For the last several years, taxpayers have been allowed to take an itemized deduction for state and local sales taxes in lieu of state and local income taxes. The American Taxpayer Relief Act of 2012 has extended this break — but only through 2013.

The break can be valuable to those residing in states with no or low income tax rates. But wherever you live, it can be a powerful tax saver if you purchase a major item, such as a car or boat.

With tax reform being discussed and the federal deficit continuing to be a major issue, it’s hard to predict whether the deduction will be extended again. If you’re contemplating a major purchase, you may want to make it in 2013 to ensure the sales tax deduction is available.

Most IRA owners invest their funds in traditional assets, such as stocks, bonds and mutual funds. But some intrepid investors have enjoyed impressive, tax-deferred returns — or even tax-free returns in the case of a Roth IRA — by using their IRAs to hold rental real estate, business interests or other alternative assets.

Despite the appeal of earning higher returns in a tax-advantaged account, alternative-asset IRAs contain a minefield of tax traps that can quickly wipe out the potential benefits. For example:

• Mortgaged real estate held in an IRA can trigger unrelated business income tax. Real estate may also create problems when traditional IRA minimum distributions are required (beginning after age 70½).
• Your dealings with a business in which your IRA has an interest may violate the prohibited transaction rules, resulting in substantial taxes and penalties.
• Transferring S corporation stock to an IRA may terminate the company’s S status and trigger corporate tax liability.

So if you’re contemplating an alternative-asset IRA, please contact us for professional advice.

The Patient Protection and Affordable Care Act of 2010’s shared responsibility provision, commonly referred to as “play or pay,” is scheduled to take effect Jan. 1, 2014. It doesn’t require employers to provide health care coverage, but it in some cases imposes penalties on larger employers that don’t offer coverage or that provide coverage that is “unaffordable” or that doesn’t provide “minimum value.”

A large employer is one with at least 50 full-time employees, or a combination of full-time and part-time employees that’s “equivalent” to at least 50 full-time employees. The nondeductible penalties generally are $2,000 per full-time employee.

Although the shared responsibility provisions don’t take effect until 2014, employers will use information about the workers they employ in 2013 to determine whether they’re subject to the provisions and face the potential for penalties in 2014. The rules are complex, so contact us today to learn whether you might be subject to penalties and what steps you can take to avoid, or at least minimize, them.

Jeff Steiner and Cliff Gelber

Exemption portability, made permanent by the American Taxpayer Relief Act of 2012, provides significant estate planning flexibility to married couples if sufficient planning hasn’t been done before the first spouse’s death. How does it work? If one spouse dies and part (or all) of his or her estate tax exemption is unused at death, the estate can elect to permit the surviving spouse to use the deceased spouse’s remaining estate tax exemption.

But making lifetime asset transfers and setting up trusts can provide benefits that exemption portability doesn’t offer. For example, portability doesn’t protect future growth on assets from estate tax like applying the exemption to a credit shelter trust does. Also, the portability provision doesn’t apply to the GST tax exemption, and some states don’t recognize exemption portability.

Have questions about the best estate planning strategies for your situation? Contact us — we’d be pleased to help.

With the 2012 tax filing season behind us, it’s time to start thinking seriously about 2013 tax planning — especially if you’re a higher-income taxpayer, because you might be subject to one or more significant tax increases this year:

• Taxpayers with FICA wages and self-employment income exceeding $200,000 for singles and $250,000 for joint filers face an additional 0.9% Medicare tax on the excess.
• Taxpayers with modified adjusted gross income exceeding $200,000 for singles and $250,000 for joint filers may face a new 3.8% Medicare tax on some or all of their net investment income.
• Taxpayers with taxable income in excess of $400,000 for singles and $450,000 for joint filers face the return of the 39.6% marginal income tax rate — and of the 20% long-term capital gains rate on long-term capital gains and qualified dividends.

Contact us to learn whether you’re likely to be hit with these tax hikes and what strategies you can implement to minimize the impact.

Now that the 2012 tax return deadline is nearly upon us, if you haven’t filed your return yet, you may be thinking about an extension. This allows you to delay filing your return until the applicable extension deadline:

• Individuals — Oct. 15, 2013
• Calendar-year partnerships — Sept. 16, 2013
• Trusts and estates — Sept. 16, 2013

While filing for an extension can provide relief from April 15 deadline stress, it’s important to consider the perils:

• If you expect to owe tax, keep in mind that, to avoid potential interest and penalties, you still must (with a few exceptions) pay any tax due by April 15.
• If you expect a refund, remember that you’re simply extending the amount of time your money is in the government’s pockets rather than your own.

