2012 Tax Law Update

Brought to you by:

Presented by: Mike DavolioSenior Tax AnalystIntuit Accounting Professionals Division

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Mike Davolio, CPASenior Tax Analyst

• With Intuit / Lacerte since 1987• Monitor legislative and regulatory

activity• Circulate information to employees

and customers• Analyze and test software• Train employees and customers• Government liaison• Public relations representative  

Agenda• 2012 Tax Law Changes

• Health Care Act Changes for 2013

• Tax Reform

• Internal Revenue Service Initiatives

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2012 Tax Law Changes

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3% Withholding Repeal & Job Creation Act (PL 112-56, 11/21/11)

• Revised work opportunity credit for employers (Form 5884)• $5,600 credit for hiring veterans looking for work

over 6 months• $9,600 for disabled veterans

• Covers work beginning after enactment date• Credit extended 1 year for hiring veterans (2012)

• Repeals 3% withholding requirement on government contractors• Stricter eligibility requirement for premium

assistance credit for health insurance (2014)

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Extender Legislation

Congress• Many tax measures expired at end of 2011 or will expire

at end of 2012 unless government extends• First group impacts tax year 2012; second group impacts

tax year 2013 and 2013 estimates and withholding tables

 Internal Revenue Service• AMT patch (exemptions and special credit ordering rules)

could affect more than 60M taxpayers• Extenders (tuition and fees deduction, etc.) not as

complex

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Individual provisions that expired on 12/31/11

• Alternative Minimum Tax Patch• Increased exemptions (will decrease to $45,000 MFJ,

QW; $33,750 Single, HH; $22,500 MFS)• Nonrefundable personal credits allowed to offset AMT

• Deduction for educator expenses• Tuition and fees deduction• Itemized deduction for sales tax• Tax-free distributions from IRAs for charitable purposes• Refundable portion of adoption credit• Deduction for mortgage insurance premiums

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Individual provisions that expired on 12/31/11 (cont.)

• Credit for energy-efficient improvements• 100% exclusion for gain on small business stock • Contributions of capital gain property for conservation

purposes• Qualified zone academy bonds • Deadline to claim low-income housing credits in GO Zone• Tax incentives for District of Columbia

Footnote• The government could let certain provisions expire for

upper income taxpayers and not expire for lower and middle income taxpayers

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Business provisions that expired on 12/31/11

• Research credit• Employer wage credit for activated reservists• Indian employment tax credit• New markets tax credit• Railroad track maintenance credit• Mine rescue team training credit• Reduction in S corporation recognition period for built-in

gains tax• 15-year recovery period for leasehold improvements,

restaurant property and retail improvements• Suspension of 100% of net income limit on percentage

depletion

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Business provisions that expired on 12/31/11 (cont.)

• Accelerated depreciation for Indian reservation property• Special rule for contributions of food and book inventories• Special rule for corporate contributions of computer

technology or equipment for educational purposes • Environmental cleanup costs deduction• Deduction for domestic production activities in Puerto Rico• Shareholder basis adjustment for stock of S corporations

making charitable contributions• 7-year recovery period for motorsports entertainment

complex property• Empowerment zone tax incentives

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Depreciation

• 50% bonus depreciation• PIS after 12/31/11 & before 1/1/13

• Section 179 limit set at $139,000 with $560,000 phase-out threshold• TY beginning after 12/31/11

• Off-the-shelf software qualifies as section 179 (through 2012)• Election to accelerate AMT credit in lieu of bonus

depreciation (through 2012)

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Provisions that will expire on 12/31/12

Tax cuts• Tax rates: 10%, 15%, 25%, 28%, 33%, 35%• Will increase to 15%, 28%, 31%, 36%, 39.6%

• Marriage penalty: size of 15% bracket and standard deduction (MFJ and qualifying widow)• Will decrease to 167%

Capital gain and qualified dividend rates• LTCG and dividends taxed at maximum rate of 15%• LTCG will increase to 20%; dividends will be treated as

ordinary income

2% payroll tax holiday

Estate, gift and generation skipping taxes• Rates, exemption levels

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Provisions that will expire on 12/31/12 (cont.)

