You may face higher taxes this year

Posted by Sanket Shah | General | Friday 19 May 2017 2:41 pm

Some people filing their 2013 US tax returns are probably in for a nasty surprise. Here are some tax changes that could have a significant impact on what you will owe when you file your 2013 tax return:

Phase-­out of the personal and dependent exemptions:

Starting with 2013 tax returns, more folks will see a reduction in the personal and dependent exemptions they could claim in past years. Taxpayers with Adjusted Gross Income (AGI) levels of $250,000 for singles, $300,000 for married, $275,000 for head of household and married filing separately of $150,000, will see the loss of some or all of their previously allowed personal and dependent exemption deductions.

That means a couple with two dependent children with AGI over $500,000 could pay an additional tax of $6,200, or more.

Higher tax rates for long-­term capital gains and dividend income:

For people in the higher­-income groups below, the rate on capital gains and dividend income increases from 15 percent to 20.

A married taxpayer with a taxable income of $500,000, along with $30,000 in capital gains and $30,000 in dividend income, would pay an additional $3,000 of income tax.

Phase­-out of itemized deductions:

Taxpayers with higher incomes will also lose a portion of the deductions they claim for things like mortgage interest, real estate taxes and charitable gifts. Taxpayers with the same AGI levels as above — singles at $250,000, married jointly at $300,000, head of household at $275,000 and marries filing separately at $150,000 — will see their deductions reduced by an amount equal to 3 percent of their adjusted gross income that is above these thresholds. This can wipe out up to 80 percent of the deductions some taxpayers would have been allowed to claim in 2012.

A couple with about $40,000 in itemized deductions with AGI about $500,000 could pay an additional tax of $2,376.

Higher tax rates on ordinary taxable income:

For workers with higher incomes, the higher tax rate of 39.6 percent will replace the 35 percent rate. That new higher rate applies to single filers with taxable income above $400,000; married filers with income over $450,000; married filing separately over $225,000; and heads of household with taxable income over $425,000.

For instance, due to this tax hike a married couple with a taxable income of $500,000 will owe an additional $2,300.

Medicare surtax on self-­employment income:

Beginning in 2013, an additional 0.9 percent was levied on people whose combined salary and income from self-employment is above $200,000 for singles and $250,000 for married. This was another tax increase aimed at raising revenue to offset the cost of the new health care laws.

If you are married, and have net income from self-employment of $500,000 in 2013, this additional tax will cost you $2,250 this year.

Medicare surtax on investment income:

A part of Obamacare, this tax is designed to raise federal revenue to offset the cost of things like the government subsidies provided to lower income people who buy health insurance on the new health exchanges.

The Medicare surtax amounts to an additional 3.8 percent on net investment income (Like interest, dividends, tax exempt bond interest, royalties, rents, capital gains, etc.). This tax applies to taxpayers with modified adjusted gross income that exceeds $250,000 for married filers and $200,000 for singles. In total, high­income people must pay a tax rate of 23.8 percent on capital gains and dividends.

So for the married taxpayer mentioned above — with $20,000 in capital gains, $20,000 in dividend income and $10,000 in interest — would pay an additional $1,900 of income tax due to this change.

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Who Should File a 2012 Tax Return?

Posted by Sanket Shah | International Tax | Tuesday 29 January 2013 5:04 pm

If you received income during 2012, you may need to file a tax return in 2013. The amount of your income, your filing status, your age and the type of income you received will determine whether you’re required to file. Even if you are not required to file a tax return, you may still want to file. You may get a refund if you’ve had too much federal income tax withheld from your pay or qualify for certain tax credits.

Even if you’ve determined that you don’t need to file a tax return this year, you may still want to file. Here are five reasons why:

1. Federal Income Tax Withheld.  If your employer withheld federal income tax from your pay, if you made estimated tax payments, or if you had a prior year overpayment applied to this year’s tax, you could be due a refund.

2. Earned Income Tax Credit.  If you worked but earned less than $50,270 last year, you may qualify for EITC. EITC is a refundable tax credit; which means if you qualify you could receive EITC as a tax refund. Families with qualifying children may qualify to get up to $5,891 dollars.

3. Additional Child Tax Credit.  If you have at least one qualifying child and you don’t get the full amount of the Child Tax Credit, you may qualify for this additional refundable credit. You must file and use new Schedule 8812, Child Tax Credit, to claim the credit.

