AS THIS PERSON FOUND OUT, THE RULES ON INHERITED IRAS CAN BE COMPLICATED

The 60-day rollover rule won’t apply if an inherited IRA is first paid to you, as a woman who was the beneficiary of her deceased mom’s IRA learned the hard way.

The custodian paid the death benefits to the daughter. Within the usual 60-day period, she set up a new IRA and deposited into the account the check she had received. Because she didn’t arrange to have the money transferred directly into her IRA, the Tax Court says she’s taxed on the distribution.

(Beech, TC Summ. Op. 2012-74)

2013 STANDARD MILEAGE RATES UP

The Internal Revenue Service today issued the 2013 optional standard mileage rates used to calculate the deductible costs of operating an automobile for business, charitable, medical or moving purposes.

Beginning on Jan. 1, 2013, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:

• 56.5 cents per mile for business miles driven
• 24 cents per mile driven for medical or moving purposes
• 14 cents per mile driven in service of charitable organizations

The rate for business miles driven during 2013 increases 1 cent from the 2012 rate.  The medical and moving rate is also up 1 cent per mile from the 2012 rate.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.

A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle.  In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

These and other requirements for a taxpayer to use a standard mileage rate to calculate the amount of a deductible business, moving, medical, or charitable expense are in Rev. Proc. 2010-51.  Notice 2012-72 contains the standard mileage rates, the amount a taxpayer must use in calculating reductions to basis for depreciation taken under the business standard mileage rate, and the maximum standard automobile cost that a taxpayer may use in computing the allowance under a fixed and variable rate plan.

ESTATE TAX IMPACT ON FARMERS AND RANCHERS

Fox News just reported on the change in the estate tax on January 1st will impact farmers and ranchers.

To watch the video: CLICK HERE

GET THEM WHILE YOU STILL CAN

IRS APPROVES LEAVE-SHARING PROGRAMS TO HELP HURRICANE SANDY VICTIMS

IRS has announced that employees won't be taxed when they forgo vacation, sick, or personal leave in exchange for employer contributions of amounts to charitable organizations providing relief to Hurricane Sandy victims. Employers may deduct the amounts as business expenses.

Treatment of leave based-programs.

Some employers have set up programs where employees can donate their vacation, sick or personal leave in exchange for the employer making cash payments to qualified tax-exempt organizations that provide relief for the victims of Hurricane Sandy. The IRS has announced that it will not assert that cash payments an employer makes to organizations in exchange for vacation, sick, or personal leave that its employees elect to forgo constitute gross income or wages of the employees if the payments are:

(1) made to the qualified organizations for the relief of victims of Hurricane Sandy; and

(2) paid to qualified organizations before Jan. 1, 2014.

Nor will giving employees the choice to participate cause employees to be considered in constructive receipt of income. However, employees who participate in a leave-sharing donation program won't be allowed to claim a charitable contribution deduction for the value of forgone leave excluded from compensation and wages.

As for employers, IRS won't assert that payments made under a leave-sharing donation program are deductible as charitable contributions.

Thus, the employer will be able to deduct the payments without being subject to the various charitable contribution limits to C corporations. 

Treatment of Form W-2. Amounts representing leave-sharing donations need not be included in Box 1 (wages, tips, or other compensation), Box 3 (Social Security wages, if applicable), or Box 5 (Medicare wages and tips) of Form W-2.

In other words, these amounts also will be free of income- and payroll-tax withholding.

Participation in these programs can help both employees who itemize and those who don't. For example, a non-itemizer who forgoes $2,000 worth of leave will get the equivalent of a $2,000 deduction that would not be available if he took the leave and contributed $2,000 in cash himself.

The lower adjusted gross income (AGI) from participating in the program may make it possible for the employee to achieve a greater tax benefit from any of the numerous deductions and credits that are reduced as AGI increases. For example, participation may yield a higher deduction for a contribution to a traditional IRA. Itemizers can also benefit from the lower AGI. Both itemizers and non-itemizers can save Social Security taxes on the amount foregone. On the downside, participation could result in smaller retirement plan contributions depending on how compensation is defined under the employer's retirement plan.

 

IRS WARNS CONSUMERS OF POSSIBLE SCAMS RELATING TO HURRICANE SANDY RELIEF

The Internal Revenue Service today issued a consumer alert about possible scams taking place in the wake of Hurricane Sandy.

Following major disasters, it’s common for scam artists to impersonate charities to get money or private information from well-intentioned taxpayers. Such fraudulent schemes may involve contact by telephone, social media, email or in-person solicitations.

The IRS cautions both hurricane victims and people wishing to make disaster-related charitable donations to avoid scam artists by following these tips:

• To help disaster victims, donate to recognized charities.
• Be wary of charities with names that are similar to familiar or nationally known organizations. Some phony charities use names or websites that sound or look like those of respected, legitimate organizations. The IRS website at IRS.gov has a search feature, Exempt Organizations Select Check, which allows people to find legitimate, qualified charities to which donations may be tax-deductible. Legitimate charities may also be found on the Federal Emergency Management Agency (FEMA) Web site at fema.gov.
• Don’t give out personal financial information — such as Social Security numbers or credit card and bank account numbers and passwords — to anyone who solicits a contribution from you. Scam artists may use this information to steal your identity and money.
• Don’t give or send cash. For security and tax record purposes, contribute by check or credit card or another way that provides documentation of the gift.
• Call the IRS toll-free disaster assistance telephone number, 1-866-562-5227, if you are a hurricane victim with specific questions about tax relief or disaster related tax issues.

Scam artists can use a variety of tactics. Some scammers operating bogus charities may contact people by telephone to solicit money or financial information. They may even directly contact disaster victims and claim to be working for or on behalf of the IRS to help the victims file casualty loss claims and get tax refunds. They may attempt to get personal financial information or Social Security numbers that can be used to steal the victims’identities or financial resources.

Bogus websites may solicit funds for disaster victims. Such fraudulent sites frequently mimic the sites of, or use names similar to, legitimate charities, or claim to be affiliated with legitimate charities, in order to persuade members of the public to send money or provide personal financial information that can be used to steal identities or financial resources. Additionally, scammers often send e-mail that steers the recipient to bogus websites that sound as though they are affiliated with legitimate charitable causes.

Taxpayers suspecting disaster-related frauds should go to IRS.gov and search for the keywords “Report Phishing.”

More information about tax scams and schemes may be found at IRS.gov using the keywords “scams and schemes.”

THIS IS WHAT EXPERTS ARE SAYING ABOUT THE FUTURE OF THE AFFORDABLE CARE ACT

  I just spent 2 days attending the National Tax Conference.  One of the speakers was a specialist in health care reform.  The more I learn about the act the more confusing it is.  Here are a few of his comments of the unexpected outcome of the act that he thinks will come about as employers and taxpayers become more aware of the act. 

 

·         Many owners may consider transferring enough ownership to prevent combination of entities into one “employer” for tax purposes.  This will help keep the employee number under 50 to avoid providing expensive insurance for full time employees. 

·         Many employers will increase  the amount of self coverage that they pay for, but may eliminate or substantially reduce family coverage.

·         Because employers will be encouraged to keep employees under 30 hours, lower income workers will most likely need to work at least two jobs to make a living.   Therefore, these employees will need two jobs to have a chance at making a living.

·         Many employers may eliminate health insurance coverage completely.  This will place these employees into the “public” exchange plan.  Employers will consider this since it may be substantially cheaper to simply pay the penalty and adjust pay for upper level employees.

·         It is cheaper for employers to have younger employees to keep their average premiums downs, so there will be an advantage to reduce the number of older employees.