2012 Tax Returns Claiming Education Credits Delayed

Update March 17, 2013 – On March 12, 2013 the IRS released a statement about the problems with some Education credit claims. In the statement they say they are working hard on sorting out the problem, but it may take up to 4-6 weeks to complete. In the mean time there is not much that affected taxpayers can do, other than wait for their refund to be released once the IRS has completed sorting out the problem.

Update February 9, 2013 – Educations credits claimed on Form 8863 can be filed from February 14, 2013.

The IRS announced on January 28, 2013 that 2012 tax returns claiming education credits can not be filed until mid February. These are the American Opportunity Tax Credit and Lifetime Learning Credit claimed on Form 8863 Education Credits.

For taxpayers due a tax refund by filing Form 8863 this will mean a further delay in receiving the refund. If this will apply to you, budget for receiving the refund around about the end of February or early March if you e-file.

For taxpayers claiming other education tax benefits, such as the Tuition and Fess Deduction or student loan interest deduction, they can start filing on the official start of the tax season on January 30, 2013.

According to the IRS the filing delay for Form 8863 is due to them having to make modifications to their systems following testing of the processing of Form 8863. They also indicated that in a normal year about 3 million tax returns with Form 8863 are filed by mid February, representing about 25% of the total Forms 8863 filed each year. So, hopefully the impact will not be too great.

I am recommending that my clients with education tax benefits still make their tax preparation appointment when they have all their information ready. That will enable me to check which education tax benefit is best for them. If it is one of the benefits that can be claimed from January 30, 2013 there will be no delay in filing their tax return and getting any tax refund due to them. For those using Form 8863 the return will be all ready to e-file once the IRS gives the go ahead.

The 2013 tax filing season continues to be an interesting one with this new delay on top of the previously announced delays. Hopefully there won’t be too many more and tax payers and tax preparers can concentrate on getting tax returns filed.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

2012 Tax Return – What’s New

As we start the 2012 tax year filing season what is new on the 2012 tax return for individuals (Form 1040 series). After the delay to the tax season, caused by Congress only passing the American Taxpayer Relief Act of 2012 on January 2, 2013, the IRS has now updated and issued most of the tax forms for 2012. Most notably the depreciation form 4562 will not be updated for awhile. So if you need to file that as part of your business profit you will have to wait to file your tax return.

  • The season will officially start on January 30, 2013 when the IRS e-file system will start accepting returns and they will start processing mailed in returns.
  • Filing Deadline – The due date for filing the 2012 tax return is April 15, 2013. There are no extra filing days this year due to special holidays in the District of Columbia. 🙁
  • Schedule 8812 – This replaces the old form 8812 which is used to claim the Additional Child Tax Credit. The new schedule has a Part 1 seeking information about children who have an ITIN rather than a SSN.
  • Reporting Capital Gains on Form 8949 – This form was introduced for the first time for the 2011 tax return. For 2012 the form has been revised to make to easier to fill in, with a rearrangement of some columns and the addition of a gain/loss column. 2012 will also be the first year that brokers will be reporting basis for mutual fund investments made in 2012. When preparing my client’s tax returns I always check the basis reported by the brokers, as it is not unknown for them to get it wrong.
  • Form 8958 – Allocation of Tax Amounts Between Certain Individuals in Community Property States – This is a new form for 2012 for use in Community Property States when couples are filing Married Filing Separate. It is also to be used by California same-sex spouses and registered domestic partners of Nevada, Washington and California. In Community Property States income and deductions are generally shared equally although there are exceptions for certain property. The allocations can get complicated so seek professional advice if you are not sure how to use this form. The Community Property States are Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.
  • Roth Rollovers – If you rolled over an IRA or 401(k) pension plan to a Roth IRA or account in 2010 and elected not to report that on your 2010 income tax return then half would have been reported on your 2011 income tax return. The other half needs to be reported on your 2012 return.
  • First Time Homebuyer Credit – This is no longer available. However if you had the 2008 version of the credit you will need to report your annual repayment of the credit. In this case there is no need to fill in Form 5405. If you are repaying for any other reason for any version of the credit you need to complete From 5405.
  • Medicare Deduction For Self-Employed – Although this has been around for awhile it has only been in the last 12 months that the IRS has clarified the availability of this deduction. It will apply to those who are self-employed and receiving Social Security and paying Medicare premiums. These premiums qualify as health insurance premiums making them available for the self-employed health insurance deduction. If you failed to claim this in prior years, you can go back to 2009 and file amended returns.
  • Extended Tax Benefits – For details of some of the tax benefits that have been extended for 2012 see my January 2013 Newsletter.

