Adam Van Brimmer for the Savannah Morning News writes: The countdown to Tax Day becomes more ominous the closer we get to the April 15 deadline. For two hours Wednesday, tax experts from the Savannah accounting firm of Hancock Askew & Co. LLP helped tax procrastinators with their pressing questions. Hancock Askew’s CPAs were partners J. William Griffin and Carolyn S. McIntosh, principal Susan Corderman Clifford and tax department manager Stephen Leonard.
Business owners and individuals alike called in for guidance. The inquiries were wide-ranging, from the tax implications for retirees to depreciating a dog paid to perform at childrens’ parties.
Following is a sample of the questions and answers the Hancock Askew experts thought would be of interest to most taxpayers:
Q: I’m trying to determine my capital gains and dividend percentage rates. How do I determine my income tax bracket.
A: For 2012, capital gains and qualifying dividends are not taxed if you are in the 10 percent or 15 percent bracket and at 15 percent if you are in the 25 percent or higher bracket. If you are using tax software, it will automatically calculate your tax bracket.
Otherwise, the brackets are as follows: For a single person or for a person filing as married filing separately, the 10 percent bracket ends at $8,700 and the 15 percent bracket ends at $35,350. For married filing jointly the brackets are doubled; so the 10 percent bracket ends at $17,400 and the 15 percent bracket ends at $70,700.
For head of household, the brackets end at $12,400 for 10 percent and $47,350 for 15 percent.
Q: I sold my primary residence at a loss in 2012 and purchased another primary residence. Are there any tax implications for the loss?
A: No, there are no tax implications for the loss on the sale of your personal residence. A personal residence is considered a personal asset and not a capital asset. Only a capital asset designation denies a taxpayer a deduction of a loss upon sale.
Q: I purchased a house and moved out after four months, converting it to rental property. Less than a year later, I sold the house at a loss. Is this loss deductible?
A: Yes. A loss on the sale of rental property is deductible.
Q: My dog performs at children’s birthday parties and gets paid. Is this amount taxable to me?
A: Unfortunately, talented dogs are not exempt from taxation. Given the fact that the Social Security Administration will not issue a Social Security number to a non-person, nor can they open a bank account, if you are depositing the funds, this will constitute taxable income to you.
But don’t forget, you are allowed to deduct all related ordinary and necessary expense incurred to produce this income. There is some good news, while dogs usually live much longer, the IRS will allow you to depreciate the dog over a more favorable seven-year life.
Q: I’m self-employed and pay long-term care insurance. Is this deductible?
A: Yes. Long-term care insurance is deductible by anyone, not just the self-employed, on Schedule A as a medical itemized deduction. There are certain IRS provisions, which must be used to determine the deductible amount of this expense, however.
Q: Are life insurance proceeds taxable?
A: Proceeds paid because of the death of the insured are not taxable, although the interest on the proceeds held by the insurer after the insured’s death is taxable income. Generally, life insurance proceeds are included in your estate.
You may exclude life insurance proceeds from your estate with an irrevocable life insurance trust (ILIT). Any cash or property contributed o the trust (for example, cash to pay the insurance premiums) is considered a gift and may be required to be reported on a gift tax return.
This is a great estate planning tool but you should consult with your CPA, attorney and financial adviser before setting up an ILIT.
Q: My 30-year-old son is a full-time student who lives with me. I provide more than 90 percent of his support. Can I claim head of household?
A: Yes, your son is a qualifying relative. If you claim him as your dependent, which you can since he lived in your household all year and you provided more than 50 percent of his support, you can file as head of household. If he files a tax return, he cannot claim himself, so if he already filed, he will need to file an amended return.
Q: What is the maximum amount my wife and I can gift to our son and his wife annually without reporting to the IRS, and without tax consequences to my son and his wife.
A: In 2013, an individual can give $14,000 annually to another individual without gift tax consequences. Therefore a husband and wife can gift their son $28,000 and their daughter-in-law $28,000. If the husband and wife have a joint checking account, the entire $28,000 can be disbursed from that account. If the husband and wife have separate bank accounts, they should each write $14,000 checks from their respective accounts to avoid having to file a gift tax return.
