New Safe Harbor for Home Offices

Beginning in 2013 there is a simplified way to take a home office expense for a portion of your home. This new 'safe-harbor' option greatly simplifies how to record valid expenses for business use of your home. Here is how it works.

• You may opt to take your office space square feet times $5 and use this as a valid home office expense up to $1,500 (300 sq. ft.).
• This replaces the cumbersome allocation of valid home expenses like electricity, heat, depreciation, and other home expenses that are allocated by a % of the home devoted to your office space.
• You may still take property taxes, mortgage interest deductions and casualty losses as itemized deductions on your personal tax return. Better still, you no longer need to allocate these expenses between personal and business use.
• Your home office must still qualify for the deduction using current home office standards in the tax code. Foremost among these is that your home office must be used regularly and exclusively by the business.
• The deduction may not be taken in excess of available business revenue.
• You may still take other qualified business expenses unrelated to the home. This “safe-harbor” calculation is meant to simplify the household expense allocation process only.

What you should know

• The IRS estimates 3.4 million taxpayers used 1.6 million hours to calculate the home office deduction’s 43 line form to allocate their home office use.

• If the IRS reviews these returns in the future it hopes to save a tremendous amount of time and effort used in prior years to confirm the accuracy of the old home office allocation.

• Since 2013 is the first year of this new provision, you will probably need to conduct the home office use calculation using the old method to ensure the safe-harbor opportunity makes sense for you.

One of the nice benefits of this new safe-harbor rule is that your home value (basis) is not reduced by depreciation. This should help reduce risk of a tax surprise from depreciation recapture calculations when you sell your home.

Tax Filing Season Starts January 30th

A late start due to late law passage

“We have worked hard to open tax season as soon as possible.”

- Acting IRS Commissioner Steven T. Miller

The IRS recently announced that it is targeting January 30^th as the first day it will begin processing 2012 tax returns. This delay in filing is due to the late passage of the Tax Relief Act during the first week of January. Here is what you need to know.

Paper or Plastic (digital). It makes no difference if you e-file or send in a paper tax return. Both processes will begin on January 30^th.

Don’t Wait. A number of tax returns will not be allowed to process until late February or early March. Because of this, procrastinators could pay a heavy price in getting their returns processed and refunds paid versus other tax years. So get your information in as soon as possible.

Software Updates too. Just because the IRS says they anticipate processing tax returns on January 30^th does not mean all returns will be processed on that date. The software vendors must also update their programs AFTER the IRS provides revised specs for their tax forms.

Some Returns will need to wait. A number of tax returns will not be filed until late February or early March. This includes tax returns that have the following:

·         Residential Energy Credits

·         Qualified Adoption Expenses

·         Depreciation of Property

·         General Business Credits

·         Domestic Production Activity Deductions (DPAD)

Remember, just because the processing of your tax return may be delayed does not mean you should delay the preparation of your return. Send in your tax information as soon as possible. Having your tax return ready when the processing window is open will help ensure the timely filing of your return and the receipt of any potential refunds.

Hot! 2012 Charitable Contributions from Retirement Accounts

You have until the end of January, 2013 to act

Looking for a way to reduce your 2012 income?  Those who are older than 70 1/2 have an opportunity to make charitable contributions from their qualified individual retirement accounts and have it excluded from 2012 income.  Here is what you need to know.

In Section 209 of the recently passed tax legislation there is a provision for qualified seniors to make a direct charitable contribution out of their qualified retirement account and have it count for 2012.  The requirements are;

1. You must be 70 ½ years old or older.
2. You may only make the contribution from a qualified individual retirement account.
3. You may treat any qualified charitable distribution made after Dec. 31, 2012 and before Feb. 1, 2013 as deemed to have been made on December 31, 2012.
4. If you made a qualified distribution from an individual retirement account in December 2012, the amount is then transferred in cash to a qualified charitable organization prior to February 1, 2013 AND the distribution would meet the other direct contribution requirements you may exclude the distribution from your income.

Other things to know

• There is a small window. If you want to take advantage of this 2012 tax opportunity you must do so by the end of January, 2013.
• There is a limit. Remember this direct charitable contribution is limited to $100,000.
• It must be done correctly. Talk to your plan’s trustee to ensure your contribution is handled correctly.
• What is the benefit? Instead of receiving an itemized deduction for your contribution, qualified direct contributions from your retirement account do not have to be claimed as income.  This effectively allows you to receive 100% of the donation as an un-taxable event.

Please recall that this direct charitable contribution for seniors from their qualified retirement account originally expired in 2011. The direct contribution benefit is now extended through 2013.

2012 Tax Laws Finalized..... IN 2013!

Here is the late breaking news

During the wee hours of January 1, 2013 the final touches were made to 2012 tax laws. While the rest of us could not realistically make plans during 2012 for laws passed in 2013, perhaps there is a clause or two that may help you when you file your taxes in the next few months. Here is what you need to know:

1. Alternative Minimum Tax (AMT). The recently passed tax package includes both a patch for the AMT and a permanent fix to keep the AMT from impacting 20 million plus more taxpayers.

Impact: If you paid AMT in 2011 you will probably pay it once again. If not, you probably won’t …unless your income or deductions change significantly.

2. Educators Expense Deduction is back. You may once again deduct up to $250 in out-of-pocket expenses if you are a qualified teacher. This provision also applies to 2013.

Impact: Hopefully you kept track of your out-of-pocket classroom expenses. If not, start digging through your receipts.

3. Tuition and Fees Deduction is back. This too was extended from 2011 to 2013.

Impact: One more educational deduction option to consider in addition to the Lifetime Learning Credit, the American Opportunity Credit, Coverdell Savings, 529 plans and more.

4. Charitable Contributions from seniors’ qualified retirement plans. This too, expired in 2011 and has been extended through 2013.

Impact: Good luck with this one for 2012 as the change is made after the year ended. Use this as a planning tool for your 2013 donations.

5. Itemized Deduction Code Extensions. The optional general sales tax deduction instead of state income tax itemized deduction was extended through 2013. So too is the ability to treat qualified mortgage insurance premiums like qualified interest.

Impact: This should help maximize your itemized deductions. If you made any large purchases during 2012 that paid sales tax you may wish to collect the receipts.

Stay tuned, many more changes were made to tax laws that will impact you in 2013. The changes noted here will have the greatest impact on your 2012 tax liability.