Muret CPA, PLLC

Business Tax Services by Muret CPA, PLLC

Sheckenkemper — Thu, 07 Feb 2013 10:48:51 +0000

We assist small business owners in today’s complicated world of tax, payroll and banking requirements. Business services that we provide include, but are not limited to the following. Be sure to see our Tax Organizers available on our website. Also, if you have any questions or need something not listed, please contact us to meet via phone or at our Tulsa office.

Tax Planning & Preparation -

Corporate(C-corp’s & S-corps) Tax returns and Tax Planning
LLC Tax Returns and Tax Planning
Partnership Tax Returns and Tax Planning
Sole Proprietor’s Tax Returns and Tax Planning
Nonprofits 990 Returns and application assistance for new nonprofits.

Please click here for a printer friendly copy of our Tax Services Summary Muret CPA; Tulsa CPA Brochure

Muret CPA Spotlight – Paul Muret, CPA, MBA

Sheckenkemper — Fri, 01 Feb 2013 04:28:43 +0000

Paul Muret’s credential just may surprise you. I had the great pleasure to do a little research on Paul in preparation for this article and there’s nothing like talking with clients, friends and family to give you a perspective on the man that built MURET CPA, PLLC.

Let’s start with what you are expecting to see, his education and professional expertise is impressive. Paul graduated from Oklahoma State with a B.S. in Accounting and from The University of Tulsa with a Masters in Business Administration. He holds a Certified Public Accountant license from the State of Oklahoma and Florida.

Paul is a member of the OSCPA, AICPA, and current President of the Tulsa Chapter of CPA’s. Paul has been providing Tax Financial, and Accounting Services to clients throughout the State of Oklahoma and Nationally for the past 14 years. He is the founder and owner of Muret CPA, PLLC.

Industry experience includes retail, real estate rentals, mortgage brokers, home builders, appraisers, insurance, horse racing and training, oil & gas production, convenience stores, attorneys, travel nurses, doctors, nonprofits and professional services.

On a personal note, Paul is a proud life-long resident of Oklahoma, married to his college sweetheart Shannon and raising their family together here in Midtown Tulsa. He is involved and active in his church and a passionate advocate for his children’s school and can be spotted frequently at events.

Paul has always been an entrepreneur at heart, he first started a baseball card selling business as a child, later he invested in livestock and continued to raise and sell cattle to help buy his first truck and later fund his education. Paul is more than the trusted business owner your expecting to meet, that consummate polished professional that so many place their faith and trust in to guide their financial affairs. He’s also a father, husband, & community figure and will surprise you with trivia on some fun unexpected topics!

Again, it has been an absolute pleasure getting to know Paul and hope you have a chance to as well. Connect with Paul on LinkedIN

Stephanie Heckenkemper
Guest Writer

Individual Tax Services by Muret CPA, PLLC

Sheckenkemper — Wed, 30 Jan 2013 08:00:18 +0000

As a Tulsa CPA, we assist individuals in taking all possible tax deductions in order to lessen their tax burden. Additionally, we can help you with your estate and retirement planning and complex closely held business transitions, acquisitions, or divestitures. Individual services that we provide include, but are not limited to the following. If you have any questions or need something not listed, please contact us.

Tax Preparation and Filing – Efile your return and receive your refund within 10 days. We can file returns for people in all States. We filed in over 30 states this past year for our clients. Please call or email.
IRS Representation – If you are receiving notices from the IRS for nonfiling or past balances due, please contact us to let us analyze your situation. We may be able to reduce your payments and/or make an offer in compromise.
Estate Taxation Planning and Filing – Did you know that the estate tax rate is 55%? Proper planning can help you shelter your estate from this tax. Call Today!
Tax Planning – Are you minimizing your tax bill? We can show you how to pay less taxes.
Multistate Tax Returns – We can prepare returns for all States in the U.S.

