Tax Refunds Arriving Later for Some

Arden Dale for the Wall St. Journal writes: Many taxpayers who banked on early refunds from the Internal Revenue Service this year won't see that money quite as soon as they wanted. Not only was the start of tax season pushed back to late January due to last-minute wrangling by Congress in 2012, but the IRS won't accept forms to claim a host of assorted tax credits until early March.   Financial advisers have started to hear from people who planned to use early tax refunds to wipe out credit-card debt, fund a vacation or pay estimated taxes for 2013. Some clients have done their returns, signed them and set them aside until the IRS will take them.  "We're just kind of standing here holding the bag," said Stacy Francis, president and CEO of advisory firm Francis Financial in New York City, which manages around $90 million.

One client, a New York lawyer, expects a refund of around $50,000 because she overpaid her estimated taxes last year. She planned to use it to pay estimated taxes for 2013, Ms. Francis says, but the IRS has said it won't accept her Form 5695--for residential energy-tax credits--until the first week of March. So the client is tapping an emergency fund to make the estimated payment.

Last week, the IRS published a list of Form 1040-related forms it will accept in March. They range from the popular, such as the residential energy credit, to the somewhat obscure, such as Form 5074, for the Allocation of Individual Income Tax To Guam or the Commonwealth of the Northern Mariana Islands.

A client of Scott Anderson, an accountant in Newport Beach, Calif., plans to use money she expects to get back from the IRS to fund her retirement plan. A single mother who works as the office manager in a medical practice, the woman had to wait to file, though, because she needed Form 4562, which lets her write off depreciation on rental properties she owns. The form is widely used, but the IRS didn't accept it until Feb. 10.

Refunds can be important for taxpayers across the socio-economic spectrum. The wealthy may be due them as the result of overpaying estimated taxes--and are often just as adamant about getting their money back as are the less affluent, who may depend on refunds just to make ends meet.

Byron Shinn, an accountant in Bradenton, Fla., whose clients include physicians, says it's common to hear from them on the issue. "As people discuss items at the water cooler, timing on IRS refunds comes up, and then if a client is waiting longer than their friend, we get a call," said Mr. Shinn.

Advisers are taking the opportunity this year to remind clients who are too dependent on refunds that they need to budget themselves better. Depending on a refund is never a good idea, even when the IRS isn't experiencing special delays, as in 2013.

Refund delays in general are a top problem at the IRS, according to the National Taxpayer Advocate, an independent organization at the agency that acts as a watchdog over it. Last year, the group said in a report to Congress that many delays are due to a fraud-detection process the IRS uses to catch questionable tax returns. Sometimes taxpayers fail to get a refund they were entitled to, the report said.

For those who have been able to file a 2012 tax return, the flow of refunds seems good so far. The IRS said in a statement on Feb. 14 that it is seeing "a good start to the filing season, and tax refunds are being issued timely." Nine out of 10 taxpayers typically get refunds within 21 days when they use e-file with direct deposit, the IRS said.  For anyone who wants to check up on a refund, a tool on the IRS website lets a taxpayer enter a social security number to check its status.

Divorcing Women: Will The New Tax Laws Impact Your Divorce Settlement?

Jeff Landers, a contributor for Forbes writes: Congress passed the American Taxpayer Relief Act (ATRA) on January 1, 2013 to stave off federal tax increases on the middle-class and across-the-board spending cuts that were set to occur automatically if no action were taken, and prevent our economy from plummeting over that “fiscal cliff” we’d been hearing about for weeks.  Unfortunately though, if you’re in the middle of negotiating a divorce settlement agreement, some of the provisions of the new tax law could send you over a fiscal cliff of a different kind – not nationally important, of course, but critical to your own financial future nonetheless. Taking the time to learn how new tax laws might impact your settlement agreement, and negotiating accordingly, could save you tremendously in the long run.  Two major areas require special attention: changes to income and division of assets.

Income from alimony could bump you into a higher tax bracket.

A major provision of ATRA was to raise tax rates on high incomes. Specifically, if you’re a single filer with an annual income greater than $400,000, you will now pay the new 39.6% tax rate (increased from 35%) on income in excess of that $400,000 threshold.

Divorce will mean significant change to your income structure, possibly including alimony. Alimony (also known as spousal support or maintenance) refers to payments made by the “moneyed” spouse to the “non-moneyed” spouse after a divorce is finalized. It is paid in established intervals (typically monthly), for a time period specified in the divorce agreement.

If your proposed divorce settlement agreement includes alimony payments, in most cases, you will have to declare those payments as taxable income. (Although not commonly done, alimony can be structured as non-taxable income to the recipient and a non-deductible expense to the payor). Be sure you know how your tax situation will play out as a result. You want to make sure the settlement you’re agreeing to is the one that makes the most financial sense for the long term. After all, there may be better ways to assure your post-divorce financial stability.