Itemized deductions and personal exemptions not phased out for higher income taxpayers

Changes to rules for the following provisions• Child tax credit• Earned income credit• Dependent care credit• American opportunity tax credit• Adoption credit• Student loan interest deduction• Coverdell Education Saving Accounts• Exclusion for employer-provided educational assistance

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Roth IRAs & Designated Roth Accounts

• ½ of 2010 Roth conversion or rollover and rollover to designated Roth account included in income in 2012• If taxpayer didn’t elect to include 100% in 2010• Should have reported ½ in 2011

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Schedule D / Form 8949

• For TY12, Form 8949 will support the following:• Schedule D (Forms 1040, 1120, 1120S, 1065,

1065-B)• Form 8865 (Foreign Partnerships) will use Schedule

D (Form 1065) and thus Form 8949• Schedule D for Form 1041 will not be modified to

use Form 8949

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Form 1099-K Reporting

• No direct reporting of amounts from Form 1099-K (Payment Card and Third Party Network Transactions) on tax return• Forms 1120, 1120S, 1065 and

Schedules C, C-EZ, E, F• Form 1099-K still filed with IRS

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Informational reporting of employer-sponsored group health plan coverage

• Reporting of cost on Form W-2 optional if:• Employer required to file fewer than 250 W-2s for

preceding calendar year• W-2 furnished to employees who terminate before

end of a calendar year and request W-2 before end of that year (in writing)

• W-2 provided by third-party sick-pay provider to employees of other employers

• Chart: http://www.irs.gov/newsroom/article/0,,id=254321,00.html

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Partnerships

• Partnerships allowed to provide Schedule K-1 electronically to partners• Recipient must affirmatively consent• Furnisher must provide a disclosure statement

that details the arrangement

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2012 Standard Mileage Rates

Business• 55.5 cents/mile

Medical and moving• 23 cents/mile

Charitable • 14 cents/mile

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Inflation Adjustments

  2011 2012

Elective Deferral Plan Limits (401(k), 403(b), SEPs, Thrift Savings, state & local)

BaseCatch-up

Total

$16,500$5,500$22,000

$17,000$5,500$22,500

408(p) Deferral Plan Limits (SIMPLE Plan)

BaseCatch-up

Total

$11,500$2,500$14,000

$11,500$2,500$14,000

IRA DeductionBase

Catch-upTotal

$5,000$1,000$6,000

$5,000$1,000$6,000

IRA Phase-Out RangesSingle/HOH

MFJ/QW$56,000-66,000

$90,000-110,000$58,000-68,000

$92,000-112,000

Health Care Act Changes for 2013

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Increased tax for high-earning workers and self-employed

• New law: additional 0.9% (2.35% in total) hospital insurance (HI) tax applies to wages received in excess of• $250,000 for MFJ; $125,000 for MFS; $200,000 for

others• Employers collect extra 0.9% on wages exceeding

$200,000• Also applies to self-employment income

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Surtax on unearned income of higher-income individuals

• New law: Medicare tax will apply to investment income• Imposed on individuals, estates and trusts

• Tax is 3.8% of lesser of • Net investment income, or• Excess of modified AGI over $250,000 for MFJ or

QW, $125,000 for MFS, $200,000 for others

• Net investment income: interest, dividends, royalties, rents, passive activity gross income and net gain from disposition of property• Reduced by deductions

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Higher threshold for deducting medical expenses

• New law: raises floor from 7.5% of AGI to 10%• AGI floor for individuals age 65 and older will

remain unchanged at 7.5% through 2016

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Dollar cap on contributions to health FSAs

• FSA (flexible spending arrangement): tax-advantaged account that can be set up through cafeteria plan of employer• Allows employee to set aside a portion of earnings

to pay for expenses as established in cafeteria plan (medical, dependent care, other)

• New law: allowable contributions to health FSAs capped at $2,500 per year (indexed for inflation after 2013)

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Tax Reform

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Budget Control Act of 2011 (PL 112-25, 8/2/11)

• Initial $1T deficit reduction (2012- 2021) without raising revenue• Second $1.5T deficit reduction• Recommendations from Joint Select Committee on

Deficit Reduction• May include fundamental tax changes

• Possible Tax Changes• Lower individual and corporate rates• Cutback in individual breaks (mortgage interest)• Post 2012 expiration of Bush-era tax cuts• Eliminate accelerated depreciation, domestic

production activities deduction, LIFO• International: territorial tax regime

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Budget Control Act (cont.)