Please click here for a printer friendly copy of our Tax Services Summary Muret CPA; Tulsa CPA Brochure

The Nanny Tax

Sheckenkemper — Fri, 25 Jan 2013 10:28:44 +0000

Many families have gone to great lengths to interview, select and train a domestic employee but are then left wondering just what tax and accounting requirements are required next. They simply do not understand the Social Security tax rules for employers of domestic workers, the “Nanny Tax.” We will explain what your obligations are and please feel free to call Paul Muret for answers specific and unique to your family and situation.

Individuals who hire domestic employees must withhold and pay Social Security taxes (commonly referred to as “FICA” tax) when the wages paid to such employee exceed the dollar threshold (adjusted for inflation) under the Internal Revenue Code. Employers also must withhold and pay federal unemployment insurance tax (commonly referred to as “FUTA” tax) on wages of $1,000 or more paid to a domestic employee in any calendar quarter.

Domestic employees include workers such as nannies, baby-sitters, housekeepers, gardeners, cooks, valets, caretakers, and chauffeurs. Wages paid to a worker under the age of 18 for domestic service in a private home are exempt from Social Security taxes as long as domestic service is not the employee’s principal occupation. For example, the wages of a 16 year-old student who also baby-sits is exempt from the reporting and payment requirements, regardless of whether the amount of wages paid is above the threshold. On the other hand, the wages of a 17 year-old single mother who leaves school and goes to work as a domestic worker to support her family is subject to the reporting and payment requirements, and such earnings above the threshold amount also are wages covered by Social Security

You must report on a calendar-year basis any FICA and/or FUTA tax obligations for wages paid to domestic employees on Schedule H of Form 1040. Any FICA and/or FUTA tax must be paid by April 15 of the year following the year in which the wages were paid, and are included in determining whether the estimated tax penalty may apply. Therefore, to avoid any penalty, you should pay such taxes during the year through withholding from your wages, estimated tax payments, or a combination of both.

Employment Tax Withholding and Deposit Requirements

Sheckenkemper — Thu, 24 Jan 2013 10:43:05 +0000

Understand your Company’s federal employment tax withholding obligations.

Employees Subject to Tax

In general, an employer is required to withhold Social Security and income taxes with respect to each wage payment that the employer makes to an employee. The employer must also make Social Security and unemployment tax payments with respect to wages paid to employees.

Compensation Subject to Tax
In general, all compensation derived from employment ordinarily is subject to employment tax. For these purposes, the designation of compensation as salary, fees, bonuses or commissions is irrelevant. What is important is that the payment is made in consideration for services performed by an employee.

Certain categories of compensation, however, are exempt from tax. For example, compensation in excess of the annual Social Security wage limitation is exempt from Social Security and unemployment taxes. (The annual unemployment wage limitation is $7,000; the annual Social Security wage limitation is adjusted annually for cost-of-living increases.) Exempt wages also include most benefits that are nontaxable to employees. Thus, deferred compensation benefits are typically excluded from employment taxes if the benefits are not currently included in income by employees. An exception to this rule applies for Social Security and unemployment tax purposes in the case of elective salary reduction amounts to certain tax-exempt plans of an employer.

Reporting Requirements

Social Security and withheld income taxes are reported together by employers on the same form. Most employers file Form 941, Employer’s Quarterly Federal Tax Return. This return generally is due one month after the end of each calendar quarter. However, if a tax is required to be deposited and the full amount of the tax is timely paid, the return may be filed by the tenth day of the second month following the calendar quarter. The IRS may notify employers with estimated annual employment taxes of $1,000 or less to file Form 944, Employer’s Annual Federal Tax Return, instead of Form 941. In addition, employers that qualify may request to file Form 944.

Deposit Requirements

Social Security and withheld income taxes generally are deposited with a financial institution qualified as a depositary of federal taxes. The frequency of such deposits is based on the employer’s classification as either a “semi-weekly” or “monthly” depositor. Such status is determined by the IRS each year, and is based on the amount of employment taxes which the employer reported between July 1 and June 30 of the preceding year (the “lookback period”). A different lookback period applies for Form 944 filers. Although the IRS notifies employers before the beginning of each calendar year as to which deposit schedule is required, the employer is responsible for determining the appropriate deposit schedule.

