to the Internal Revenue Code.
Highlights of the American Taxpayer Relief Act of 2012 include:
- 39.6% tax rate for incomes above $400,000 ($450,000 for families)
- 20% Maximum Capital Gains/Dividend Tax Rate
- All other Bush-Era Tax Rates extended
- Permanent AMT Patch
- Five-Year Extension of American Opportunity Tax Credit
- Two-Year Extension of Business Tax Extenders
Major Fiscal Cliff Tax Changes:
The major them for 2013 is “reflation,” or a continued recovery for personal and financial assets. Investors are still concerned with policymaker decisions to address fiscal concerns, and this poses some short term headline risk (headline risk being these short term reactions in the markets to the latest news). Still, 2012 proved to be a good year for equity investors in spite of the general disbelief that we are in a recession.
The National Association of Homebuilders reports a recovery in the housing market. The changing demographics of our country will aid with this recovery, as we saw a lull in household formations over the past few years. This is tied to people between 30-35 years old, which is a key demographic for household formation. The children of the 80s (Gen Y or the “Echo Boomers”) are hitting that key demographic.
Also, the personal debt to income ratio for our country improved from 130% to 100%. Personal balance sheets have improved from debt reduction and some recovery in home values as well as their investment accounts. Brian also cited pent up demand for cars as the average vehicle on the road these days is about 11 years old. We could also see spending for other durable goods which should aid consumption and further fuel the economy.
Overseas, Europe continues to struggle, but European financial failure could have been much worse and devastating to the global economy. European Central Bank actions to maintain the Euro has worked well. Even Draghi’s words even had a positive effect on the European markets (that they would do “whatever it takes” to maintain financial stability).
Emerging markets or developing countries have seen significant growth, and there is much positivity to cite for the consumer in those countries who now have more free cash flow than they ever have in the past. Oppenheimer never believed in a hard landing for China as they have trillions in reserves. Even if they cannot achieve double digit growth, a modest 7% growth creates the equivalent economic production of a Saudi Arabia or Poland.
Brian expressed Oppenheimer’s clear favor for equities. They are concerned about interest rate sensitive securities (bonds), and when it comes to bonds they recommend a barbell strategy. Many investors are overweight to high quality US BarCap Agg type allocations. They may be better served by this barbell which might be heavy in shorter duration, good credit quality on one side and high yield, senior floating rates on the other side.
Oppenheimer recommends a “new 60/40” which essentially is more global portfolio. Equitie exposure should include a significant amount of international and emerging markets, and bond exposure should also do that as well. Brian shared the example that 10-year sovereign debt securities from Brazil yields close to 10%.
What does that mean to us? Investors need to find a way to return to their long term strategic asset allocations, using a well-diversified, global, and professionally managed strategy.
Chad Smith CFP®, ChFC®, CLU
Our elected leaders started the New Year by passing the American Taxpayer Relief Act of 2012. This new
legislation solves the tax side of the fiscal cliff and delays the mandatory across the board spending cuts
that where scheduled to take place on January 1. For most Americans the new legislation permanently
extends the lower income tax rates that they have paid for the last 10 years. However, high-income
taxpayers, earning above $450,000 ($400,000 if single), tax rates will increase in several categories. In
addition, working Americans will be affected by the expiration of the Payroll Tax Holiday. In 2011 the
payroll tax was reduced from 6.2% to 4.2% and the American Taxpayer Relief Act failed to extend the
2% reduction. In addition, Americans earning $250,000 ($200,000 if single) will also be impacted by the
new tax increases from the Affordable Care Act. While elected leaders still have to address the mandatory
spending cuts and the federal debt ceiling in the coming months, most Americans now have some
certainty as to how tax policy will affect the 8 Wealth Management Issues®.