If you need assistance preparing your 2012 Income Tax Return call me on (480) 363-4808 to make an appointment. If you live in Chandler, Phoenix, Tempe, Mesa, Gilbert, Queen Creek or Scottsdale, AZ I will save you time and hassle by coming to you to prepare your income tax return. If you live elsewhere I can prepare the tax return using information you upload to my secure client portal or mail to me. I look forward to helping you prepare your income tax return.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

Key Tax Deadlines – February 2013

The usual employer tax deadlines continue through the month for paying over tax payments to the IRS. If you have been paying quarterly remember to check each quarter that you are still eligible to do so. The test only goes back one quarter.

Other tax deadlines this month include:

February 11 – Employees must report to their employer all tips for January if they total more than $20.
February 15 – If you claimed exemption from payroll withholding in 2012 you need to file a new W-4 with your employer. If you don’t file a new W-4 your employer will start deducting withholding from your pay.
February 16 – Start deducting withholding for any employees who claimed exemption in 2012 and have not given you a new W-4 for 2013.
February 28 – A whole string of tax forms need to be filed with the IRS by today. These include W-2s for your employees, W-3, 1098, 1099 and W-2G.

For businesses, March includes the filing deadline for many business tax returns. I ask my clients to let me know by mid February if their accounting records will be ready to prepare their tax returns by the March 15 deadline. If they will not be ready I make sure that an extension is filed so that the deadline is pushed out.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

Adoption Tax Credits and Deductions

Adoption tax credits and deductions are a very useful financial benefit for parents who adopt a child. In Arizona we may see more use of these following Jan Brewer’s (the Arizona Governor) 2013 State of the State Address.

In the address she said, “Arizona’s abused and neglected children need help. The Executive budget I release Friday will add 150 CPS caseworkers and boost foster care, adoption services and emergency placement of children needing rescue. Because these needs can’t wait, I’m asking you to join me in
approving an emergency budget request to hire 50 additional caseworkers right now. Let’s come together for the safety of our children.”

So what are the tax benefits available to parents who adopt a child in Arizona?

These include:

  • Federal Adoption Credit
  • Federal Exclusion For Employer Provided Adoption Benefits
  • Arizona Deduction For Adoption Expenses

If you live in another state they may have a similar deduction like the one for Arizona.

If you are planning on adopting a child I would recommend that you consult with your tax preparer before starting the adoption so that you fully understand the credits and deductions available. They will also be able to let you know what records and documents you need to retain to support your claim.

Federal Adoption Credit

This is the one that most people will claim and is claimed on form 8839. It is a non-refundable credit for up to $12,970 (2012-$12,650) of adoption expenses. Non-refundable means that you can only use so much of the credit as covers your tax liability. Any balance of the credit that you can’t use is carried forward for up to 5 tax years to use against the tax liabilities in those years. So, you are likely the see the benefit in reduced tax bills over several years. Note, that the credit is phased out if your adjusted gross income (AGI) is more than $194,580 (2012-$189,710) and cannot be claimed if your AGI exceeds $234,580 (2012-$229,710).

One very beneficial aspect of the credit is that if you adopt a special needs child you can claim the full credit even if you did not pay any adoption expenses. There are several conditions that determine if a child is a special needs child which revolve around the State determining that a child is a special needs child.