An employer that has reported aggregate employment taxes of $50,000 or less during the lookback period is deemed to be a “monthly” depositor and must deposit each month’s accumulated employment taxes on or before the 15th day of the following month. An employer that has reported more than $50,000 in aggregate employment taxes for the lookback period is considered a “semi-weekly” depositor. Semi-weekly depositors whose payday is a Wednesday, Thursday and/or Friday must deposit their employment taxes on or before the following Wednesday. A semi-weekly depositor whose payday is a Saturday, Sunday, Monday and/or Tuesday must deposit its employment taxes on or before the following Friday. If a deposit obligation falls on a non banking day, monthly depositors have until the end of the next banking day to make the deposit, and semi-weekly depositors have a minimum of three banking days after the end of the semi-weekly period to deposit employment taxes.

If either a monthly or semi-weekly employer’s employment taxes reach $100,000 or more within any semi-weekly period, however, an employer must deposit those taxes on the next banking day. This one-day deposit requirement overrides any other deposit rule, and an employer that reaches this threshold is immediately treated as a semi-weekly depositor for the remainder of the calendar year and for the following calendar year. A new employer is treated as a monthly depositor until it reports more than $50,000 of employment taxes for the prior July 1 through June 30 look back period or until it accumulates $100,000 or more of employment taxes on any day during the month. An employer with less than $2,500 of employment taxes for a calendar quarter may remit its taxes with its quarterly return rather than deposit the taxes separately.

Making Deposits – Electronic Federal Tax Payment System (EFTPS)

The Electronic Federal Tax Payment System (EFTPS) is used by employers for making tax deposits. All deposits of employment and other taxes by employers must be made by EFTPS or another other EFT method such as electronic funds withdrawal or credit or debit card.Employers can enroll in EFTPS using Form 9779, EFTPS Business Enrollment Form, or on-line at www.eftps.gov. Additional information regarding electronic payment options is available on the IRS’s website at www.irs.gov.

Deposit Penalty Safe Harbors

An employer automatically is considered to have met its employment tax deposit obligations if it timely deposits at least 98% of its tax liability or if any deposit shortfall does not exceed $100. No deposit penalties will apply if the above shortfall is deposited by a specified makeup date.

Federal Unemployment Tax (FUTA)

Federal unemployment taxes (FUTA) are reported on Form 940, Employer’s Annual Federal Unemployment Tax Return. This return generally is due on January 31 with respect to wages subject to tax that were paid during the preceding calendar year. However, Form 940 may be filed on or before the 10th day of February if timely deposits were made when required throughout the preceding calendar year.

Year-End Reporting, Including Cost of Health Benefits

Form W-2, Wage and Tax Statement, must be furnished to each employee from whom Social Security and income taxes have been withheld each year. Form W-2 must show the total wages and other compensation paid (whether or not subject to withholding), total wages subject to Social Security tax, and the amounts deducted for income and Social Security tax purposes. Form W-2 must be furnished to employees not later than January 31 following the calendar year in which the employee was subject to withholding.

The extra 0.9%

Sheckenkemper — Tue, 22 Jan 2013 10:50:06 +0000

As you may know, the health care reform legislation increases the employee portion of the Medicare component of FICA taxes for wages received after December 31, 2012, by an additional 0.9% of FICA wages in excess of certain threshold amounts, based on the employee’s tax filing status. This tax is referred to as the “Additional Medicare Tax.”

The threshold amount for applying the Additional Medicare Tax is $250,000 in the case of a joint return, $125,000 in the case of a married taxpayer filing a separate return, and $200,000 in any other case. These provisions apply to SECA taxes on self-employment income as well. Notably, unlike the Medicare tax, there is no employer portion of the Additional Medicare Tax.

