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Since 1968 |
Summer 2012 Newsletter |
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Greetings!
On behalf of the staff at Ciampi Tax and Financial Services, LLC, I take great pleasure in welcoming you to our Summer 2012 eNewsletter!
Holding true to our commitment to provide our clients with the most valuable tax information, we created this Summer eNewsletter to keep you informed of current tax issues, changes and pressing topics. Each article contains useful information such as the Euro Crisis, the new Health Care Reform Laws and tips to avoid identity theft.
2012 will be a volatile year with tax law changes and the financial markets due to the upcoming Presidential Election.
As always, we will keep you updated with the news and changes that impact you personally.
Please feel free to contact us with questions concerning this newsletter. We hope that you enjoy your summer.
Sincerely,
Donald J. Ciampi Sr. EA
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The Euro Crisis, Greece and the U.S. | |
Foremost on the minds of most investors today is the European debt crisis which continues to threaten the global economy. The future of the European common currency, the euro, hangs in the balance with Greece's participation, in particular, a matter of great debate. This uncertainty has driven the euro down about 13% versus the dollar over the last year and continues to weigh on the U.S. stock market. As of June 21st, 2012, the S&P 500 was down about 7% from its 2012 high though it is still up over 5% for the year. We believe that the euro will remain intact though there is more work to be done, including the stabilization of the Spanish banking system. Despite its flaws, the currency union has its benefits and still has a great deal of support. While the cost of bailing out various countries within the euro union is high, a Europe with a large number of currencies competing against one another for resources could be even worse. Greece may yet be forced out of the euro, but the recent elections in Greece seemed to affirm the commitment of the Greek people to retaining the common currency.
The ongoing debate in Europe and the massive bailouts that have been part of this debate, will probably weigh on the U.S. stock markets for the foreseeable future, but we are not expecting a dramatic drop in U.S. stocks. Corporate earnings have held up well and the S&P 500 has managed to climb over 22% from the October, 2011 lows despite the negative flow of news out of Europe. The euro crisis has also contributed to keeping interest rates low in the U.S. and abroad, which should help support stocks as well as overall economic conditions. Additionally, investors have been buying U.S. Treasuries as a safe haven which pushes interest rates lower and the Federal Reserve has shown no inclination to raise rates in the current environment. While we expect interest rates to rise, perhaps dramatically, at some point in the future, the current outlook for the bond markets is stable. The stronger dollar also helps U.S. markets by alleviating inflation concerns although it does make U.S. exports more expensive.
The situation in Europe remains unstable and the financial markets will continue to have trouble dealing with this uncertainty. However, we are optimistic that the European debt crisis will eventually be resolved without a dramatic meltdown in economic conditions either in Europe or the United States.
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| 2012 Health Care Reform Law | |
 On Thursday, June 28, 2012, President Obama won a huge battle in his fight for affordable health care. In a 5-4 decision, the Supreme Court upheld President Obama's Affordable Care Act, which includes an individual directive that requires most Americans to purchase health insurance. Due to this decision, President Obama's Affordable Health Care Act will be effective as of January, 2014.
With Obamacare now being official, more people in the United States will have health insurance. With this coverage, there will be a need for Americans to pay for health insurance through additional taxes.
Here are some of the new taxes you're going to have to pay for the new health care system beginning in 2013:
#1: A 3.8% surtax on "investment income" for taxpayers whose adjusted gross income is more than $200,000 ($250,000 for joint-filers).
Investment income is defined as dividends, interest, rent, capital gains, annuities, house sales, partnerships, etc.
#2: A tax increase on dividends for all taxpayers. Specifically, dividends (Ordinary and qualified) will be taxed at 18.8% in 2013 and if Congress does not extend the Bush tax cuts, taxes on dividends will rise from 15% to a shocking 43.8%.
#3: A 0.9% surtax on Medicare taxes for those making $200,000 or more ($250,000 joint).
