The Newark Star Ledger recently turned to Pamela Avraham of Urbach and Avraham, CPAs for her take on the effects of the 2012 FUTA increase for NJ employers . This FUTA increase is now payable in Jan. 2013 and came as a surprise to many employers. Pamela was quoted in the January 20, 2013 edition, describing the challenge that many staffing agencies face due to the increase. Urbach & Avraham is especially attuned to concerns regarding the FUTA increase, as we service many staffing agencies and small businesses. These firms are going to be impacted more significantly, as they tend to have a larger number of low wage employees.
TAX TIPS FOR INDIVIDUALS
Limit on Mortgage Interest Deduction for Married Filing Separate
In an interesting 2012 Tax Court case, Bronstein vs. Commissioner, the strict interpretation of the Section 163 limitation on the mortgage interest deduction for married taxpayers filing separately was brought into question. Faina Bronstein and her husband purchased a $1.3 million home in 2007, taking out a $1 million mortgage. The home was their primary residence. The Bronsteins chose the option of “married filing separate” that year, and Faina deducted all of the mortgage interest paid (which amounted to $50,000). The IRS, using a plain interpretation of the statute, disallowed half of Faina’s deduction. Section 163, the statute governing the $1,000,000 limitation provides that: [Read more…] about Limit on Mortgage Interest Deduction for Married Filing Separate
Bank Leumi Urges Disclosure to IRS by its U.S. Clients
Leumi, one of the largest banks in Israel, recently wrote to its U.S. clients urging them to comply with the Internal Revenue Service’s voluntary disclosure program. Leumi and two other Israeli banks, Bank Hapoalim and Mizrahi Tefahot, are under investigation by the U.S. Justice Department in connection with offshore private banking services that may have enabled wealthy Americans to evade taxes. Faced with a federal deficit of roughly 1 trillion dollars, the U.S. government is hungry for more revenue, and has decided to crackdown on overseas tax evasion. If you have an account overseas it would be wise to take advantage of the voluntary disclosure program. Time may be running out.
To read more about the IRS Voluntary Disclosure Program, click here: IRS Voluntary Disclosure
Court Affirms Mortgage Interest Deduction Limitation for Unmarried Couples
Under the Internal Revenue Code, mortgage interest is deductible from income, provided that the outstanding mortgage balance is less than $1 million. Similarly, interest payable on a home equity line of credit that is used to finance home improvements is deductible as well, but only up to a loan balance of $100,000. An unmarried couple may at first glance assume that if they each buy half of a $2 million house, they can each fully deduct his or her half of the mortgage interest on his or her individual tax return. This would be true if the $1 million limitation is per taxpayer. A recent U.S. Tax Court case ruled otherwise. [Read more…] about Court Affirms Mortgage Interest Deduction Limitation for Unmarried Couples
New Year’s Gift from the IRS: 2013 Tax Increases
While a new year is always cause for celebration, an impending, significant jump in tax rates could dampen this year’s excitement for many. Here’s a brief overview of what lies ahead in 2013:
Higher Tax Rates – The maximum income tax rates next year could be as high as 43.4% on ordinary income and 23.8% on long-term capital gains including the new Medicare Surtax (see following paragraphs). Furthermore, the current 2% payroll (social security) tax reduction is set to expire at the end of 2012 (it was reduced from 7.65% to 5.65%).
Medicare Surtax on Investment Income – 2013 will bring a brand new surtax of 3.8% on net investment income that will apply to certain individuals, trusts and estates. The surtax will apply to taxpayers with modified adjusted gross income of over $250,000 for married taxpayers filing jointly; $125,000 for married taxpayers filing separately; and $200,000 for taxpayers filing single or as head of household.
Medicare Surtax on Wages and Self-Employment Income – In addition to the surtax on investment income, a 0.9% Medicare surtax will apply to wages and self-employment income in excess of $250,000 for married taxpayers filing jointly; $125,000 for married taxpayers filing separately; and $200,000 for taxpayers filing single or as head of household.
This combination of tax increases may make 2012 the rare year to accelerate rather than defer income. For example, taxpayers in higher tax brackets may want to take salary (or bonuses) in 2012 to avoid the bracket increase in 2013. It may also be advisable to harvest capital gains to avoid the new Medicare surtax on investment income. Of course, anyone who currently qualifies for the 0% capital gains rate, which is scheduled to expire at the end of 2012, should certainly take advantage of this special rate. With all the looming changes as well as uncertainty about what 2013 will bring it would be very advisable to consult with your tax professional before popping the champagne.
Damaged by Hurricane Sandy? Get the Refund You Deserve
Taxpayers who are victims of Hurricane Sandy have the opportunity of claiming unreimbursed disaster-related casualty losses on their federal tax returns by filing Form 4684 Casualties and Thefts. The loss may be deducted on either the upcoming 2012 return or on an original or amended 2011 return. Claiming the loss on a 2011 return should result in an earlier refund. However in some cases waiting to claim the loss on the 2012 return may result in a greater tax saving, depending on your personal income tax situation.
The deductible loss is calculated by starting with the lesser of:
- Adjusted cost basis (original purchase price plus improvements), or
- Difference between the fair market value before and after the hurricane, (alternatively the cost of repairing and restoring the home to its original value)
Ten percent of the taxpayer’s Adjusted Gross Income (AGI) is then deducted from the loss to arrive at the deductible amount. To illustrate, let’s assume John’s house was damaged in the storm with the following details:
Cost of house (in 1950) $10,000
Improvements $150,000
Fair Market Value before the Hurricane $500,000
Fair Market Value after the Hurricane $200,000
John’s Adjusted Gross Income $100,000
John may only deduct the lesser of his adjusted basis of $160,000 ($10,000 purchase price plus $150,000 of improvements) or the change in fair market value of $300,000 (original fair market value of $500,000 minus $200,000 fair market value after the storm), which leaves him with only a $160,000 loss before deducting another $10,000 (10% of his AGI of $100,000) to arrive at a deductible loss of $150,000.
To view Form 4684, click here: IRS Casualty Loss Form. If you would like assistance with amending your 2011 tax return and /or assessing your casualty deduction please contact one of Urbach & Avraham’s tax consultants at 732-777-1158.