6A — THE DAILY HOME, Talladega and St. Clair counties, Ala., Sunday, January 20, 2013
Tax Time
Jan. 30 tax season opening for 1040 filers
the three major “extender” provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.
Commissioner Steven T. Miller said. “This date ensures we have the time we need to update and test our processing systems.” The IRS will not process paper tax returns before the anticipated Jan. 30 opening date. There is no advantage to filing on paper before the opening date, and taxpayers will receive their tax refunds much faster by using e-file
with direct deposit. “The best option for taxpayers is to file electronically,” Miller said. The opening of the filing season follows passage by Congress of an extensive set of tax changes in ATRA on Jan. 1, 2013, with many affecting tax returns for 2012. While the IRS worked to anticipate the late tax law
changes as much as possible, the final law required that the IRS update forms and instructions as well as make critical processing system adjustments before it can begin accepting tax returns. The IRS originally planned to open electronic filing this year on Jan. 22; more than 80 percent of taxpayers filed electroni-
Who Can File Starting Jan. 30? The IRS anticipates that the vast majority of all taxpayers can file starting Jan. 30, regardless of whether they file electronically or on paper. The IRS will be able to accept tax returns affected by the late Alternative Minimum Tax (AMT) patch as well as
By STEPHEN OHLEMACHER
criminals with opportunities to commit tax fraud.”
WASHINGTON — The nation’s tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements. That’s the equivalent of 3 million people working full-time, year-round.
Tax season is right around the corner, which can be good news or bad news depending on the individual. For those accustomed to getting a tax return, that annual financial windfall is welcomed with open arms. On the other hand, those used to a tax bill every April are far less enthusiastic when tax time rolls around. With tax season on the horizon once again, it’s time to start preparing to file a return. The following guide can help individuals get their tax materials in order, whether they’re filing themselves or enlisting the help of a tax professional. Personal Items To file a tax return, individuals will need their own social security number, as well as that of anyone else they might be helping or listing on their own return. This includes a spouse and any dependents. If preparing someone else’s tax return, be sure to inform them this information will be needed to avoid any unnecessary delays. For those men and women who will be enlisting a professional to prepare their return, bring all of this information to the meeting. Tax season is especially busy for accountants and tax prep professionals, so it might be difficult to secure another appointment should you forget to bring all of the necessary information.
Income Documents It’s easy to get confused when attempting to file a tax return. For men and women who visit the local library for their filing information, that table full of documents can be intimidating. What’s more, the Internal Revenue Service Web site can be difficult to navigate for those who have not visited it in the past. No document is more necessary than a W-2, which employers must provide by the end of January. Men and women will get one from each of their employers, so those who work multiple jobs, even part-time jobs, will need a W-2 for each job they’ve worked in the past 12 months. Additional documents that can be necessary might pertain to investment income, business or farming income, alimony received, and forms for state and local income tax refunds. A good rule of thumb to avoid getting lost in the documents is to start as early as possible the more extensive or complicated the employment and income history may be. For example, men and women with one job and no outside income should be able to file quickly and easily. The more extensive a person’s investment portfolio or the more jobs a person has, the more difficult it will likely be to file the return. So start early if
things are complicated. Credits The government gives men and women all sorts of credits that reduce the amount of the income taxed. These include homebuyer credits, IRA contributions, green energy credits, or student loan interest. • Homebuyer credits: A properly executed settlement statement must be attached to a return, and men and women should keep in mind the IRS now See Data, Page 7A
As part of this effort, the IRS will be working closely with the tax software industry and tax professional community to minimize delays and ensure as smooth a tax season as possible under the circumstances. Updated information will be posted on IRS.gov.
Watchdog group says tax law too complex for most filers Associated Press
Start gathering your tax data
cally last year.
Who Can’t File Until Later? There are several forms affected by the late legislation that require more extensive programming and testing of IRS systems. The IRS hopes to begin accepting tax returns including these tax forms between late February and into March; a specific date will be announced in the near future. The key forms that require more extensive programming changes include Form 5695 (Residential Energy Credits), Form 4562 (Depreciation and Amortization) and Form 3800 (General Business Credit). A full listing of the forms that won’t be accepted until later is available on IRS.gov.
Olson said the tax code also “undermines trust in the system by creating an impression that many taxpayers are not compliant.”
they have rarely seen eye to eye on tax policy. They struggled mightily just to avoid the year-end fiscal cliff, passing a bill that makes relatively small changes to the nation’s tax laws, compared to a major overhaul.