• If JSC fails to approve a report, across-the-board reductions must be implemented• 50% defense & 50% domestic cuts in 2013

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President Obama’s Tax Plan

• Individual tax rates• Retain 10%, 15%, 25%, 28% rates• Raise top two rates to 36% and 39.6% for those

earning over $250K MFJ, $200K Single

• Deductions and credits• Reduce value of itemized deductions and other

preferences to 28% for families with income over $250K

• Investment income• Retain 15% rate for taxpayers with income under

$250K• Raise rate to 20% for those making over $250K

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President Obama’s Tax Plan (cont.)

• Alternative Minimum Tax• Index 2011 exemption amounts to inflation• Endorses Buffet Rule: households making more

than $1M pay at least 30%

• Estate tax• $3.5M exemption; 45% tax rate

• Corporate rates• Reduce top rate from 35% to 28%

• Other• Eliminate industry specific tax breaks (oil and gas)• Overhaul research credit• Renew clean energy incentives

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Tax reform proposals to limit or eliminate itemized deductions

• Obama• Limit the benefit for higher income taxpayers to

28% of the deduction or exclusion

• Fiscal Commission• Replace itemized deductions with a standard

deduction• Replace certain favored deductions (mortgage

interest) with nonrefundable credits

• Simpson-Bowles• Eliminate nearly all tax expenditures• Restructure certain tax expenditures (replace

mortgage interest deduction with 15% refundable credit)

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Tax reform proposals (cont.)

• Bipartisan Policy Center• Eliminate itemized deductions and standard

deduction• Allow taxpayers to claim limited refundable credits

for mortgage interest and charitable contributions

• Wyden-Coats• Repeal certain itemized deductions and credits• Increase standard deduction ($30K MFJ, $15K

Single)• Retain mortgage interest and charitable

contributions

Internal Revenue ServiceInitiatives

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IRS marks third anniversary of Return Preparer Review

Mandatory registration and use of PTIN• Anyone who is paid to prepare, or help prepare,

all or substantially all of a federal tax return, including EAs• PTIN valid for a calendar year, renewed annually

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Return Preparer Review (cont.)

Competency Test• Available at more than 260 vendor testing

centers • Certain preparers required to take test by

12/31/13• CPAs, EAs and attorneys are exempt from test • Certain non-signing preparers supervised by

CPAs, EAs or attorneys are exempt, as are non-1040 preparers• Determine if there is a test requirement; set a

test date, time and location: www.irs.gov/ptin• More information: www.irs.gov/taxpros/tests and

select RTRP test

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Return Preparer Review (cont.)

Continuing Education • The roughly 340,000 preparers who have testing

requirement also must complete 15 hours of continuing education courses each year• 10 hours in federal tax law, 3 hours in federal

tax law changes, 2 hours in ethics• Became effective January 2012; applies even if

preparer has not taken the test• Hundreds of outlets offering IRS-approved CE

courses (www.irs.gov/taxpros/ce)

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Return Preparer Review (cont.)

Ethics and Tax Compliance• Ethical requirements that previously applied

only to CPAs, EAs and attorneys now apply to all paid return preparers• All paid preparers also will undergo a tax

compliance check and are subject to standards for practice outlined in Treasury Department Circular 230

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Return Preparer Review (cont.)

Registered Tax Return Preparer (RTRP)• Preparers who pass competency test and tax

compliance check• Beginning in 2014, only RTRPs, EAs, CPAs and

attorneys will be authorized to prepare individual income tax returns for compensation

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Return Preparer Review (cont.)

