Thursday, January 31, 2013

IRS Promises Better Service as it Kicks off Tax Season

The Internal Revenue Service is promising more video conferencing assistance for taxpayers, social media tools and an improved Web site as it launched tax season Wednesday, along with stepped-up efforts to protect taxpayers from tax refund fraud and identity theft.

New and expanded services for taxpayers this year include a redesigned web site that the IRS said would be easier to navigate. Improved service options include more two-way video-conferencing assistance sites around the country. Social media tools are available on sites such as Tumblr, Twitter, Facebook, YouTube and LinkedIn.
The IRS began accepting and processing most individual tax returns Wednesday after updating forms and completing programming and testing of its processing systems to reflect the American Taxpayer Relief Act (ATRA) that Congress enacted on Jan. 2
The vast majority of taxpayers can file now, but the IRS cautioned that it is continuing to update its systems for some tax filers. The IRS will begin accepting tax returns from people claiming education credits in mid-February while taxpayers claiming depreciation deductions, energy credits and many business credits will be able to file in late February or early March. A full list of the affected forms is available on
This year, taxpayers have until Monday, April 15, to file their 2012 tax returns and pay any tax due. The IRS expects to receive more than 147 million individual tax returns this year, with about 75 percent projected to receive a refund.
Last year for the first time, 80 percent of all individual returns were filed electronically. E-file, when combined with direct deposit, is the fastest way to get a refund. Last year, about three out of four refund filers selected direct deposit.
The best way for taxpayers to get answers to their questions is by visiting, the IRS noted. Last year, the site received a record 340 million visits, a 17 percent increase over 2011.
This year, the redesigned Web site makes it easier for taxpayers to find key forms and vital information. The front page also includes links to redesigned pages to help with everything from refunds to specific tax issues. It also provides access to videos on the IRS YouTube channel.
Through, taxpayers can access Free File, which provides options for free brand-name tax software or online Fillable Forms plus free electronic filing. Everyone can use Free File to prepare a federal tax return. Taxpayers who make $57,000 or less can choose from approximately 15 commercial software providers. There’s no income limit for Free File Fillable Forms, the electronic version of IRS paper forms.
People earning $51,000 or less usually qualify for the Volunteer Income Tax Assistance program for free tax preparation and electronic filing, the IRS noted. Tax Counseling for the Elderly, a similar community-based volunteer program, offers free tax help with priority assistance to people age 60 and older, specializing in questions about pensions and retirement issues. Information on these programs can be found at
This year, the IRS is doubling the number of sites where taxpayers can get assistance through two-way video conferencing. During 2012, the program’s first year, about 14,000 taxpayers received assistance at 13 locations. Following a strong response to the virtual assistance program, the IRS plans to roll out 14 new sites. A list of the 27 available locations is on
For tax law questions or account inquiries, taxpayers can also call the IRS toll-free number 800-829-1040 (7 a.m. to 7 p.m. local time) or visit a taxpayer assistance center. Taxpayers should check for the hours and services offered at the location they intend to visit.

Apps and Social Media
For the third year, the IRS will offer IRS2Go, its smartphone application, which enables taxpayers to check on the status of their tax refund and obtain helpful tax information. The IRS2Go app, available for Apple and Android users, has been downloaded more than 800,000 times and used by taxpayers millions of times.
More helpful information is available through IRS social media platforms, including:
• YouTube, where viewers can watch more than 100 short, informative videos. They are available in English, Spanish, American Sign Language and other languages.
• The IRS also has several twitter feeds available for taxpayers in English and Spanish at @IRSnews or @IRSenEspanol. And @IRStaxpros covers news for tax professionals.
• For the 2013 filing season, the IRS has added Tumblr to its list of social media platforms.
People who want tax information now have another way of accessing and sharing helpful tax tips, videos, podcasts and other information at
The IRS only uses social media tools to share public information, not to answer personal tax or account questions. And the IRS reminds taxpayers to never post confidential information, such as a Social Security Number, on social media sites.

