The IRS has announced a delay to the start of e-filing of individual returns. Originally scheduled to begin on January 22nd, 1040 e-filing is now set to begin more than week later on January 30. Additionally, the IRS also indicated that several other types of taxpayers will be impacted and not able to file until late February or early March. These include those who are subject to the alternative minimum tax (AMT), depreciation, Schedule A filers, and those with residential energy credits.
Why the Delay?
The IRS has cited the need to finalize forms and complete programming and testing of its processing systems after passage of the American Taxpayer Relief Act (the "Fiscal Cliff deal").
Who Does this Affect?
This delay affects everyone, particularly those who receive tax refunds. Because of the later start to the filing season, no refunds will be received in January. Disbursement of refunds will begin in February.
What Can You Do?
We would like your information as soon as it is available in order to prepare for quick filing once it opens up. However, we will not have answers immediately for you. We will handle everything as best as we can and we're gathering resources for the task and making plans to ensure a smooth tax season for our clients.
For Those Paying AMT...
Alternative minimum tax (AMT) is a parallel tax that has excluded certain deductions, like state and local income taxes that help lower income levels and taxes, for people making a certain amount of money each year. That means taxpayers in AMT brackets have had to figure out which tax is more - the AMT or regular taxes - and then pay the higher amount.
Up until now, the AMT has never been indexed to inflation, so every year more Americans were caught in its brackets as their salaries inched up. Congress has traditionally created patches in years past to keep the AMT from hitting more taxpayers. Without the current fix, the 2012 exemption for a married couple would have been $45,000; with the fix it will be $78,750 for 2012. This difference would have meant nearly 30 million additional folks falling into the AMT. The 2013 exemption indexing has not yet been computed by the IRS, but it is expected to be approximately $80,800.
So while many believe the fiscal cliff deal only impacts 2013 forward, note that AMT was retroactively affected.
Regarding Itemized Deductions...
The media has mischaracterized the way itemized deductions will now be handled. Despite what you may have heard, the fiscal cliff deal does not cap itemized deductions.
The "Pease provision" (named after the congressman who introduced it) is an old limitation that has now resumed. It puts into play limitations on itemized deductions based on income over $300,000 for married couples and $250,000 for singles. This affects 2013 and beyond. Taxpayers with adjusted gross incomes above the threshold are taxed on an extra amount equal to 3 percent of the excess income over the threshold. So if a couple has $800,000 of adjusted gross income, Pease adds in an extra taxable amount of $15,000 (3 percent of the $500,000 excess income) on which the couple pays $5,940 of extra tax if they're in the 39.6 percent bracket.
What does this have to do with itemized deductions? Nothing really. That $15,000 in extra taxable income means that couple must subtract $15,000 from the itemized deductions that they would otherwise claim. If the couple has $100,000 of charitable contributions, mortgage interest, state and local taxes, and other itemized deductions, Pease reduces the allowable deduction to $85,000. Deducting $85,000 rather than $100,000 makes taxable income $15,000 higher, but does not change the incentive to give to charity or increase other itemized deductions.
Hope you're having a great start to the New Year, and start sending us your files!
- Maco & Associates