Also unlike the Medicare tax, an employer must withhold the Additional Medicare Tax from an employee’s wages only to the extent that the employee receives wages from that employer in excess of $200,000 in a calendar year. In determining whether wages exceed $200,000, an employer does not have to take into account the employee’s filing status or other wages or compensation which may impact the employee’s liability for the tax.

Employers are not required to deduct and withhold the Additional Medicare Tax from employee wages of $200,000 or less. However, an employee who anticipates liability for the Additional Medicare Tax may request that the employer deduct and withhold an additional amount of income tax withholding on his or her Form W-4, which the employee may apply against the taxes shown on his or her Form 1040, including any Additional Medicare Tax liability. Thus, for example, an employee might request that the employer deduct and withhold an additional amount of income tax withholding on wages that are not in excess of $200,000 if the employee is married and files a joint return and anticipates liability for the Additional Medicare Tax because the combined wages of the employee and his or her spouse will exceed $250,000, or if the employee anticipates a large end-of-year bonus that will cause the employee’s income to exceed the threshold.

Further, the employee is liable for any portion of the Additional Medicare Tax not withheld by the employer. The IRS will not seek from an employer the amount of the Additional Medicare Tax the employer failed to withhold from wages paid to an employee if the employee subsequently pays the Additional Medicare Tax. However, an employer remains subject to any applicable penalties or additions to tax for failure to withhold Additional Medicare Tax as required.

Generally, an employer may make adjustments of underpayments of the Additional Medicare Tax only if the error is ascertained in the same year the wages or compensation was paid. Exceptions apply if (1) the underpayment is attributable to an administrative error, (2) other rules apply to determine the amount of the underpayment because the employer failed to treat the individual as an employee, or (3) the adjustment is the result of an IRS examination.

An adjustment of overpaid Additional Medicare Tax may only be made if the employer ascertains the error in the year the wages or compensation was paid and repays or reimburses the employee the amount of the over collection before the end of the calendar year. As in the case of all overpayment adjustments, the requirement to repay or reimburse does not apply to the extent that, after reasonable efforts, the employer cannot locate the employee. However, if an employer has not repaid or reimbursed the amount of the over collection to the employee, an adjustment cannot be made.

An employer may claim a refund of overpaid Additional Medicare Tax only if the employer did not deduct or withhold the overpaid Additional Medicare Tax from the employee’s wages or compensation.

Please contact me if you want to discuss further the employer responsibilities for the Additional Medicare Tax.

Are you ready to file? Take a look at our 2012 Tax Organizers

Sheckenkemper — Thu, 17 Jan 2013 10:24:30 +0000

January is the time for many to get organized and this also means getting financial records and accounting files together to make room for 2013. The question is what do you need to keep and what can be discarded? Just what records do you need this year to file? Muret CPA has put together a series of tax organizer documents to help you understand and answer that question. These tax organizers can be filled out and submitted to us with the listed necessary documents attached.

You can download our tax organizers and brochures here Muret CPA Tax Organizers

Once we receive it, we will review it with you and then prepare your tax return. We will call you with any questions and set a conference date if necessary in order to complete your return. Normally returns are completed within one week. If you need clarification on any question, please call 918-301-1100.

How long do you keep your Tax Records?

Sheckenkemper — Wed, 16 Jan 2013 10:00:18 +0000

Filing your taxes isn’t just a once-a-year endeavor. Maintaining good records throughout the year and disposing of old ones when appropriate – not only provides you with greater confidence now when you prepare your tax return, but it also provides you with documentation you may need down the road.

Lucky number six. One of the most common questions I’m asked is, how long should I keep my tax returns? Although you can get away with keeping them only three years, I recommend you keep all federal and state income tax returns and supporting documents for a full six years.

Why so long? Once you’ve filed your returns, the IRS has up to three years to assess additional taxes. However, it can take up to six years to make a tax assessment if it determines that you omitted a substantial amount of income from your return. You may believe your returns are accurate and all-inclusive, but the IRS may feel differently.