For example, I often encourage clients to consider an upfront lump sum payment – a one-time payment of a fixed amount – in lieu of alimony. These lump sum payments are neither taxable to the recipient nor deductible to the payor, but the paying spouse will typically try to negotiate a lump sum amount that takes into account the loss of deductibility.

There are several reasons a lump-sum payment can be preferable to traditional alimony payments; however, a lump sum payment is not right for everyone. It requires very careful, deliberate financial management if it is to sustain your lifestyle in the long term.

If income from alimony is a tax concern, you may also want to revisit the balance between child support and alimony payments in your settlement. Child support is neither a deductible expense for your husband, nor taxable income for you. Alimony is usually both. (Payors need to be mindful of complicated IRS rules concerning frontloading and recapture of alimony as it relates to alimony vs child support. See this article for more information.)

Remember, too, that alimony can be modified, up or down. The fundamental purpose of alimony is to allow the “non-moneyed” spouse to maintain a standard of living somewhat comparable to what she enjoyed during the marriage.  Yes, even today, the “non-moneyed” spouse is typically the woman, and yes, I think alimony, in many cases, remains just as relevant today as it ever was. Why?

Because the non-moneyed spouse often gave up her potential career and earning power and invested her time and labor into the family.

She also directly or indirectly aided her husband’s career by taking care of the home front which allowed him to invest in his career and increase his earning power. Many women have given up educational and employment opportunities and many women have also helped their husbands (financially or otherwise) go through law or med school or to get other professional training.

Then, after several decades he is at the peak of his earning potential (thanks in part to her), and yet she is relatively unemployable, especially if she is in her 50s and has been out of the work force for all those years.

And even though they may be dividing assets 50-50, he, because of his earning power will replace some or all of those assets over time while she, because of her lack of earning power, will be liquidating assets from day one and will ultimately go broke if she lives long enough.

Therefore, in my opinion, the purpose of alimony is to somewhat equalize this disparity.  (And of course, the same could apply to a man, if he were the non-moneyed spouse.)

There are new tax implications for division of investments and other assets.

I’ve written before about how division of assets can be an exceedingly complex part of the divorce process. Tax considerations account for a lot of that complexity, and the new law adds even more factors to evaluate.

For example, ATRA now sets a 3.8% Medicare surtax on capital gains, dividends and other investment income above $200,000 for a single filer. You’ll want to keep the new tax in mind as you are negotiating the division of stock portfolios and other income-producing investments.

Additionally, for filers who fall in that new 39.6% income tax bracket, the federal capital gains tax rate has been increased from 15% to 20% (plus the aforementioned additional 3.8%, which brings the total to almost 24%, not including your state’s capital gains taxes). This can put a significant dent in the amount you hope to realize from selling assets. The capital gains tax hit should be calculated and weighed carefully before agreeing on how your assets should be divided.

Depending on how much the tax burden would lessen the value of a particular asset to you, it may be more sensible to negotiate for something else, instead. For instance, you may want to consider cash or retirement funds (which have no capital gains tax exposure and, except for Roth accounts, will be taxed only when you withdraw the money) instead of stock or real estate. However, note that capital gains tax can take just as big a bite of proceeds from sale of real estate (once you’ve taken into account the $250,000 exclusion on your primary residence) as of stocks. Make sure you have properties expertly appraised.

A qualified divorce financial advisor can help you navigate the potential pitfalls presented by ATRA and other tax laws, with all their subtleties. You’ll need thorough, expert analysis of all your options before you agree to any settlement –and since this is not your attorney’s primary field of expertise, be sure to have a divorce financial professional on your team to assure you the best possible financial outcome of your divorce.

Clocking Out: Tax Planning for Clients Near Retirement You have a narrow window to make tax-cutting moves for those on the cusp of retirement.

Kevin McKinley for WealthManagement.com writes: For the last 30 or 40 years, clients who are near retirement have been working and saving every dollar possible, and while they’re almost at the finish line, there are still savings to be had.  Clients who are nearing retirement provide a unique tax planning opportunity, as they are likely to have both more income and more income taxes now than they will when they leave full-time employment in the near future.   Here are some important steps advisors should take to reduce their clients’ taxes while they’re working but on the cusp of retirement:

Max Out the 401(k)
Workers on their way out should do whatever they can to increase contributions to a pre-tax retirement plan, like a 401(k) or 403(b). In 2013 the limits are generally the lesser of the employee’s income, or $17,500. That figure rises to $23,000 for contributors over age 50.

Depending on the employee’s tax bracket, every dollar deposited into a 401(k) could save the client about 10 to 40 cents in income taxes for the year in which the contributions are made.