4. American Opportunity Credit.  If you or someone you support is a student, you might be eligible for this credit. Students in their first four years of postsecondary education may qualify for as much as $2,500 through this partially refundable credit. Even those who owe no tax can get up to $1,000 of the credit as cash back for each eligible student. You must file Form 8863, Education Credits, and submit it with your tax return to claim the credit.

5. Health Coverage Tax Credit.  If you’re receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation, you may be eligible for a 2012 Health Coverage Tax Credit. Spouses and dependents may also be eligible. If you’re eligible, you can receive a 72.5 percent tax credit on payments you made for qualified health insurance premiums.

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IRS To Accept Returns Claiming Education Credits by Mid-February

Posted by Sanket Shah | International Tax | Tuesday 29 January 2013 11:33 am

On January 28th, 2013, the Internal Revenue Service announced that processing of tax returns claiming education credits will begin by the middle of February. 

Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits — the American Opportunity Tax Credit and the Lifetime Learning Credit.

The IRS emphasized that the delayed start will have no impact on taxpayers claiming other education-related tax benefits, such as the tuition and fees deduction and the student loan interest deduction. People otherwise able to file and claiming these benefits can start filing Jan. 30.

As it does every year, the IRS reviews and tests its systems in advance of the opening of the tax season to protect taxpayers from processing errors and refund delays. The IRS discovered during testing that programming modifications are needed to accurately process Forms 8863.
 
The IRS remains on track to open the tax season on Jan. 30 for most taxpayers. The Jan. 30 opening includes people claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction.

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Individual Tax Return, Due Date and Forms

Posted by Sanket Shah | General | Wednesday 7 December 2011 5:22 pm

Income tax returns for individual calendar year taxpayers are due by April 15 of the next year. Should April 15 fall on a Saturday, Sunday, or a legal holiday in Washington D.C. or in the state to which the return is required to be filed, the returns are due on the next business day. For example, in 2012, April 15 is on a Sunday. April 16 is a legal holiday, Emancipation Day, in Washington D.C. Because Monday, April 16, 2012 is a legal holiday in Washington D.C., Form 1040 income tax returns filed on Tuesday, April 17, 2012, will be treated as timely filed on Sunday, April 15, 2012.

Regular Form

The Form 1040 – U.S. Individual Income Tax Return:

It is the starting form for individual federal income tax returns filed with the IRS. It consists of two full pages not counting attachments. It has 11 attachments, called “schedules”, which may need to be filed depending on the taxpayer. The most commonly used schedules are:

  • Schedule A – It is used to claim itemizes deductions which are allowable against income. Taxpayers may choose to take a standard deduction instead of an itemize deduction. Basic standard deductions range between $5,800 and $11,600 (for tax year 2011), depending on filing status.
  • Schedule B – Enumerates interest and/or dividend income. It is required if either interest or dividends received during the tax year exceed $1,500 from all sources or if the filer had certain foreign accounts.
  • Schedule C – Lists income and expenses related to self-employment, and is used by sole proprietors.
  • Schedule D – It is used to compute capital gains and losses incurred during the tax year.
  • Schedule E  - It is used to report income and expenses arising from the rental of real property, royalties, or from pass-through entities (like trusts, estates, partnerships, or S corporations).
  • Schedule SE – It is used to calculate the self-employment tax owed on income from self-employment (such as on a Schedule C, etc.).

There are other, specialized forms that may need to be completed along with Schedules and the Form 1040.

Short forms

The Form 1040A called “short form” – U.S. individual income tax return, is a shorter version of the Form 1040. Use of Form 1040A is limited to taxpayers with taxable income below $100,000 and who take the standard deduction instead of itemizing deductions.

The Form 1040EZ called “easy form” – Income Tax Return for Single and Joint Filers With No Dependents, is the simplest, six-section Federal income tax return. It is used by taxpayers with taxable income below $100,000 (as of tax year 2011) and who take the standard deduction instead of itemizing deductions.

Other

The Form 1040NR – U.S. Nonresident Alien Income Tax Return.

The Form 1040NR-EZ called “easy” – U.S. Income Tax Return for Certain Nonresident Aliens With No Dependents. It is used by nonresident aliens who have U.S. source income and therefore have to file a U.S. tax return. Joint returns are not permitted, so that husband and wife must each file a separate return.

The Form 1040X – Amended U.S. Individual Tax Return. It is used to make corrections to Form 1040, Form 1040A, and Form 1040EZ tax returns that have been previously filed.

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