#4: A "penalty" tax for those who don't buy health insurance. This will phase in from 2014-2016. It will range from $695 per person to about $4,700 per person, depending on your income.
The revenues generated from this tax will be allocated to the Medicare Trust Fund that is part of the Social Security System. That fund is currently on shaky financial footing. These additional revenues will shore up the Medicare Trust Fund.
While this is a big win for President Obama, the fight is not over yet. Republicans have begun to rally and have vowed to repeal the act. |
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Tax Law Changes | |
 With the start of Summer, the Olympics and the Presidential Primaries, we should also be prepared for some major tax law changes expected to be passed into law later this year. If passed, these changes may be made retroactive to January, 2012.
As in past years, these changes will most likely delay the tax filing season, or, if no changes are made, significantly lower many taxpayer's refund amounts in the 2013 tax season. While new issues will likely arise in the coming months, here is what we know currently-and what taxpayers should plan for:
Alternative Minimum Tax
Every year a number of tax breaks expire or are retroactively reinstated, and, in many cases, few people notice. In fact, several money-saving tax breaks expired on December 31, 2011, and one of those concerned the exemption amounts attached to the dreaded Alternative Minimum Tax (AMT).
The AMT is a complex and separate tax system on top of the regular tax system. In short, this is an additional tax that targets high income households that typically qualify for numerous tax benefits. These benefits allowed individuals to owe substantially less money under the tax code at that time. The AMT is calculated by using a separate set of rules that disallow many deductions and exemptions used in computing traditional tax liability, including state income tax or second mortgages. Also, because the taxable rate is not subject to inflation, over the last several decades more and more middle class taxpayers have been subject to it.
Four million taxpayers paid AMT in 2011, and more than 10 times that amount are expected to see their tax liabilities rise in 2012 if the AMT "patch" is not retroactively reinstated to the beginning of the year. Not only will more people be subject to the AMT in the 2012 tax year, but some common credits, including the Child and Dependent Care Credit and the Saver's Credit, will no longer be allowed against the AMT. This will significantly decrease client's refunds while simultaneously increasing tax liabilities.
In addition to the AMT changes, there are other tax deductions and credits that expired on December 31, 2011 that are no longer available to claim on a 2012 tax return. These include the:
- State and Local Sales Tax Deduction-allowed for taxpayers who have little or no state and local income taxes when itemizing deductions
- Educator Expense Deduction--$250 deduction per educator for eligible K-12 instructor for their out-of-pocket, un-reimbursed classroom expenses
- Tuition and Fees Deduction-deduction of up to $4,000 for qualified tuition and related expenses that you pay for yourself, your spouse, or a dependent
- Non-Business Residential Property Credit-the $500 credit for homeowners who make energy-saving and green-energy improvement
- Mortgage Insurance Premium Deduction-the IRS allows you to treat your mortgage insurance as an additional, itemized mortgage interest deduction
Remember the delay in the 2011 tax filing season due to late tax law passage and implementation? With the Presidential election and a new congress, we can expect that tax law changes will pass late in 2012, or even after the end of the calendar year. Either of these setbacks will delay filing for your 2012 Federal and State returns.
This is a BIG year for elections, and taxpayers' collective votes will impact your return. Stay informed throughout the year. Pay attention to the news and what your elected officials are saying about taxes. While politics may not be of interest to everyone, the results of this year's election could impact your wallet next year. |
| Compliance | |
 An IRS tax audit is a process where the IRS tries to confirm the details of your tax return to determine its accuracy. Most people have heard that the statistics of getting selected for an audit are slim. Of the approximately 140 million tax returns filed each year, only 1.6 million audits occur per year.
While it is true that the statistics are low, about 1 in 75 people will get audited. The statistics vary based upon filing status, amount of deductions, income levels and types of employment.
When it comes to getting selected for an audit, the process is not completely random. People who do get selected typically have a higher likelihood of having made an error or may have made fraudulent claims on their tax return. The main driving force for determining who gets audited starts with an IRS computer program. The IRS program will review and give each tax return a score, the higher the score, the higher the potential it has for an audit.