Say the client contributes $10,000 while working, and it would otherwise be taxed at a rate of 35 percent. Then he retires a few years later, and the funds are taxed at 15 percent when pulled out of the retirement account. That gap of 20 percent between tax rates produces a theoretical savings of $2,000.

Don’t Forget the HSA     
Employed clients who are eligible and able might want to take out a high-deductible health insurance option, and then make corresponding tax-deductible contributions to a Health Savings Account (HSA). The HSA contribution limits for 2013 are $3,250 for individuals and $6,450 for families, with another $1,000 for those over age 50.

The high-deductible health insurance helps users save money on premiums now and adds some flexibility on how they spend their health care dollars. Any unspent money in the HSA rolls over every year, and can be spent tax-free on future qualifying medical expenses. Once the client reaches age 65, the left-over funds can be withdrawn as taxable income, just as if it were in an IRA.    

Refinance the Mortgage
Those increased contributions to tax-advantaged savings vehicles could mean a cash flow crunch for many workers. But your clients may be able to lower total monthly expenses (and taxes) and raise liquidity by re-financing their mortgage—preferably for as much (and as long) as the lender will allow.

There may be new or higher monthly mortgage payments, and the interest cost can’t be ignored. But this might be the last best time for clients to tap the equity in their homes at historically-low rates, relatively-high valuations, and within relatively friendly lending standards.

Those low mortgage rates can be even more advantageous since the interest may be tax-deductible, as long as the clients itemize. Check out Publication 936 at www.irs.gov for more information.

Any cash-out proceeds from the mortgage should be parked in safer savings vehicles, and used for future big expenses that would otherwise cause the client to borrow (i.e. a new car, home improvement, or college costs).

Take Your Losses
When a working, higher-income client experiences investment losses outside of tax-sheltered accounts, make sure you consider making the best of the unfortunate occurrence by realizing the losses, and the ensuing tax benefits.

In 2013 the client can usually use any losses to offset realized gains, and then up to $3,000 of the losses against ordinary, taxable income. Again, depending on the clients’ tax bracket, that amount could save up to $1,000 or so in taxes. Losses over that $3,000 amount that can’t be used this year can be “carried forward” into future years, and potentially used to reduce future taxable income or gains.

Just make sure you avoid the “wash sale” rules by not buying the security within 30 days before or after you sell it for the tax loss.

Wait to Take Gains
Tax concerns usually aren’t enough justification to hold off selling a stock, bond, or fund. But if you can help it, there are at least two thresholds to meet before liquidating an appreciated security, especially for those high-income clients who will soon retire.

Start by waiting at least a year from the date of purchase, so that the gains will be considered “long-term.” Beginning in 2013 the federal tax rate on those gains will be 15 percent for those in the 25 percent through 35 percent federal income tax brackets.

The long-term capital gains tax rate is now 20 percent for those taxpayers in the new 39.6 percent bracket. In addition, high income earners could incur the new additional 3.8 percent “Medicare Tax” on their gains, as well.

Once the clients retire and are (hopefully) in the lower income tax brackets, the long-term federal capital gains tax hit could be as little as 0 percent.

Tax Benefits Today, Charitable Giving Tomorrow
Another aspect of tax planning that retiring clients should consider is their long-term charitable giving. It’s possible to accelerate the tax benefits of giving to now, and delay the actual transfer of the money to the charity until later.

The strategy starts with the clients projecting how much money they may plan to give to qualified charitable organizations over the next decade or longer. The clients then transfer that amount to a “donor advised fund,” or “DAF.” They can get an immediate tax deduction on the donation now, when it’s most useful, since they’re likely in a higher tax bracket now.

The money is then invested among a limited menu of options, and in the future clients can “advise” the account custodians as to the recipients, timing, and amounts of donations.

Those donations will not produce an additional tax benefit at that time. But your clients won’t need it as much once they’re retired. 

Xero (Online Accounting Software) Now Has Their First U.S. Based Inventory Management Solution

Stitch Labs, provider of an integrated inventory and order management application for the SMB market, has announced the release of their latest integration partner, Xero. With this new integration, product-based businesses have their first U.S.-based inventory management system that integrates with Xero's beautiful online accounting software.  Early this year, Xero announced they had eclipsed the 135,000 paying customers mark. Many of those customers sell products. Before integration with Stitch Labs, an area of opportunity for Xero was inventory management, especially multi-channel inventory management. Now, Stitch Labs makes that opportunity a strength by offering a Xero-integrated inventory management solution that allows sellers to sell through sales channels both online and offline.  "With Stitch Labs' seamless integration to Xero, product-based businesses all over the U.S. can manage inventory and have accounting data automatically appear in our software. We're thrilled to have Stitch Labs as a partner, saidJamie Sutherland , President of U.S. Operations at Xero.