Still, filing for an extension can be tax-smart if you’re missing critical documents or you face unexpected life events that prevent you from devoting sufficient time to your return right now. Please contact us if you have questions about avoiding interest and penalties.

For many years, the research credit (also commonly referred to as the “research and development” or “research and experimentation” credit) has provided an incentive for businesses to increase their investments in research. But the credit expired at the end of 2011.

The American Taxpayer Relief Act of 2012 (ATRA) extends the credit to 2012 and 2013. You can use the credit for virtually any research that benefits your business. Wages for researchers, the cost of research supplies and the cost of computer licensing for research purposes are all expenses that may qualify for the credit.

The credit is generally equal to a portion of qualified research expenses. It’s complicated to calculate, but the tax savings can be substantial. If you think you may qualify, please contact us for assistance. There’s still time to claim the credit for 2012.

Great News! We’re excited to announce you can now make payments for invoices online!

It’s quick, easy and provides you with complete visibility to your payment history starting the date you make your first payment through this system. Here are some other great features:

• You can make payment online using Visa, MasterCard, Discover and American Express. Each time you do, both you and we receive immediate email confirmation regarding the precise details of your payment.
• Our secure payment site is accessible 24/7/365 from any web-enabled devise and it’s so simple to use, you can complete your transaction in a matter of seconds.
• You can always view every payment you’ve previously made by logging into your account and clicking My Account!

 Try it! Just follow this link, click make a payment, and complete the simple user registration form.  It’s fast, simple and easy to use.

http://www.steiner-gelber.com

On March 20, the IRS issued guidance providing penalty relief to both individual and business taxpayers who file for an extension of their 2012 tax return and ultimately owe additional tax — but only if they meet certain criteria. First, the reason for filing for the extension must be that the taxpayer’s 2012 return involved forms whose publication was delayed because of the American Taxpayer Relief Act of 2012 (ATRA), signed into law Jan. 2. Here’s a sampling of the delayed forms:

• Form 8839: Qualified Adoption Expenses
• Form 8863: Education Credits
• Form 3800: General Business Credit
• Form 5884: Work Opportunity Credit
• Form 6765: Credit for Increasing Research Activities
• Form 8844: Empowerment Zone Employment Credit
• Form 8874: New Markets Credit

In addition, the taxpayer must make a good faith effort when filing for the extension to properly estimate the tax liability. Then that estimated amount must be paid by the return’s original due date, and any additional tax owed must be paid by the return’s extended due date.

If you’re considering filing for an extension due to delayed IRS forms, please contact us to help ensure you’ll qualify for penalty relief.

Generally, you’ll need to file a gift tax return for 2012 if, during the tax year, you made gifts:

• That exceeded the $13,000-per-recipient gift tax annual exclusion (other than to your U.S. citizen spouse),
• That you wish to split with your spouse to take advantage of your combined $26,000 annual exclusions, or
• Of future interests — such as remainder interests in a trust — regardless of amount.

If you transferred hard-to-value property, consider filing a gift tax return even if you’re not required to. Adequate disclosure of the transfer in a return triggers the statute of limitations, preventing the IRS from challenging your valuation more than three years after you file.

There may be other instances where you’ll need to file a gift tax return — or where you won’t need to file one even though a gift exceeds your annual exclusion. Contact us for details.

The deadline for 2012 IRA contributions is April 15, 2013. The limit for total contributions to all IRAs generally is $5,000 ($6,000 if you were age 50 or older on Dec. 31, 2012). Any unused limit can’t be carried forward to make larger contributions in future years.

So if you haven’t already maxed out your 2012 limit, consider taking advantage of one of these three contribution options by April 15:

1. Deductible traditional. If you and your spouse don’t participate in an employer-sponsored plan such as a 401(k) — or you do but your income doesn’t exceed certain limits — your traditional IRA contribution is fully deductible on your 2012 tax return. Account growth is tax-deferred; distributions are subject to income tax.

2. Roth. Contributions to a Roth IRA aren’t deductible, but qualified distributions — including growth — are tax-free. Income-based limits may reduce or eliminate your ability to contribute, however.

3. Nondeductible traditional. If your income is too high for you to fully deduct a traditional IRA contribution or make the maximum Roth IRA contribution, you may benefit from a nondeductible contribution to a traditional IRA. The account can still grow tax-deferred, and when you take distributions you’ll be taxed only on the growth. Alternatively, shortly after contributing, you may be able to convert the account to a Roth IRA with minimal tax liability.

Want to know which option best fits your situation? Contact us.