She ranks complex“Our broken tax code ity as the most serious tax has become a nightmare problem facing taxpayers of loopholes and special and the Internal Revenue interest provisions that Service in her annual create added complexities As a result, about report to Congress. and costs for hardwork90 percent of filers will ing taxpayers and small either pay a tax preparer Momentum is building businesses,” said Rep. or use a computer soft- in Congress to overhaul Dave Camp, R-Mich., ware service to help with the tax code for the first chairman of the tax-writtheir federal tax returns time since 1986. ing House and Ways and this spring, according to Means Committee. But Washington’s a report Wednesday by an independent government divided government has yet to show it can successwatchdog. “Comprehensive tax fully tackle such an issue. reform will make sure “The existing tax code everyone is playing by the President Barack same rules, and help busimakes compliance difficult, requiring taxpayers Obama and Republican nesses create more jobs to devote excessive time leaders in Congress say and invest in their workto preparing and filing they are onboard, though ers.” their returns,” says the report by Nina E. Olson, the National Taxpayer Advocate. 117 W. Second St., Sylacauga, AL 35150
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WA S H I N G TO N — Following the January tax law changes made by Congress under the American Taxpayer Relief Act (ATRA), the Internal Revenue Service plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30. The IRS will begin accepting tax returns on that date after updating forms and completing programming and testing of its processing systems. This will reflect the bulk of the late tax law changes enacted Jan. 2. The announcement means that the vast majority of tax filers — more than 120 million households — should be able to start filing tax returns starting Jan 30. The IRS estimates that remaining households will be able to start filing in late February or into March because of the need for more extensive form and processing systems changes. This group includes people claiming residential energy credits, depreciation of property or general business credits. Most of those in this group file more complex tax returns and typically file closer to the April 15 deadline or obtain an extension. “We have worked hard to open tax season as soon as possible,” IRS Acting
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THE DAILY HOME, Talladega and St. Clair counties, Ala., Sunday, January 20, 2013 — 7A
Tax Time
Charities worry tax law will reduce donations WASHINGTON — Charities and nonprofit organizations are worried that new limits on tax deductions for high earners will hurt donations just as charitable giving is starting to rebound from the depths of the recession. Experts doubt the new limits on deductions will have much impact on giving, but some major nonprofit organizations fear they’re a sign that the charitable deduction is no longer sacrosanct on Capitol Hill, just as Congress is promising a broader effort later this year to overhaul the tax code. The limits on deductions are part of the new tax law Congress passed on New Year’s Day. They reduce the value of all itemized deductions for individuals making more than $250,000 and married couples making more than $300,000. Advocates are concerned the limits will reduce the tax incentive for people to make donations to charities and nonprofits such as religious institutions, colleges and groups that help the poor. “The charitable deduction incentive is different than any other deduction or credit in the tax code,” said Sandra Swirski, executive director of the Alliance
Itemized deductions cannot be reduced by more than 80 percent, under the provision. In this example, if the couple had a total of $60,000 in itemized deductions, they could claim only $57,000. If they were
The new law increases the top income tax rate from 35 percent to 39.6 percent on taxable income above $400,000 for individuals and $450,000 for married couples. It also increases the top tax rate on long-term capital gains for taxpayers with incomes above those thresholds. Both provisions increase incentives for people to make charitable donations, according
to the analysis of the law by the Urban Institute Center on Nonprofits and Philanthropy. For example, if a married couple has a top income tax rate of 35 percent, a $1 deduction will lower their tax bill by 35 cents. If that same couple has a top tax rate of 39.6 percent, a $1 deduction will lower their tax bill by nearly 40 cents, making the deduction more valuable. Similarly, the higher tax rate on capital gains increases the incentive to donate securities to charity as a way to avoid those taxes, said Eugene Steuerle, a fellow at the Urban Institute who worked on the analysis. The Pease limitation, meanwhile, should have a negligible impact on charitable giving because it is based on income, not on the amount of deductions, Steuerle said. Nevertheless, nonprofits and charities are wary of any provision that could limit the charitable deduction. “We just know that this change is definitely not going to be helpful,” said Gloria Johnson-Cusack, executive director of Leadership 18, an alliance of CEOs of charities, nonprofits, and faith-based organizations. “We don’t think now is the time to be experimenting with a policy that has the poten-
has greater authority to deny homebuyer credits.
tial” to reduce the incentive to donate. Charitable organizations fear that even more tax changes could be coming as momentum builds in Congress to overhaul the tax code, to make it simpler and more transparent. So far, lawmakers have been wary of publicly targeting any tax break for elimination, to avoid generating opposition before the process gets started. Still, interests groups of every stripe already are lobbying Congress to protect cherished tax breaks. See Charities, Page 6A
• IRA contributions: A year-end account summary or bank statement is often all that’s needed.
• Green energy credits. Among the items potentially eligible for residential energy credits are insulation, energy efficient exterior windows, energy efficient HVAC appliances, and solar hot water heaters. Of course, receipts will be necessary for those attempting to earn a credit for any of these items. • Student loan interest: A year-end loan statement should be received sometime in January.
