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Tax Tips Newsletter
Serving you since 1993
January 2013 - Vol 8, Issue 1
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Greetings!
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Happy New Year! 2013 is the beginning of my 20th year in business. It really does not seem that long ago. It's a great acheivement and I'm so grateful for the continued support of all of my clients, associates and friends. I could not have done it without my wonderful support staff. Thank you all for 20 great years. I hope we have many, many more.

Now that the "fiscal cliff" issue has been settled, we can start looking forward to tax season. Please see the article below regarding the tax laws that were just passed.

A few notes to my California business clients. The state sales tax rate increased by .5% on January 1, 2013. There are also a few districts that changed so please refer to the State Board of Equalization website for changes.

For California employers, you should have already received your UI rate by mail. The ETT rate for 2013 is .01% and the wage limit is $7,000. There is no change from 2012. The SDI rate remains at 1% and the wage limit is $108,880 for 2013.

Our organizers have all been mailed. If you have not received yours, please call the office and let us know. We are looking forward to serving you this tax season.

Tax Turmoil
If you have been following all the political drama connected with the "fiscal cliff," you know that Congress finally passed legislation that dealt with the tax portion of the issue, leaving the spending half of the problem for later resolution. Here are the highlights of the new tax law, the "American Taxpayer Relief Act of 2012."

* The Bush-era income tax rates are extended permanently for all but taxpayers whose income exceeds $400,000 (single), $425,000 (head of household) or $450,000 (married couples filing jointly). Those higher-income taxpayers will have income above these threshold amounts taxed at 39.6%, and other taxpayers will pay at rates ranging from 10% to 35%.

* Long-term capital gains and dividends for taxpayers with income in the 39.6% bracket will be taxed at a top rate of 20%. Taxpayers in the two lowest ordinary income rates (10% and 15%) will have a zero percent rate on capital gains and dividends. Those in all other brackets will continue to have a 15% rate on capital gains and dividends.

* The alternative minimum tax is permanently "fixed," with 2012 exemption amounts set at $50,600 for singles and $78,750 for couples. These amounts will be adjusted annually for inflation.

* Itemized deductions and personal exemptions will again be limited for singles with adjusted gross income exceeding $250,000 ($300,000 for married couples).

* The estate and gift tax exemption is permanently set at $5,000,000 (with annual inflation adjustments), and the top tax rate is set at 40%.

* First-year expensing for business equipment purchases is increased for 2012 and 2013 to $500,000, with a $2,000,000 investment limit. 50% bonus depreciation is extended through 2013.

* The business research and development credit and the work opportunity tax credit are extended through 2013.

* Among the tax breaks reinstated for 2012 and 2013 are the educator expense deduction, the optional deduction for state and local sales taxes, the deduction for college tuition and fees, and the income exclusion for charitable distributions from IRAs for older taxpayers.

The new law has a number of other provisions that may have an impact on your tax and business situation. For additional information, contact my office.
Doctor
Recent focus has been on the fiscal cliff and the tax issues connected with it. But there are tax changes coming from another direction: the 2010 health care reform legislation.

Here are some of the changes that could affect you this year.

* Medical expense itemized deduction. The 7.5% income threshold for deducting unreimbursed medical expenses increases to 10% for taxpayers under age 65. Those 65 and older may continue to use the 7.5% threshold through the year 2016.

* FSA contributions. The limit on contributions to health care flexible spending accounts (FSAs) is lowered to $2,500.

* Medicare tax on earned income. A 0.9% Medicare surtax will be imposed on wages and self-employment income exceeding $200,000 for singles and $250,000 for married taxpayers filing a joint return.

* New Medicare tax on unearned income. A new 3.8% Medicare tax will be imposed on unearned income (investment income such as interest, dividends, and capital gains) for single taxpayers with adjusted gross income exceeding $200,000 and for couples with adjusted gross income exceeding $250,000.

These changes may affect your 2013 withholding or quarterly estimated tax payments. Take the changes into account as you begin your 2013 tax planning. For more information and planning assistance, contact my office.
Winter Reflection

Tax Tip of the Week: Did you know that there are some of the provisions in the new tax law that can affect your 2012 tax return? You may need to act quickly. Read this article and call me if this is something you can do for your 2012 return.

Business Tip of the Month: As a business owner there are many ways to have your profits stolen from you. Vendor fraud can be a major loss for your business. Check out this article for tips to alert you of any of these happening in your business.

Financial Tip of the Month: Since 2006 the IRS has given us the option to direct deposit our tax refunds. What could go wrong with that?? If you're depositing the refund into an IRA account, then everything could go wrong!!! My office will always ask you to double check your bank account numbers.. Read this article for more info.

Fraud Alert: When natural disasters strike, the good and bad in our fellow beings come out! Unfortunately the fraudsters will take full advantage of those that would want to help out others so beware of who you're giving money to. Read this article for more info.

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Sincerely,
Linda Heineman
Linda L. Heineman, CPA

phone: 626-577-0979