Check for a Refund
Even with the Jan. 30 opening of the tax season, the IRS expects to issue refunds within the usual timeframes. Last year, the IRS issued more than nine out of 10 refunds to taxpayers in less than 21 days, and it expects the same results in 2013.
After taxpayers file a return, they can track the status of the refund with the “Where’s My Refund?” tool available on the website. New this year, instead of an estimated date, “Where’s My Refund?” will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.
Here are some tips for using "Where's My Refund?":
• Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.
• The system updates every 24 hours, usually overnight. There’s no need to check more than once a day.
• “Where’s My Refund?” provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.
• To use the “Where’s My Refund?” tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their Social Security Number, filing status and the exact dollar amount of the refund they are expecting.
Taxpayers should remember that while most tax refunds are issued within 21 days, some tax returns need additional time to be reviewed. As part of that effort, the IRS has put in place stronger security filters this filing season to protect against refund fraud and identity theft.

Identity Theft
The IRS said that stopping identity theft and refund fraud would be a top priority, and the agency’s work on identity theft and refund fraud continues to grow. For the 2013 filing season, the IRS has expanded its efforts to better protect taxpayers, help victims and detect refund fraud before it occurs.
The effort includes stronger screening filters for incoming tax returns, increased IRS Criminal Investigation activity and expanded partnerships with local law-enforcement officials and financial institutions. More information is available in IRS Fact Sheet 2013-2.
By late 2012, the IRS assigned more than 3,000 IRS employees—more than double the number from 2011—to work on identity theft-related issues. IRS employees are working to prevent refund fraud, investigate identity theft-related crimes and help taxpayers who have been victimized by identity thieves. In addition, the IRS has trained 35,000 employees who work with taxpayers to recognize identity theft indicators and help people victimized by identity theft.
The IRS emphasized that it continues to increase its efforts against refund fraud, which includes identity theft. During 2012, the IRS protected $20 billion of fraudulent refunds, including those related to identity theft, compared with $14 billion in 2011.

Tuesday, January 29, 2013

IRS further delays acceptance of returns claiming education credits

On Monday, two days before the delayed Jan. 30 start of the 2013 filing season, the IRS announced a further delay in processing returns that contain Form 8863, Education Credits, which must be filed by people claiming the American opportunity and the lifetime learning tax credits (IR-2013-10). During testing, the IRS discovered that programming modifications must be made before the form can be processed correctly so returns that include the form cannot be filed until mid-February.
The IRS emphasized that returns claiming other education-related items, such as the student loan interest deduction and the deduction for higher education tuition or fees, can be filed beginning Wednesday, Jan. 30.
The IRS also noted that its website contains a list of 30 other forms that cannot be filed yet because the forms must be updated and systems for processing them tested. A date will be announced when returns containing these forms will be accepted, but that date will probably be late February or sometime in March.

Thursday, January 24, 2013

When to Use Tax Form 1099-C for Cancellation of Debt

In most situations, if you receive a Form 1099-C from a lender after negotiating a debt cancellation with them, you'll have to report the amount on that form to the Internal Revenue Service as taxable income. Certain exceptions do apply.
If your debt has gotten so large you can no longer afford to pay it, negotiating a debt cancellation with your lender might be just what you need in order to get by. Unfortunately, your next challenge might be a huge tax bill. In most situations, if you receive a Form 1099-C from a lender, you'll have to report the amount on that form to the Internal Revenue Service as taxable income. Certain exceptions do apply.

How the IRS classifies cancelled debt:
You might consider it unfair that a debt you successfully cancel or negotiate away comes back to haunt you as taxable income. However, the IRS classifies cancelled debt as income because you received a payment you didn't return.
When you first borrow money, you don't have to pay tax on the money you receive because you are bound by a contract to pay it back. Once that contract no longer exists, the money is yours to do with as you please. Since you essentially received income for free, the cancellation of your obligation to pay it back makes it taxable.

Form 1099-C:
According to the IRS, nearly any debt you owe that is canceled, forgiven or discharged becomes taxable income to you. You'll receive a Form 1099-C, "Cancellation of Debt," from the lender that forgave the debt. Common examples of when you might receive a Form 1099-C include repossession, foreclosure, return of property to a lender, abandonment of property, or the modification of a loan on your principal residence.