The program looks for individuals with high expenses and low income. For example, if you reported a low income and a mortgage payment of about the same amount, it will most likely give a high score due to the unlikelihood of you being able to pay for regular expenses after the mortgage. After the program scores the tax returns, these returns are then passed off to a person for checking and review. Typically about 10% of these end up in an audit after human review.
There are three different categories of audits. They are determined by the type, magnitude and amount of the assumed discrepancy. The three categories of audits are: correspondence, office and field.
Correspondence Audit:
This is the most common type of audit. This audit comes by letter and is done by mail. Typically the IRS will ask you to mail certain documentation to them supporting certain items that you filed on your tax return. Normal transactions that they ask for are stock transactions, sale of real estate documentation and details on other specific itemized deductions. Often these types of audits occur due to discrepancies in 3rd party documentation such as employer's W-2's; 1099's; stock sales; mortgage interest statements, etc.
Office Audit:
The office audit is a meeting set up with the IRS where they request specific documents that you should bring with you for support. The IRS will send a letter setting a time and date or requests that you call them up to setup an appropriate time. Mainly in these types of audits the auditors will only examine "significant" items on your tax return. These items include deductions, expenses and credits that don't match up with the average for your typical tax return.
Field Audit or Home Audit:
This is when you receive a notice that the IRS wants to come to your home or business for an audit. These are typically the most serious types of audits as the IRS top auditors are used in these situations. If you are selected for one of these audits, you are most likely self employed, own rental real estate or your income is well over $150,000.00
Regardless of the audit category, professional audit representation can be an invaluable asset to help you through the audit process. |
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Identity Theft | |
 Identity theft occurs when someone uses your personal information such as your name, Social Security number or other identifying information, without your permission, to commit fraud or other crimes. Thieves can do many things with stolen identities such as opening a credit card in your name, taking out a loan in your name, using your Social Security number to obtain government benefits, and filing tax returns in your name to fraudulently obtain a refund. Approximately 9 million Americans are affected by various types of identity theft each year.
Thieves can use a variety of methods to steal an identity including:
- Dumpster Diving--they rummage through trash looking for bills or other paper with your personal information on it.
- Skimming--they steal credit/debit card numbers by using a special storage device when processing your card.
- Phishing--they pretend to be financial institutions or companies and send spam or pop-up messages to get you to reveal your personal information.
- Changing Your Address--they divert your billing statements to another location by completing a change of address form.
- Old-Fashioned Stealing--they steal wallets and purses; mail, including bank and credit card statements; pre-approved credit offers; and new checks or tax information. They steal personnel records, or bribe employees who have access.
- Pretexting--they use false pretenses to obtain your personal information from financial institutions, telephone companies, and other sources.
Unfortunately, most Americans who have been affected by identity theft are unaware it has happened until they receive a call from a debt collection agency for a product or service they never received, they are denied for a car loan or home mortgage because of a questionable credit history, or they receive a notice from the IRS that more than one tax return was filed with their Social Security number.
While identity theft can happen to anyone, there are certain steps you can take to minimize your chances of being affected.
- Do not carry your Social Security card or any document(s) with your SSN on it.
- Do not give a business your SSN just because they ask. Give it only when absolutely necessary.
- Check your credit report every 12 months.
- Secure personal information in your home.
- Protect your personal computers by using firewalls, anti-spam/virus software, update security patches, use complex passwords for Internet accounts and change the passwords frequently.
- Don't give personal information over the phone, through the mail or on the Internet unless you have initiated the contact or you are sure you know who you are dealing with.
If you believe you have been affected by identity theft, there are steps you can take to begin to restore your good name. Filing a police report, checking your credit reports, notifying creditors, and disputing any unauthorized transactions are some of the steps you must take immediately to undo any damage to your credit report.
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