The adoption credit can be claimed for both US children and foreign children. The major difference between the two is that for adopting foreign children you can only claim the credit when the adoption becomes final. For US children you can claim the credit as the adoption progresses and even if the adoption never becomes final.

There are various definitions about who is a qualifying child to claim the adoption credit and which expenses qualify. Your tax preparer can advise you whether your child and expenses qualify.

Federal Exclusion For Employer Provided Adoption Benefits

If your employer has a written adoption assistance program then you may be able to exclude from your income the same amount of adoption expenses as is allowed for the adoption credit. In certain circumstances you may be able to exclude an amount from your income and also claim the adoption credit. This part of the claim can get complicated, so if this applies to you I would recommend you get tax advice before commencing the adoption.

Arizona Deduction For Adoption Expenses

If you are filing an Arizona tax return you can claim a deduction against your income for the lesser of your total qualifying adoption expenses and $3,000. The deduction can only be claimed in the year the adoption is final. There is no deduction if you did not incur any adoption expenses.

2010 and 2011 Refundable Adoption Credits

In 2010 and 2011 the maximum credits were slightly higher than they are now. More importantly they were refundable which meant that you did not need to carry forward any unused credit. The unused amount was repaid to you.

If you adopted a child or were in the adoption process in 2010 and 2011 make sure that you have filed your adoption claim on form 8839 to get any refund due to you. The deadline for claiming a 2010 tax refund is April 15, 2014 and for a 2011 tax refund it is April 15, 2015.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

What Is New For 2012 Arizona Personal Income Tax Return

For the 2012 Arizona Personal Income Tax Returns (Forms 140, 140A, 140EZ, 140PY and 140NR) there have been a number of significant changes for 2012.

Credit For Contributions to Private School Tuition Organizations

These have been indexed to $503 ($1,006 married filing joint). This is a useful credit if you wish to support a private school. I discussed this in my article on Useful Arizona Tax Credits.

NEW – Credit For Contributions to Certified School Tuition Organizations

This is a new credit for 2012 that works in conjunction with the Private School Tuition credit. It is $500 ($1,000 married filing joint) and can only be claimed if you have claimed the maximum Private School credit. Basically it is a way of contributing up to $1,003 ($2,006 married filing joint) to support private education and getting a dollar for dollar reduction in your taxes. Contributions made up to April 15, 2013 can be claimed in 2012.

NEW – Credit for Qualified Health Insurance Plans

From January 1, 2012 to December 31, 2014 there is a new Arizona tax credit for employers who provide qualified health plans or contribute to health savings accounts (HSAs) for employees who are Arizona residents. The credit is worth $360 for each qualified employee.

2012 Conformity

The starting point for Arizona income tax returns is the Federal adjusted gross income (AGI) and for itemized deductions it is the Federal Schedule A. As in prior years the Arizona legislature has not yet decided if it will adopt all of the 2012 Federal tax changes that affect AGI and Schedule A. They will do that during the 2013 session.

As you may not know if Arizona has full conformity with Federal tax law by the time you file your Arizona tax return you have a number of choices. You could file an extension and wait for the conformity to be decided, assume conformity will be passed or assume conformity will not be passed. Each has their own pros and cons. I normally recommend clients assume that conformity will be passed. If for any reason it is not passed you can then file an amended return without penalties and interest, if the amended return is filed by October 15, 2014.

Standard Deduction

The standard deductions have been indexed for inflation to $4,833 for single and married filing separate, and $9,665 for head of household and married filing joint.

Use Tax No Longer Reported On Income Tax Return

This turned out to be a one hit wonder. I wrote about this in my article published on January 4, 2013.

Contributions to 529 College Savings Plans

These have been made permanent. So you can continue to deduct $750 ($1,500 for married filing joint) for contributions made in the year.