Mortgage forgiveness debt relief act:
Due to the magnitude of the concurrent real estate market collapse, Congress passed the Mortgage Forgiveness Debt Relief Act in 2007. For calendar years 2007 through 2012, you could exclude up to $2 million in forgiven mortgage debt if you were married and filing jointly -- up to $1 million for other filing statuses. This exclusion applied to mortgage debt forgiven through a mortgage restructuring or in connection with a foreclosure.

Bankruptcy and insolvency:
Even if you receive a Form 1099-C from a lender, you still may be able to avoid taxation on the forgiveness of a debt. If your debt was discharged in a Title 11 bankruptcy proceeding, such as a Chapter 7 or Chapter 13 case, you're not responsible for taxes on that debt.
If you can demonstrate to the IRS that you were insolvent at the time the debt was cancelled, you can similarly avoid taxes on that debt. Certain other types of debt, including qualified farm indebtedness and qualified real property business indebtedness, can also avoid taxation in the event of cancellation.

IRS Offers Advice for Coping with Delayed Tax Season

The Internal Revenue Service provided advice to taxpayers Wednesday on dealing with the late opening of tax season on January 30 that could also prove helpful to tax preparers.
For the first time this tax season, the "Where's My Refund?" tool will provide personalized refund timelines for taxpayers.
The IRS noted that it would begin processing most individual income tax returns on Jan. 30 after updating its forms and completing the programming and testing of its processing systems. The IRS contended that it had anticipated many of the tax law changes made by Congress under the American Taxpayer Relief Act, but the final law requires some changes before the IRS can begin accepting tax returns.
The IRS reiterated that it will not process paper or electronic tax returns before the Jan. 30 opening date, so there is no advantage to filing on paper before then. Using e-file is the best way to file an accurate tax return, the IRS insisted, and using e-file with direct deposit is the fastest way to get a refund.
Many major software providers are accepting tax returns in advance of the Jan. 30 processing date, the IRS noted. These software providers will hold onto the returns and then electronically submit them after the IRS systems open. The IRS advised taxpayers who use commercial software to check with their provider for specific instructions about when they will accept your return. Software companies and tax professionals then send the returns to the IRS, but the timing of the refunds is determined by IRS processing, which starts Jan. 30.
After the IRS starts processing returns, it expects to process refunds within the usual timeframes. Last year, the IRS issued more than nine out of 10 refunds to taxpayers in less than 21 days, and it expects the same results in 2013. Even though the IRS issues most refunds in less than 21 days, some tax returns will require additional review and take longer. To help protect against refund fraud, the IRS has put in place stronger security filters this filing season.
After taxpayers file a return, they can track the status of the refund with the “Where’s My Refund?” tool, which is available on the Web site. This year, instead of an estimated date, the Where’s My Refund? tool will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.
"Where's My Refund?" will be available for use after the IRS starts processing tax returns on Jan. 30. The IRS also provided several tips for using "Where's My Refund?" after it becomes available on Jan. 30:
• Initial information will generally be available within 24 hours after the IRS receives the taxpayer’s e-filed return or four weeks after mailing a paper return.
• The system updates every 24 hours, usually overnight. There’s no need to check more than once a day.
• “Where’s My Refund?” provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.
• To use the “Where’s My Refund?” tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their social security number, filing status and the exact dollar amount of the refund they are expecting.
For the latest information about the Jan. 30 tax season opening, tax law changes and tax refunds, visit

Sunday, January 20, 2013

5 Hidden Ways to Boost Your Tax Refund


While Americans may disagree on how their taxes are spent, at tax time, most of us are looking for ways to pay no more than we owe, or even boost our tax refunds. These five strategies go beyond the obvious to give you tried-and-true ways to reduce your tax liability.