Online sales will surge 45 percent to $327 billion in the U.S. in 2016 from $226 billion in 2011, estimates Forrester Research Inc. Entrepreneurs are continuing to find ways to take part in that growth by selling on their own websites and fast growing marketplaces like Etsy and Amazon. Etsy saw transaction volume increase 70.3 percent in 2012 to $895.1 million dollars and Amazon's more than 2 million Third Party Sellers are becoming a bigger piece of the Amazon pie. Third Party Seller units as a percentage rose from 36 percent in Q4 2011 to 39 percent in Q4 2012. Sellers are looking for more effective business tools to help manage this explosive growth.

"Accounting makes most people cringe. With the approach Xero is taking, it no longer is a painful experience. Not only is their accounting application easy and powerful for their users, but as a company, they are extremely responsive to the needs of their customers and partners. They have been outstanding to work with," said Brandon Levey , CEO of Stitch Labs.

With Stitch, users have the ability to sell through multiple channels, manage inventory in an automated way and have an in-depth understanding of how their business is performing, no matter how they choose to sell their products. Prior to this release, Stitch Labs integrated with several popular hosted selling platforms, including Amazon, Shopify, BigCommerce, Etsy and Storenvy. They also integrated with payments giant PayPal and shipping service ShipStation to round out their suite of business applications.

ExactCPA.com Simple & Clear 2012 Tax Rates

2012 Tax Rates

2012 Tax Rates Schedule X - Single
If taxable income is over --	But Not Over --	The Tax is:
$0	$8,350	10% of the taxable amount
$8,350	$33,950	$835 plus 15% of the amount over $8,350
$33,950	$82,250	$4,675 plus 25% of the amount over $33,950
$82,250	$171,550	$16,750 plus 28% of the amount over $82,250
$171,550	$372,950	$41,754 plus 33% of the amount over $171,550
$372,950	no limit	$108,216 plus 35% of the amount over $372,950

2012 Tax Rates Schedule Y-1 - Married Filling Jointly or Qualifying Widow(er)
If taxable income is over --	But Not Over --	The Tax is:
$0	$16,700	10% of the taxable amount
$16,700	$67,900	$1,670 plus 15% of the amount over $16,700
$67,900	$137,050	$9,350 plus 25% of the amount over $67,900
$137,050	$208,850	$26,637.50 plus 28% of the amount over $137,050
$208,850	$372,950	$46,741.50 plus 33% of the amount over $208,850
$372,950	no limit	$100,894.50 plus 35% of the amount over $372,950

2012 Tax Rates Schedule Y-2 - Married Filing Separately
If taxable income is over --	But Not Over --	The Tax is:
$0	$8,350	10% of the taxable amount
$8,350	$33,950	$835 plus 15% of the amount over $8,350
$33,950	$68,525	$4,675 plus 25% of the amount over $33,950
$68,525	$104,425	$13,318.75 plus 28% of the amount over $68,525
$104,425	$186,475	$23,370.75 plus 33% of the amount over $104,425
$186,475	no limit	$50,447.25 plus 35% of the amount over $186,475

2012 Tax Rates Schedule Z - Head of Household
If taxable income is over --	But Not Over --	The Tax is:
$0	$11,950	10% of the taxable amount
$11,950	$45,500	$1,195.00 plus 15% of the amount over $11,950
$45,500	$117,450	$6,227.50 plus 25% of the amount over $45,500
$117,450	$190,200	$24,215 plus 28% of the amount over $117,450
$190,200	$372,950	$44,585 plus 33% of the amount over $190,200
$372,950	no limit	$104,892 plus 35% of the amount over $372,950

 

Miscellaneous 2012 Tax Rates
Personal Exemption	$3,650
Business Equipment Expense Deduction	$250,000
Prior-year safe harbor for estimated taxes of higher-income	110% of your 2008 tax liability
Standard mileage rate for business driving	55 cents
Standard mileage rate for medical/moving driving	24 cents
Standard mileage rate for charitable driving	14 cents
Child Tax Credit	$1,000
Unearned income maximum for children before kiddie tax applies	$950
Maximum capital gains tax rate for taxpayers in the 10% or 15% bracket	0%
Maximum capital gains tax rate for taxpayers above the 15% bracket	15%
Capital gains tax rate for unrecaptured Sec. 1250 gains	25%
Capital gains tax rate on collectibles	28%
Maximum contribution for Traditional/Roth IRA	$5,000 if under age 50 $6,000 if 50 or older
Maximum employee contribution to SIMPLE IRA	$10,500 if under age 50 $14,000 if 50 or older
Maximum Contribution to SEP IRA	25% of compensation up to $49,000
401(k) maximum employee contribution limit	$16,500 if under age 50 $22,000 if 50 or older
Self-employed health insurance deduction	100%
Estate tax exemption	$3,500,000
Annual Exclusion for Gifts	$13,000