In addition to the annual exclusion of $14,000, the law allows each individual a lifetime gift exclusion of $5.25 million. This allows an individual to gift during their lifetime or leave through inheritance a total of $5,25 million free from estate or gift tax.
Q: My son and his former wife have a child who lives alternate weeks with each of them. Her mother has already filed a joint return with her husband and claimed the child. My son would like to file as head of household. Can he?
A: To file as head of household, you must claim the qualifying child as your dependent. The general rule is that the parent with whom the child resides the majority of the time is the custodial parent and can claim the child. Since this child resides half the time with each parent, that rule does not apply.
The tiebreaker rule in this case is that the parent with the higher adjusted gross income is entitled to claim the child. If he wins the tiebreaker, he can file as head of household claiming the child as a dependent. He will need to paper file (an electronically filed return will be rejected because the child has already been claimed on another return) and should attach an explanation to his return. The child's mother can expect the IRS to contact her.
Q: Is a grandparent who is paying college expenses for a grandchild allowed a deduction and\or credit for paid tuition?
A: The answer to this question is yes as long as the grandchild can be claimed as a dependent on the grandparents’ income tax return. Often the most beneficial provision of several available Education Tax Incentives is the American Opportunity Credit which allows up to a $2,500 tax credit (dollar for dollar reduction in tax) for the cost of college including tuition, fees, books and required equipment.
The credit is available for the first four years of college and is calculated at 100 percent of the first $2,000 of expenses and 25 percent of the next $2,000. The credit begins to phase out when the grandparents’ adjusted gross income exceeds $160,000 when married filing jointly or $80,000 if filing as a single taxpayer.
Q: I am over 55, single and my employer contributed $5,000 to my HSA account. The $5,000 is included in my taxable wages on my W-2. Can I take a deduction on my tax return?
A: Yes, you are able to deduct a contribution made to an HSA account on your return. The eligible contribution for a single person is $3,100 with an additional $1,000 for a person age 55 or older. However, you have $900 in excess contribution. This is subject to a 6 percent excise tax unless it is withdrawn, along with any earnings, by the due date of your return (including extensions.)
Otherwise, you will need to complete Form 5329 and pay the excise tax.
Q: My 80-year-old mother receives social security and a small pension. Does she have to file a return?
A: Those 65 or older do not need to file a return if their gross income is less than $11,200.
Q: How is Social Security income taxed?
A: A portion of Social Security benefits is taxed if income above a "base amount" (as determined by your filing status) is received in addition to Social Security benefits.
For single and head of household filers, if your combined income is over $25,000 (base amount) and under $34,001, then up to 50 percent of benefits are taxable. For combined income over $34,000, up to 85 percent of benefits are taxable. For joint filers, combined income over $32,000 (base amount) and under $44,001, benefits are taxed at 50 percent. If combined income is over $44,000, then 85 percent of benefits are taxable.
If you file married separate, the base amount is zero and the taxpayer will generally pay tax on 85 percent of benefits regardless of income.
Q: Is retirement income taxable in Georgia?
A: Georgia taxpayers who are 62 years of age or older, or permanently and totally disabled regardless of age, may be eligible for a retirement income adjustment on their Georgia tax return. Retirement income includes income from pensions and annuities, interest income, dividend income, net income from rental property, capital gains and income from royalties.
For married couples filing joint returns with both members receiving retirement income, the maximum adjustment for the applicable year may be up to twice the individual exclusion amount. For taxpayers age 65 and older, the retirement income exclusion is $65,000 in 2012. It increases to $100,000 in 2013, $150,000 in 2014, $200,000 in 2015.
Beginning in 2016, the new law allows unlimited exclusion of retirement income for taxpayers who are 65 or older. The retirement exclusion for taxpayers who are age 62 to 64 will remain at $35,000.
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