Rethink filing status to boost your refund

One of the first decisions you make when completing your tax return, your filing status, can affect your refund's size, especially if you're married. While most married couples file jointly -- 96 percent did in 2009 -- a joint return is not always the most beneficial way to boost your refund. Married-filing-separately status requires more effort, but the time you invest offers tax savings under the right circumstances. Calculating your taxes both ways will point you in the higher refund direction. (When you use TurboTax, we’ll do this calculation for you and recommend the best filing status.)
The IRS uses a percentage of adjusted gross income -- AGI -- to determine whether some deductions can be used such as medical and certain miscellaneous expenses. Filing separately gives each spouse a lower AGI. If one of them has a lot of medical expenses, such as COBRA payments resulting from a job loss, computing taxes individually allows that spouse to reach the needed AGI percentage based on her own income.
Or, a spouse who spends a lot of time on the road and in the air might have travel expenses such as baggage fees that merit separate filing. Expenses can add up for an unemployed spouse looking for work -- long distance calls, resume preparation, career counseling and networking -- and could be a sleeping miscellaneous deduction that reduces taxable income. However, choosing to file individual returns has drawbacks, such as losing credits available to joint filers, that you must weigh to maximize your refund potential.
Tax reductions from claiming dependents can cut a single parent's tax bill when he files as head of household. You need to have one or more children who lived with you for more than six months, and paid more than 50 percent of the cost of keeping a home. Those costs include mortgage and rent, utilities, homeowner's or renter's insurance, repairs and food.
Single taxpayers who care for a parent may also qualify for the more advantageous head-of-household status if they paid more than half of that parent's main residence for the whole year. Your parent need not live with you; when you pay more than half of their cost to live in a home for seniors or rest home, you can claim head of household.

Don't shy away from tax deductions

Keeping a trip log for your volunteer work, job-hunting and doctor's appointments may seem like a waste of time, but those miles add up and represent deductions. Parking, toll and bus or taxi receipts support your claim, while a record of the miles you drove lets you write off the cost of using your car through the standard mileage rate. Good travel records could help you reach the needed minimum percentage of adjusted gross income for miscellaneous deductions.
Moving for a new job 50 miles or more away can boost your tax refund because you can deduct moving, storage and travel expenses related to your relocation. You have to work full time at the new job for at least 39 weeks the first year; however, you can take the deduction in the year you move if you expect to meet this time test within the following tax year. You don't have to itemize to get this tax break to lower your adjusted gross income. Simply figure your total using Form 3903 and attach it to your 1040 return.
Charitable deductions can help your refund cause, too. Record keeping lets you add up the dollars spent doing charity work, in addition to claiming the market value of any clothing or household things you donate. When you bake for a fund-raiser, the cost of your ingredients can be deducted, but not the value of the time you spent baking.

Maximize your IRA contributions

You have until April 15 to open a traditional IRA for the previous tax year. That gives you the flexibility of claiming the credit on your return, filing early and using your refund to open the account. Traditional IRA contributions reduce your taxable income. You can take advantage of the maximum contribution and, if you're at least 50 years old, the catch-up provision, to add to your IRA. If you contributed to a Roth IRA, you may be able to claim the retirement savings contribution credit that also lowers taxable income and result in a larger refund check.

Timing can boost your tax refund

Taxpayers who watch the calendar improve their chances of getting a larger refund. If you can, pay January's mortgage payment before December 31 and get the added interest for your mortgage interest deduction.
Schedule health-related treatments and exams in the last quarter of the year to boost your medical expense deduction potential.
Paying property taxes by New Year's Eve could make the difference between itemizing and taking the standard deduction, and thus, a bigger refund. If you're self-employed, you can pay your fourth-quarter state estimated taxes in December, rather than in January when they're normally due, to increase your itemizing potential.

Become credit savvy and refund happy

Credits work better than deductions as refund boosters. For each credit dollar, your taxes go down a dollar. Yet, 20 percent of eligible Americans don't claim the earned income tax credit. If you're working and meet the guidelines, you may be eligible for EITC even if you're single with no children. If you have kids, the child-care credit may help you.
For those with children in college, credits related to higher education expenses, such as the American Opportunity Tax Credit, could provide tax relief. “The American Opportunity Credit is great because up to $1,000 is refundable. That means you could receive as much as $1,000 even if you had no tax liability. "The total credit is $2,500 and applies only to the first four years of undergraduate higher education expenses. If you're in grad school or beyond, you may be eligible for the Lifetime Learning Credit."
Tax laws change frequently, and credits come and go, so staying informed can be financially rewarding. Credits for home improvements that save energy keep more money in your wallet throughout the year and at tax time. For example, an investment in an alternative energy heating system for your home could let you claim 30 percent of the cost through 2016. By keeping up with tax changes, you can plan how they might affect your cash flow.