Public Database• IRS will create a publicly searchable database• Allows taxpayers to see if preparers have met

IRS standards or to find a preparer in their zip code area• Will show credentials held by preparer• Public education campaign to inform taxpayers

to use only CPAs, EAs, attorneys or RTRPs if they pay to have taxes prepared

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Intuit Resources

Intuit & National Association of Tax Professionals (NATP) team up for professional development • http://www.natptax.com/intuit• More than 300 live nationwide workshops,

facilitated online, self-study & webinar courses designed by tax professionals• Maintain CPA, EA, RTRP status with CPE courses• EA Exam Preparation Course• RTRP Exam Preparation Course

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Tax-Related Identity Theft

General• IRS distributed about 250K Identity Protection

Personal Identification Numbers (IP PINs) in 2012 filing season• Expanded pilot program to protect victims of

previously confirmed cases of identity theft• IRS estimated that it stopped at least $1.4B in

refund fraud in 2011• IRS has identified more than 460K taxpayers

victimized since 2008

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Tax-Related Identity Theft (cont.)

New IP PIN each year• IRS mails out unique 6 digit identifiers for use in

current season only• A taxpayer who believes he/she was victimized

files Form 14039, Identity Theft Affidavit• IRS verifies the information, then flags any

return filed under the taxpayer’s Taxpayer Identification Number, to make sure it is not filed fraudulently• Taxpayer then uses IP PIN on return

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Tax-Related Identity Theft (cont.)

System not infallible • Difficult to issue quick refunds and check for

fraud• IRS never initiates contact by email or social

media to request personal or financial information• Post office that delivers IRS notices is not secure• Taxpayer must keep the IP PIN private and

secure

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IRS revises return preparer penalties

High impact penalties• $50 for each failure to furnish taxpayer a completed copy

of return; up to $25,000 per preparer per year• $50 per failure to sign a return; up to $25,000 per

preparer per year• $50 for failure to furnish a PTIN per return; up to $25,000

per preparer per year• $50 per failure to retain a copy or list; up to $25,000 for

any return period• $50 per failure to file an information return (or include an

item thereon); up to $25,000 for any return period• $500 per instance of a preparer endorsing a refund check

issued to a taxpayer• $500 for failure to comply with EIC due diligence

requirement

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Greater due diligence requirements for earned income credit claims

• Paid Preparer's Earned Income Credit Checklist (Form 8867)• Must meet due diligence requirements in determining

taxpayer's eligibility and credit amount• Documentation for residency of qualifying child (e.g. school

records)• Documentation for disability of qualifying child (e.g. doctor

statement)• Existence of Schedule C business (e.g. Form 1099)• Retain all supporting documents (checklist, worksheets, etc.)

for 3 years

• Failure could result in a $500 penalty for each infraction

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Modernized e-File (MeF)

• Represents next generation• Built on internet-based platform• Benefits

• Faster processing time • Improved error detection & more detailed rejection messages• Expedited acknowledgements sent within minutes• Attach PDF files• Standardized business rules

• Individual returns: final year of phase-in period• Doesn’t change way practitioners transmit returns• Fully supported by Intuit products

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IRS & Social Media

IRS2Go• Smartphone application for iPhone, iTouch and

Android

YouTube• Short, informative videos on various tax-related

topics

Twitter (@IRSnews)• Tax-related announcements, news for tax

professionals and updates for job seekers

Audio files for podcasts• Useful information on one tax-related topic per

podcast

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IRS helps college-bound students with financial aid application process

• IRS Data Retrieval Tool allows applicants to transfer tax return data to FAFSA (Free Application for Federal Student Aid) form

• Tool is free, easy and secure; saves time and improves accuracy

• Need a Federal Student Aid PIN (can apply for one through FAFSA process)

• If cannot use DRT, may need to obtain official transcript from IRS

• To order tax return or tax account transcripts, go to IRS.gov and select "Order a Transcript" or call toll-free Transcript line at 1-800-908-9946

• IRS also offers money-saving information for college students and their parents about tax credits and deductions for qualifying tuition, materials and fees

• Link: Student's Page - College Bound

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