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in the 33 percent income tax bracket, the provision would increase their taxes by $990. The provision is a revival of the “Pease” limitation, first enacted in 1990 but phased out in 2010 as part of the massive package of Bush-era tax cuts. It is named after a deceased congressman, Rep. Donald Pease, D-Ohio, who wrote the measure. Experts say there is no evidence that the limitation reduced charitable giving in the past, and no reason to think it will have much of an impact going forward. Charitable giving steadily increased in the 1990s, when the economy flourished. One analysis estimates that, on balance, charitable giving will increase slightly because of the new tax law. That’s because high earners facing the increased tax rates have more incentive to seek deductions, and those deductions become more valuable.
From Page 6A
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By STEPHEN OHLEMACHER
for Charitable Reform, which lobbies on behalf of donors and private foundations. That’s because the deduction encourages people to give away income, while other deductions and credits encourage people to buy things they can then write off, she noted. Charitable giving in the U.S. increased in 2010 and 2011, according to the latest data. But it has yet to fully return to prerecession levels, according to data from the Giving USA Foundation and the Indiana University School of Philanthropy. Charitable giving by individuals, foundations and corporations topped $298 billion in 2011. In 2007, it was $337 billion, in inflation-adjusted dollars. The new tax provision reduces the amount of itemized deductions a taxpayer can claim by 3 cents for every dollar of income above the threshold. For example, if a married couple has an adjusted gross income of $400,000, that’s $100,000 above the threshold, so the itemized deductions would be reduced by $3,000.
Data
8A — THE DAILY HOME, Talladega and St. Clair counties, Ala., Sunday, January 20, 2013
Tax Time
Tax code longer than Bible — without good news WASHINGTON — Too intimidated to fill out your tax return without help? Join the club. At nearly 4 million words, the U.S. tax law is so thick and complicated that businesses and individuals spend more than 6 billion hours a year complying with filing requirements, according to a report Wednesday by an independent government watchdog. That’s the equivalent of 3 million people working full-time, year-round. “If tax compliance were an industry, it would be one of the largest in the United States,” says the report by Nina E. Olson, the National Taxpayer Advocate. The days of most taxpayers sitting down with a pencil and a calculator to figure out their taxes are long gone, Olson said. Since 2001, Congress has made almost 5,000 changes to U.S. tax law. That’s an average of more than one a day. As a result, almost 60 percent of filers will pay someone to prepare their tax returns this spring. An additional 30 percent will use commercial software. Without the help, Olson says, most taxpayers would be lost. “On the one hand, taxpayers who honestly seek to comply with the law often make inadvertent errors, causing them to either overpay their tax or become subject to IRS enforcement action for mistaken underpayments,” Olson said. “On the other hand, sophisticated taxpayers often find loopholes that enable them to reduce or eliminate their tax liabilities.” Olson ranks complexity as the most serious tax problem facing taxpayers and the Internal Revenue Service in her annual report to Congress. She urges lawmakers to overhaul the nation’s tax laws, making
Top tax breaks for individuals
By The Associated Press
U.S. tax law is filled with so many credits, deductions and exemptions that Americans will be able to reduce their tax bills by about $1.1 trillion this year, according to congressional estimates. The biggest tax breaks, and the amount they will save taxpayers this year: • Employer contributions toward workers’ medical insurance premiums and medical care are not taxed: $181 billion. • Retirement plan contributions and earnings are not taxed: $165 billion. • Mortgage interest deduction: $101 billion. them simpler, clearer and easier to comply with. Momentum is building in Congress to overhaul the tax code for the first time since 1986. But Washington’s divided government has yet to show it can successfully tackle such a task. President Barack Obama and Republican leaders in Congress say they are onboard, though they have rarely seen eye to eye on tax policy. They struggled mightily just to avoid the year-end fiscal cliff, passing a bill that makes relatively small changes in the nation’s tax laws. Undaunted, the top tax writer in the House says he is determined to pass reform legislation this year. “This report confirms that the code is 10 times the size of the Bible with none of the good news,” said Rep. Dave Camp, chairman of the House and Ways and Means Committee. “Our bro-
• Lower tax rates on long-term capital gains and qualified dividends: $84 billion. • Deduction for state and local taxes: $69 billion. • Deduction for charitable contributions: $46 billion. • Most Social Security and veterans’ benefits are not taxed: $45 billion. • Interest on taxexempt state and local government bonds is not taxed: $26 billion. • When someone dies, the capital gains on his investments is not taxed: $24 billion. • Income from some life insurance products is not taxed: $23 billion. Sources: National Taxpayer Advocate; Joint Committee on Taxation.