Wednesday, January 16, 2013

Answers to Your Questions About the Fafsa.


Reporting Monetary Gifts

My husband received a monetary gift of $20,000 from his father. We were told by our tax people that, since it was a one-time gift, we do not need to claim it on our taxes. So this money will not show up in our taxes. Do we need to report this income on my son’s Fafsa? The gift was to my husband, not my son.

— Mary
The annual gift tax exclusion was $13,000 in 2012 and will be $14,000 in 2013. The amount your husband’s father gave him exceeds this amount. However, it can be treated as a joint gift from your husband’s father and mother; couples can give up to twice the gift tax exclusion without incurring gift taxes. In any event, gift taxes are paid by the person giving the gift, not the recipient. The one-time nature of the gift is irrelevant to the tax status of the gift.
The gift should not be reported on the Fafsa because it was given to your husband and not your son. Cash support to the student must be reported as untaxed income on the Fafsa. Cash support to the student’s parents is not reported on the Fafsa.
Cash support includes money, gifts and loans. It also includes food, clothing, housing, car payments, medical and dental care, insurance and college costs, as well as money paid to someone else on behalf of the student (i.e., money paid for expenses the student would otherwise be obligated to pay).

529 College Savings Plans

If a 529 college savings plan is held in a parent’s name with the child listed as the beneficiary, is the savings plan considered on the Fafsa as student savings (of which they are expected to use at a higher percent) or as a parent asset?
— Victoria Hamilton
The reporting of a 529 college savings plan as an asset on the Fafsa is based on the account owner, not the beneficiary.
The College Cost Reduction and Access Act of 2007 changed the treatment of 529 college savings plans starting with the 2009-10 award year. Any 529 plan that is owned by a dependent student or the dependent student’s parent is reported as a parent asset on the Fafsa. This includes the 529 plans for siblings.
Any 529 plans that is owned by an independent student or the independent student’s parent is reported as a student asset on the Fafsa.
Distributions from such 529 plans are not reported as income on the Fafsa.
Any 529 plan that is owned by someone else is not reported as an asset on the Fafsa, but any distributions from such a 529 plan are treated as income to the beneficiary.
If the parents are divorced and the 529 plan is owned by the noncustodial parent, the 529 plan is not reported as an asset, if the student is dependent. Distributions from such a 529 plan are treated as income to the beneficiary. If the student is independent, it is reported as a student asset and the distributions are ignored.

Financial Aid Planning for High School Freshmen

What can parents of a freshman do now to make the entire process easier when the time comes, and to make our child get the financial aid she needs?
— PB
It is never too soon to start preparing for college costs. Every dollar you save is about a dollar less you’ll have to borrow. The sooner you start saving for college, the more time there will be for the savings to grow from compounding interest.
Try to minimize income starting Jan. 1 of the junior year in high school. For example, avoid realizing capital gains, or offset them with capital losses. Need-based financial aid assessments are based on income during the previous tax year, so having higher income during that year may reduce eligibility for need-based financial aid.
It is also a good idea to start learning about financial aid. While financial aid rules change every year, it can help to familiarize yourself with the concepts and language of financial aid. That way you will not be intimidated by the alphabet soup of acronyms like Fafsa, E.F.C. (expected family contribution), S.A.R. (student aid report), and I.B.R. (income-based repayment).
You might also search for scholarships for high school students in younger grades., the College Board are just a few of the scholarship matching services available online. FinAid also provides a list of scholarships for children under age 13.

Federal Aid for International Students?

My child was born in Canada and has been living in California for 13 years with an H-4 Visa. Is my child eligible for any financial aid?
— Linda
Individuals with an H-4 visa are not eligible for federal student aid in the United States. They are considered to be international students.
Some colleges provide student financial aid to international students, but the funds are limited and there is a lot of competition. It might be best to see if your child is eligible for Canadian bursaries. There are many excellent Canadian colleges and universities.
Alternately, community colleges offer a low-cost education that may be affordable despite the lack of financial aid.