Citizens Clean Elections Fund Tax Reduction Repealed

This was where you would get a $5 ($10 for married filing joint) reduction in your tax just for ticking a box. It was good while it lasted but now it is gone. Similarly the tax credit for donations to the Clean Elections Fund has gone for donations made after August 2, 2012

Amended Tax Returns 140X

Starting with 2012 you have to use the specific year form 140X rather than the generic form that was available before.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

2013 Tax Season Delayed

Update Monday March 4, 2013 – The IRS is now accepting all 2012 individual and business tax returns.

The IRS announced on January 8, 2013 that the 2013 tax season will open on January 30, 2013. It was originally going to be January 22, 2013. In addition, taxpayers filing business or rental schedules who need to claim depreciation on Form 4562 will not be able to file until late February or March. There are several other tax forms that also cannot be filed until late February or March. The IRS has published a full list of these forms.

The IRS will announce when the affected business or rental returns can be filed.

The delay in the start of the filing season is a result of the American Taxpayer Relief Act of 2012 only being passed on January 2, 2013. The IRS needs more time to update their forms and systems as a result of the various items passed in the Act.

There will be no advantage to filing a paper return before these dates as the IRS will not process paper returns any earlier.

If you are ready to file before January 30, 2013 then your tax preparer can still prepare your return but it will not be filed until January 30, 2013 at the earliest.

Similarly, if you a need to file a return with business or rental income before the end of February it will be possible to file without any depreciation for additions in 2012. An amended return could then be filed in March or early April to claim the depreciation. That might be worth doing if a significant refund will be held up or you have issues with other people claiming dependents and you want to file before them. Please note, if you do this your tax preparer will probably charge for preparing the amended return. You will need to evaluate the benefit of doing this compared to the additional cost.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

E-Filing Of Some 2012 Business Tax Returns Delayed

UPDATE February 4, 2013 – The IRS is now accepting some 2012 calendar year business tax returns. Read more on my updated business tax return article.

The IRS announced on January 4, 2013 that e-filing of some 2012 business tax returns is being delayed. This is a result of the late passing of the American Taxpayer Relief Act of 2012. The act included a number of business provisions that affect 2012 which means the IRS needs to update some forms and instructions.

They don’t expect the delay to adversely affect most business tax return filings as most of them are not due until mid March or mid April. Of course, if an extension is filed then the filing deadline is pushed further out to the early fall.

At the moment the IRS will not accept any 2012 tax year business forms (other than Forms 2290 Heavy Highway Vehicle Use Tax Return and 7004 Application For Automatic Extension Of Time To File Certain Business Income Tax, Information and Other Returns). They will also not accept Form 8849, Schedule 3 – Certain Fuel Mixtures and the Alternative Fuel Credit, as well as any forms in the 990 series (Tax Exempt returns).

Starting on January 7, 2013 the IRS will start accepting e-filing of the following forms:

  • Fiscal year returns with a year ending prior to 12/31/2012
  • All 2011 tax year and 2012 fiscal year business returns
  • 2012 Forms 2290
  • 2012 Forms 7004

Any forms filed by paper will also not be processed until e-filing is made available for the affected forms.

If you need any assistance with e-filing your business tax returns please contact Mark Smith RTRP, our business tax return preparer on (480) 363-4808 or email info@cranmereaccountingandtax.com.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

Mark Smith Achieves QuickBooks Online 2013 Certification

QuickBooks Certified ProAdvisor - QuickBooks Online CertificationWe are pleased to announce that Mark Smith, RTRP, has obtained his QuickBooks Online 2013 Certification. Mark who is an Advanced Certified QuickBooks ProAdvisor now has certifications across the whole family of QuickBooks products. These include QuickBooks Desktop (Pro, Premier, Enterprise Solutions and Mac), QuickBooks Online (Simple Start, Essentials and Pro) and QuickBooks Point of Sale.