2013 Tax Overview
With the newly approved legislation in place, Americans can expect:
• Expiration of the Payroll Tax Holiday – Payroll taxes will increase from 4.2% to 6.2% affecting
• Income Tax Rates – Income tax will stay the same for most taxpayers that earn below the threshold
of $450,000 ($400,000 if single). Taxes will increase for those that make above $450,000 ($400,000 if
single) reverting to the top tax rate under the Clinton administration of 39.6%.
• Capital Gains and Qualified Dividend Rates – For taxpayers with income above $450,000 ($400,000
if single) capital gains rates and qualified dividend rates have been increased to 20%. For all other
taxpayers the rates remain the same at either 15% or 0%. For taxpayers with income above $250,000
($200,000 if single) the new 3.8% Medicare surtax will be added to the base rate.
• Permanent AMT Relief – The American Taxpayer Relief Act increased the 2012 AMT exemption to
$78,750 ($50,600 if single). This legislation also created a yearly inflation adjustment so that Congress
will not have to pass “AMT patches” on an annual basis.
• Personal Exemption and Itemized Deduction Phase Out – Both personal exemption and itemized
deductions will be phased out for taxpayers with income above $300,000 ($250,000 if single). (Since
2010, neither personal exemptions or itemized deductions have been phased out based on income.)
• Federal Estate and Gift Tax – The American Taxpayer Relief Act made permanent the $5,000,000
(adjusted for inflation) gift and estate tax exclusion beginning in 2013. This legislation also increased
the estate tax rate from 35% to 40%. The bill made “portability” permanent allowing a spouse to utilize
a deceased spouse’s unused exemption amount. The annual gift tax exclusion has been indexed for
inflation to $14,000 per year.
The American Taxpayer Relief Act of 2012
The Affordable Care Act
Effective now, the employee portion of the Medicare payroll tax will be 1.45% for the first $250,000
($200,000 if single) and 2.35% for income over $250,000 ($200,000 if single). In addition there will be
a new Medicare Excise Tax of 3.8% on investment income for taxpayers above $250,000 ($200,000
if single). This tax will be levied on interest, dividends, and distributions from non-qualified annuities,
royalties and rental income.
Steps to take:
• Evaluate Personal Spending – With the expiration of the Payroll Tax Holiday, Americans earning a
paycheck will see them decrease by 2%. For workers living paycheck to paycheck the 2% decrease in
take home pay could stretch monthly budgets.
• Look to Maximize Qualified Planning Opportunities – With income taxes increasing for some, taxpayers
should look to vehicles like 401(k) and defined benefit plans to reduce taxable income.
• Evaluate Portfolio Construction to avoid the Medicare Surtax – Consider tax-advantaged vehicles like
municipal securities. Look to place certain asset classes in qualified accounts while maintaining more
tax efficient asset classes in taxable accounts.
• Consider AMT Favorable Investments – For taxpayers subject to AMT, consider looking at AMT free
municipal securities and tax advantaged vehicles.
• Create a Written Plan – It is hard to know where you are going without knowing where you are. The
process of creating a written plan can assist a family in knowing if they are on track to meet their
personal goals and objectives.
In conclusion, Many Americans have delayed their personal planning waiting to see what would occur inside the
Washington Beltway. While there are many things yet to be resolved on Capitol Hill, we now have certainty
concerning the tax side of the fiscal cliff. Over the next few months, politicians will move on to the next
crisis. At the same time American families should begin implementing their personal planning strategies
by meeting with their Advisors to create a written plan. This begins with an investment and cash flow
plan which looks at a family’s specific goals and objectives. The second step also takes into account a
family’s cash flow, liquidity needs, risk tolerance, and family dynamics. The planning process is dynamic
and needs to be monitored to ensure that the plan stays current with changes in tax law and personal
All The Fiscal Cliff Tax Changes As A Result
The views and opinions presented in this article are those of Chad Smith and not of H.D. Vest Financial Services® or its subsidiaries.
Investments are subject to market risks including the potential loss of principal invested.
This information does not constitute tax advice. Please consult your tax adviser for complete information.
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