Updating the CSS/Financial Aid PROFILE

We completed and submitted the CSS/Financial Aid PROFILE in December in order to obtain a financial aid estimate from a school my son considered for early decision. He decided to apply regular decision. We know we want to send the CSS to several other schools. Some of our financial information has changed. How do we update the CSS? Should we also send the updated information to the first school?
— Laura
You cannot update the data on the CSS/Financial Aid PROFILE form for colleges that have already received the data. You should print out a copy of the PROFILE acknowledgment, mark corrections on this printout and send a copy of it to the colleges that have the old data.
When you add new colleges to the PROFILE form, you will have an opportunity to update the data on your PROFILE application. The updated data will be sent to only the new schools.

TurboTax has help for military taxpayers.

Through Feb. 14, TurboTax is letting enlisted and reservist military families file their taxes for free using its new military tax software.
The software covers tax-filing issues specific to U.S. military members, such as tax deductions or credits for uniforms, relocation, combat pay and travel or job training expenses.
The software is free for junior enlisted personnel. Those ranked E-g through officer can get the software at a discounted price.

Read more here:

Sunday, January 13, 2013

How to Approach Tax Planning for 2013.


So the new tax law doesn't seem too burdensome. But watch out as the increase in 2013 will surprise you. Those small changes in taxes can add up to be a big fat tax increase.

You could figure out the impact of the proposed tax changes through the interactive tax calculator sponsored by the Tax Policy Center, a nonpartisan group in Washington.  You may be surprised as how these small incremental changes add up.

For example, a single person making $354,000 annually with no children will pay an additional $7,000 in federal 2013 taxes versus 2012, when you factor in typical dividend income and capital gains, then account for deductions such as real estate taxes, mortgage and charitable contributions.

A married couple with no children that earn $415,000 a year will pay an additional $20,800 in federal taxes. The amount was calculated using the Tax Policy Center’s calculator and factoring in capital gains and dividends as well as deductions for taxes, mortgage interest and charitable contributions. The amounts are typical for individuals in this income category per the Tax Policy Center.

It's easy to calculate the American Taxpayer Relief Act’s impact by using the Tax Policy Center calculator, particularly at this time of year, when you are collecting your information for filing taxes. It is important to do this now, as there are steps you can take to minimize the impact of these increases for the 2013 tax year. Come December, it will be a lot harder to minimize its impact.

Here are a few strategies that you should consider:

If you have both taxable and nontaxable (traditional IRA and retirement plans) accounts, divide your investments so that your income-producing accounts, such as fixed-income and interest-income-producing assets are held in your tax-exempt account. Also include investments that may not be sold within 12 months, you don't want to be in a situation where you'll be paying short-term capital gains.

Your taxable accounts will ideally include long-term holdings that benefit most from capital appreciation, such as stocks. Presently, the federal government continues to tax dividend-paying stocks at a low 15 percent rate. However, if your income is at the $200,000 (single) and $250,000 (married) thresholds, the federal government tax rate on divided income increases to 18.8 percent. Add in Illinois state tax at 5 percent, and you are looking at 23.8 percent tax. So if you are in the upper income brackets, and there is any room left, consider including dividend stocks in your tax-deferred and/or Roth IRA.

Also, consider managing your deductions carefully. When you look at Schedule A Itemized Deductions, these deductions will be reduced for taxpayers with adjusted gross incomes of $300,000 (married) and $250,000 (individuals). Those deductions you took for granted on charitable contributions, state and local taxes, medical expenses and mortgage interest, to name a few, will be reduced.

It's hard to navigate all the changes and the ultimate impact on your situation, but for the money saved, it is most likely worth the effort. This is a time where your accountant or financial advisor can help.

Thursday, January 10, 2013

A Tax Planning Update

The "American Taxpayer Relief Act” prevents many of the tax hikes that were scheduled to go into effect this year and retains many favorable tax breaks that were scheduled to expire. Relief to high-income individuals is limited, albeit Congress raised the previously-anticipated threshold amount of where the highest tax rates and reductions of tax breaks kick in. Highlights of some key provisions of the Act follow:

