The South Bay Tax Report
October 31, 2012
It's Halloween at Wayland & Vukadinovich
Those of you who know us know that we're a fairly wild and crazy bunch (for accountants!)
Wild Friday night parties studying Section 179 of the Internal Revenue Code, weekend trips to Las Vegas where we cruise the streets exploring whether to elect S corporation status, and of course, Halloween.
Mike went all out this year, dressing up as an
income-producing Master Limited Partnership.
Gary was a bit more restrained, electing to dress as a Miscellaneous Deduction.
The parties we have!!!!!!
We hope you all had a safe and enjoyable Halloween
AND
We remind you to VOTE on November 6th
assuming you have not already done so.
Let's Look at Some Numbers...
As we near year end, we generally try to assist you with questions regarding whether you should take income this year or next, whether you should find deductions this year or next, and whether it's advisable to accelerate or postpone major tax related decisions.
This year, that task is much more complicated as
we actually don't have any clue where rates are headed next year.
Our suspicion is that Congress and the President will reach a grand agreement minutes before December 31st but
there are a few numbers that are based on inflation adjustments that we can provide you now:
- Starting in 2013, you can gift $14,000 to any one individual (and your spouse can gift another $14,000 to the same person). That amount is up from this year's $13,000, and we shouldn't have to remind you but there are nine of us here at Wayland & Vukadinovich so that means you could send us NINE times $14,000 or $126,000, a small price to pay for good tax advice. Remember, these gifts are not tax deductible to you or reportable by the recipient but they can reduce your estate which can reduce your estate tax;
- Starting in 2013, you can increase your 401k or 403b contribution to $17,500, up from $17,000 this year. The catch up for those of you who will admit to being over 50 years of age is still $5,500. Take advantage of that 401k at work - it's a great way to save taxes AND save for that retirement;
- Starting in 2013, you could pay a bit more in social security taxes as the wage base goes from $110,100 this year to $113,700 next year. That $3,600 wage base increase could cost you as much as $223 in additional tax;
- Starting in 2013, those of you playing professional hockey in Canada, consulting in Hong Kong, cooking in Spain, or exploring in East Timor, can exclude $97,600 in foreign earned income from US tax. That's up from $95,100 in 2012;
- Starting in 2013, you can make a $5,500 contribution to your IRA or Roth, an increase of $500 from last year. Your income must meet certain limits to qualify. You can still make an additional $1,000 contribution if you are over 50 years of age.
A Kindler and Gentler IRS?
Well, perhaps....
The IRS has announced a major expansion of the "Fresh Start" initiative.
Fresh Start was first introduced in 2008 to help taxpayers address their tax liabilities, and assists taxpayers in penalty relief, installment agreements, and offers in compromise.
The new Fresh Start provisions allow more taxpayers to qualify for installment agreements.
Effective immediately, taxpayers owing taxes of $50,000 or less can begin an installment agreement without supplying the IRS with a financial statement and qualifying taxpayers may enter into a payment plan extending payments to as many as seventy-two months.
Remember, interest still applies and you can set up the agreement online at
IRS Installment Agreements
What is a 529 Expense?
Many of you have invested in 529 plans to pay for your child's college education, but when it comes time to pull the money out, note that not all the expenses your son or daughter may incur qualifies for tax-free treatment that makes these state sponsored college savings plans so valuable.
Take the test below and tell us which of these college-related costs qualify (see answers below):
- Tuition
- Course books
- Gas for commuter student to drive to campus
- Airfare home for the holidays
- On-campus room and board
- Mini-fridge for dorm purchased at Home Depot
- Off-campus housing costs
- Off-campus snacks
- Beer keg
- Frisbee for intramural Frisbee team
- Laptop that is not officially required by college
- Calculator required by professor
- Fraternity dues
- Portion of off-campus living costs in excess of the school's published cost of attendance
How did you do?
Yes - Items 1,2,5,7,12
No - Items 3,4,6,8,9,10,11,13,14
Social Security benefits
If you've been receiving social security benefits, there's news ahead as the Federal government announced that benefits will increase by 1.7% - an average of $19 per month for many people - starting next year.
Social Security payments average $1,131 a month or about $13,570 a year so a 1.7% increase amounts to a $19 increase each month or about $230 a year.
My father used to say that those social security increases he saw were given to him because he was such an exceptional retired person, that he deserved the raise.
Californians' Tax Burden Increases
California residents paid 11.2% of their income in state and local taxes in 2010, the 4th highest tax burden of any state, according to annual rankings by the Tax Foundation, a nonpartisan research group.
The only states with higher 2010 burdens were New York, New Jersey, and Connecticut.
New Jersey has high rates AND the Sopranos so who would want to live there!
The report adds up all state and local taxes paid by the State's residents - including income, property, and sales taxes.
Can you help me with my refinance?
Once again, rates are headed lower, and once again, you've reached out to us to assist you in your quest for the PERFECT home mortgage interest rate, asking that we provide your banker with electronic copies of your tax returns, letters explaining that South American oil drilling partnership that went bankrupt, and other information that those intrusive underwriters seem to need to refinance.
Remember - we're happy to honor your requests for electronic copies of your documents (usually, at no charge) although we can only provide YOU with a copy as we can't provide copies to 3rd parties without your signed, original, written authorization. Note also that letters and other responses you or your underwriters might ask us to provide will usually generate a billing -
we're thrilled to help but we have to make a living!
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