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Highlights: 2012 IRS Tax Forum
Here are some highlights from the IRS Tax Forum I attended last week:
The IRS has determined that victims of physical, mental, and financial abuse may qualify for relief from taxes, interest, and penalties resulting in connection with the abuse. Dispensations are made on a case by case basis and take many months to resolve. Elder and spousal abuse are the most frequently identified cases.
A couple of years ago the opportunity to payback Social Security benefits and begin drawing based on a later retirement age was circulated. The rules have changed. The payback is now restricted to one year of benefit.
Capital Gains taxes are scheduled to increase in tax year 2013.
Mortgage Debt Forgiveness expires at the end of 2012. Go to IRS Mortgage Debt Forgiveness Facts. for 10 Key Points. This is "Must Know" information for anyone facing foreclosure or short sale of a primary residence.
Medicare taxes will increase for high income households beginning tax year 2013: an additional 0.9% Medicare tax on wages over $200,000 for individuals and $250,000 for married couples filing jointly and the new law adds a 3.8% tax on high investment income earners, including interest, dividends, and other investment income.
There have been changes to Forms E and D, requiring additional information including the basis for investments.
W2's will now report employer cost for medical benefits.This will not affect taxable income, or the tax reporting for employers.
Identity Theft is a significant and growing problem.The IRS has added a layer of protection for tax payers who have been victims of ID Theft. The cases they are most concerned with are related to taxpayers whose social security number has been used in tax related fraud. However, victims of ID theft can notify the IRS and add security to their account as appropriate.
Focus on 1099 contract services: Rules for treatment of 1099 contractors versus W2 employees continue unchanged. However, use of 1099 status is more likely to trigger an audit for small businesses as communication between the IRS and State governments increases though the use of technology. There are stiff penalties for misclassification.
When 1099 contractors try to collect unemployment or worker comp benefits the cases are flagged by the State and may be reported to the IRS. California has passed state legislation with significant penalties to employers who misclassify employees as 1099 contractors. Any notice regarding the classification of a contract employee should be taken seriously, with immediate advice from a Tax Professional.
Every 1099 contractor must have a contract/agreement for services, perform duties largely independent of management, and have revenues from other "unrelated" sources.
Rental property depreciation is not discretionary. Tax payers who fail to include depreciation may not have the opportunity to reclaim the unused tax benefits at the time of sale. For tax purposes the basis will be calculated using the mandatory depreciation for rental properties, regardless of the taxpayers reporting in prior years. The end result is much higher exposure to taxable gains.
Estate tax legislation is due to expire on December 31st and revert to a 55% inheritance tax on estates greater in value than $1,000,000. For high net worth tax payers there remains many optional tax strategies. Gift and estate taxes are closely related/integrated. I strongly recommend seeking professional tax advice as part of substantial gifting and estate planning.