Tax Rates.
For tax years beginning after 2012, the income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35% (instead of moving to 15%, 28%, 31%, 36% and 39.6% as would have occurred otherwise), but with a 39.6% rate applying for income above a certain threshold (specifically, income in excess of the "applicable threshold” over the dollar amount at which the 35% bracket begins). The applicable threshold is $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. These dollar amounts are inflation-adjusted for tax years after 2013.
Personal Exemption Phaseout.
For tax years beginning after 2012, the Personal Exemption Phaseout (PEP), which had previously been suspended, is reinstated with a starting threshold for those making $300,000 for joint filers and a surviving spouse; $275,000 for heads of household; $250,000 for single filers; and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. Under the
phaseout, the total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 (or portion thereof) by which the taxpayer's AGI exceeds the applicable threshold. These dollar amounts are inflation-adjusted for tax years after 2013.
Itemized Deductions Phaseout.
For tax years beginning after 2012, the "Pease" limitation on itemized deductions, which had previously been suspended, is reinstated with a starting threshold for those making $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. Thus, for taxpayers subject to the "Pease” limitation, the total amount of their itemized deductions is reduced by 3% of the amount by which the taxpayer's adjusted gross income (AGI) exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions. These dollar
amounts are inflation-adjusted for tax years after 2013.
Capital Gain and Dividend Rates.
For tax years beginning after 2012, the top rate for capital gains and dividends will permanently rise to 20% (up from 15%) for taxpayers with incomes exceeding $400,000 ($450,000 for married taxpayers). When accounting for the 3.8% surtax on investment-type income and gains for tax years beginning after 2012, the overall rate for higher-income taxpayers will be 23.8%. For taxpayers whose ordinary income is generally taxed at a rate below 25%, capital gains and dividends will permanently be subject to a 0% rate. Taxpayers who are subject to a 25%-or-greater rate on ordinary income, but whose income levels fall below the $400,000/$450,000 thresholds, will continue to be subject to a 15% rate on capital gains and dividends. The rate will be 18.8% for those subject to the 3.8% surtax.
Estate & Gift Tax.
The Act prevents steep increases in estate, gift and generation-skipping transfer (GST) tax that were slated to occur for individuals dying and gifts made after 2012 by permanently keeping the exemption
level at $5,000,000 (as indexed for inflation). However, the Act also permanently increases the top estate, gift and rate from 35% to 40%. The Act also continues the portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse. All changes are effective for individuals dying and gifts made after 2012.

Wednesday, January 9, 2013



Completing the Free Application for Federal Student Aid (FAFSA) is the first step in accessing the more than $150 billion available in federal student aid. Since the 2013-14 FAFSA launched, there are a few questions we’ve seen popping up more than any others. Let’s go through them.
How can I complete the FAFSA if my parents or I haven’t filed my 2012 taxes yet?
You CAN complete the 2013-14 FAFSA even if you or your parents haven’t filed your 2012 taxes yet. Here’s what you or your parents can do in your respective sections of the FAFSA:
  1. When the FAFSA asks: “Have you completed a 2012 income tax return?” Select “Will file.”
  2. Estimate income.
    • If your 2012 income is similar to your 2011 income, use your 2011 income tax return to provide estimates for questions about your income.
    • If your income is not similar, click Income Estimator for assistance estimating your adjusted gross income, and answer the remaining questions about your income to the best of your ability.
  1. After you file your 2012 tax return, go to and correct your information.
    • Note: Once you complete your 2012 taxes, you may also be eligible to use the FAFSA’s IRS Data Retrieval Tool to automatically transfer your tax return information from the IRS into the FAFSA.
When is the FAFSA deadline?
States, schools, and the federal government each have their own FAFSA filing deadlines. It is important that you research all of these deadlines and complete the FAFSA by whichever deadline comes first. That being said, some types of financial aid are awarded on a first-come, first-served basis, so we recommend you complete the FAFSA as soon as possible in order to maximize the amount of financial aid you can receive.
Which FAFSA should I complete?
When you log into, you will be given two different options: “Start a 2013-14 FAFSA” and “Start a 2012-13 FAFSA.” Which should you choose?
    • If you’ll be attending college between July 1, 2013 and June 30, 2014 select “Start a 2013-14 FAFSA.”
    • If you’ll be attending college between July 1, 2012 and June 30, 2013 select “Start a 2012-13 FAFSA.”
    • If you are applying for a summer session, or just don’t know which application to complete, check with the college you are planning to attend.