Leadership 18 is part “We are trying to figure of the Charitable Giving Coalition, a broad group out the best way to address to pay taxes on employer- of nonprofit organizations any kind of changes. provided health benefits or on contributions to their retirement plans? How Roy Strickland, Jr. CPA would homeowners feel about losing the mortgage interest deduction? Those are the three biggest tax breaks in the tax code, according to congressional estimates. Together, 34830 US HWY. 280 they are projected to save CHILDERSBURG, AL 35044 taxpayers nearly $450 billion this year. INCOME TAX PREPARATION In all, taxpayers will save about $1.1 trillion this - INDIVIDUALS & BUSINESSES year by taking advantage of tax breaks, according to the Joint Committee on FULL SERVICE ACCOUNTING Taxation, the official scorekeeper for Congress. That’s almost as much as indi312110 viduals will pay in income taxes. To avoid angering millions of constituents who rely on popular tax breaks, politicians prefer to endorse tax reform without getting into specifics. Instead, they “Where you are treated like a person” say they want to reform the tax code by eliminating special interest “loopholes” that help only small but well-connected groups of taxpayers. Obama has repeatedly said he wants to eliminate tax breaks for hedge fund managers and companies that buy corporate jets. Throughout the recent Over 30 Years Preparing Tax Returns fiscal cliff debate, House Speaker John Boehner said he favored raising additional tax revenue by reducing Registered Tax Return Preparer* unspecified tax loopholes rather than raising income tax rates. Olson defines “loop1564 Settlement Rd., Sylacauga holes” as tax breaks that mitchells-tax-service.com benefit someone else. She warns that targeting only narrow provisions won’t *The IRS does not endorse any particular raise enough revenue to individual tax return preparer. For more information on tax return significantly lower rates or preparers go to IRS.gov make the law much simpler. “That’s what we’ve been trying to say to taxpayers, that the special interests are us. It’s not just oil and gas or whatever you want to point your finger at,” Olson said. “That’s not where the money is.”
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ken tax code has become a nightmare of loopholes and special interest provisions that create added complexities and costs for hardworking taxpayers and small businesses.” “Comprehensive tax reform will make sure everyone is playing by the same rules and help businesses create more jobs and invest in their workers,” Camp said. The general formula for tax reform is widely embraced on Capitol Hill: Eliminate or reduce some tax credits, exemptions and deductions and use the additional revenue to pay for lower income tax rates for everyone. There is, however, no consensus on which tax breaks to scale back. That’s because Americans like their credits, deductions and exemptions — the provisions Online: National that make the tax law so Taxpayer Advocate: http:// complicated in the first www.taxpayeradvocate.irs. place. Would workers want gov/2012AnnualReport
Home improvements eligible for tax breaks or rebates
Not all products are eligible each year, so it’s beneficial to know what tax incentives are out there regarding home retrofits. Here are some programs to keep in mind. In Canada, the ecoEnergy Retrofit — Homes program has been extended until March 31, 2012. Owners of most homes, including four-season recreational properties and low-rise multi-unit residential buildings of three stories or less with at least 50 percent residential space, might be eligible, according to Natural Resources Canada. Applicants can receive a federal grant for up to $5,000. Owners of multiple dwellings can receive up to $1,000,000. Eligible improvements include heating and cooling systems, ventilation systems, hot water equipment, insulation, air sealing, windows/doors/skylights, and water conservation products. U.S. residents who made home improvements in 2011 may be eli-
gible for tax credits when filing a 2011 tax return. Installation and replacement of biomass stoves, HVAC systems, insulation, metal and asphalt roofs, nonsolar water heaters and windows/doors can earn a person up to 10 percent of the cost, up to $500, or a specific amount from $50 to $300. Improvements must have been done to an existing home and principal residence by December 31, 2011. Federal tax credits for 2012 include geothermal heat pumps. These are similar to ordinary heat pumps, but use the ground instead of outside air to provide heating, air conditioning and, in most cases, hot water. Use of small residential wind turbines and solar energy systems, including solar water heaters and photovoltaic panels, are also eligible. These tax credits offer 30 percent of the cost of the renovation with no upper limit. Visit http://Energy. gov/savings to determine any additional rebate and savings programs that may be offered in your state. Canadian residents can log onto http://oee.nrcan. gc.ca/corporate/1513 to find out about other grants and incentives in their province or territory. Homeowners looking to do improvements can go online or consult
with a tax professional to determine which improvements may be eligible for tax credits or incentives.
With the energy saved and the credit, it could add up to considerable savings on the new product.
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Homeowners often look to make improvements to their homes to improve aesthetics, save money or make their homes more energy efficient. What they may not know is that certain home improvements may qualify them for manufacturer or energy supplier rebates and even federal tax credits that can help a person save even more.
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From Page 7A
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