QuickBooks Online is the cloud version of QuickBooks. It offers anytime anywhere functionality enabling the user to maximize the benefits from their accounting system. The anytime anywhere benefits also enable the user’s accountant to offer timely and effective services. Other advantages of using QuickBooks Online are automatic backups and upgrades. The product is being continually upgraded by Intuit with at least monthly improvements being seen.

For a free one hour initial consultation about your QuickBooks requirements please call Mark on (480) 363-4808 or email info@cranmereaccountingandtax.com.

Arizona Use Tax No Longer Reported On Income Tax Return

Starting with the 2012 Arizona income tax return, Arizona use tax is no longer reported on the tax return. During the 2012 Arizona Legislative session this requirement was repealed. This means that 2011 was the only tax year in which the use tax needed to be reported on the tax return. We previously discussed this requirement in our December 2011 article.

During the debate on repealing the reporting requirement it was clear that very little additional tax was expected to be raised. The estimate was $470,000 extra use tax collected each year. Compared to an Arizona population of 6,500,000 that equates to about 7 cents per person. This is completely out of proportion to the amount of time that each taxpayer would need to incur to report the tax on their tax return.

Another factor helping the repeal is that Amazon, one of the major online retailers not charging sales tax will start charging Arizona sales tax on Arizona purchases from February 1, 2013. A lot of the other major online retailers already charge sales tax because they have physical stores in Arizona.

Even though Arizona use tax no longer needs to be reported on the tax return it still needs to be paid to the State and also your local City. So if you buy goods online from a retailer who does not charge sales tax or buy something outside of Arizona on which no sales tax was charged you need to pay use tax.

Read our December 2011 Arizona use tax article for more details and information on reporting use tax.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.

Tax Refunds May Be Later In 2013 Tax Season

Update February 4, 2013 – The IRS has announced that many refunds which include Earned Income Credit have been delayed because tax preparers are not correctly completing Form 8867 Paid Preparer’s Earned Income Checklist. If your refund includes Earned Income Credit have a look at your copy of Form 8867. If any of lines 22, 23, 24, 25 and both parts of 26 and 27 have not been completed there is a chance that your refund will be delayed. Although Form 8867 was updated for 2012 and new parts added to it such as lines 26 and 27, competent and up to date tax preparers should have known about these changes.

Update January 9, 2013 – This article has been updated to reflect the further delay in the filing season start date announced by the IRS. Read more about this in our article published January 9, 2013.

If you are expecting a tax refund this tax season, budget for receiving it later this year than in the past.

Firstly, e-filing for 2012 income tax returns does not start until January 30, 2013. This is about two weeks later than normal. You could mail in your tax return but the IRS will not process the return until January 30. In addition you will wait at least 4 weeks for the refund.

E-filing your tax return is usually the best way to go as it is a more secure way of filing your tax return. It is also less prone to errors and will usually get you your refund faster than mailing in the return.

Another reason why tax refunds might be delayed for some taxpayers is tax fraud. The IRS is increasingly taking a close look at certain refunds and reviewing them before they issue the refund. This particularly applies to Earned Income Credit claims. This is a very useful credit for working families with children. It is a refundable credit meaning that you get the credit even if you have no income tax to pay. However, there is a high incidence of erroneous claims due to misunderstanding of the rules or just plain fraudulent claims. So, if you have a large Earned Income Credit claim or are not using your own children for the claim then the IRS may review your refund before issuing it to you.

For this tax season the IRS has an improved Where’s My Refund tool. You can access this tool from IRS.gov or using the IRS2Go phone app. For the 2013 tax season the IRS expects to issue 9 out of 10 refunds in less than 21 days.

The improved Where’s My Refund tool will now give you an actual personalized refund date once the IRS has received and approved your refund. The tool will also show you the status of the return i.e. received, refund approved and refund sent.

You can access the tool 24 hours after a return has been e-filed or 4 weeks after you mail in a return.

Disclaimer – This article does not constitute personal tax advice to the reader and is only offering general information. You should seek professional advice for your own situation as the most appropriate tax planning depends on your personal and unique circumstances.