Be sure to file your U.S. Postal Service or electronic mailing receipts with your returns, too. If your return is ever lost or misplaced, having a receipt showing the date the return was submitted will save you from penalties.

File it, but don’t forget it. Some events produce documentation that should be kept permanently: settlement records from all of your home purchases and sales, investment purchases, divorce agreements, etc.

But just because an event ends doesn’t mean that the documentation process should. Before you move your records to the attic, remember that regularly filing “updates”—home improvement receipts, records that show a return of capital on your investments, estate and gift tax returns under which you received property, etc.—will help to compute your gain/loss when you sell.

There are other situations in which you would benefit from keeping records, including any nondeductible contributions you have made to an IRA or Roth IRA. Review your personal and financial history with a professional to ensure you have all your bases covered.

So, how complete are your files? I welcome the opportunity to meet with you to discuss your personal situation. Please contact me to set up a complimentary consultation where we can discuss your tax needs and how I can help you.

2012 AMERICAN TAXPAYER RELIEF ACT – Part 3 Child & Education

Sheckenkemper — Fri, 11 Jan 2013 11:00:51 +0000

SPECIAL REPORT

President Signs Eleventh-Hour Agreement To Avert Fiscal Cliff

The 2012 American Taxpayer Relief Act answers many questions and raises others, this is a comprehensive and complicated bill. This post is Part 3 of 3 this week as we take a closer look at a few of the key points in this new legislation. Please note that I will not be posting the complete text of the bill here, however a full copy can be provided to you upon request. For specific discussions on how these changes may impact you and your tax situation feel free to contact Paul Muret at (918) 301-1100.

CHILD TAX CREDIT

The American Taxpayer Relief Act extends permanently the $1,000 child tax credit. Certain enhancements to the credit under Bush-era legislation and subsequent legislation are also made permanent.

IMPACT.

Absent the American Taxpayer Relief Act, the child tax credit was scheduled to revert after 2012 to $500 per qualifying child (dependents under age 17 at the close of the year). The child tax credit has been set at the $1,000 level since 2003 and is not adjusted each year for inflation. The American Taxpayer Relief Act keeps the child tax credit at the $1,000 level, still without inflation adjustments, for future years.

IMPACT.

Bush-era and subsequent legislation modified the refundable component of the child tax credit, provided that the refundable portion of the credit does not constitute income, provided that the credit is allowable against regular income tax and AMT, repealed the AMT offset against the additional child tax credit for families with three or more children; and eliminated the supplemental child tax credit. The American Taxpayer Relief Act extends all these modifications as well.

The current provision that reduces the earnings threshold for the refundable portion of the child tax credit to $3,000 is extended through 2017.

TAX REFORM SOLUTION?

Since passage of the 2010 Tax Relief Act, several proposals for comprehensive tax reform have been unveiled in Washington that may hold promise for a more permanent solution. A presidential panel developed the so-called Simpson-Bowles plan. The GOP has put forward several proposals for comprehensive tax reform, also calling for reduced individual income tax rates, while both parties have struggled to strike a “grand bargain.” Later in 2013, a broader, more permanent solution may be found.

EARNED INCOME CREDIT

The American Taxpayer Relief Act makes permanent or extends through 2017 enhancements to the earned income credit (EIC) in Bush-era and subsequent legislation. The enhancements to the EIC made by Bush-era and subsequent legislation include (not an exhaustive list) a simplified definition of earned income, reform of the relationship test and modification of the tie-breaking rule. The IRS also has additional authority with respect to mathematical errors.

IMPACT.

Expiration of the EIC enhancements would result in the credit phaseout being determined by reference to modified adjusted gross income rather than adjusted gross income. The Bush-era legislation substituted adjusted gross income to reduce the number of calculations necessary to compute EIC.

OTHER CHILD-RELATED TAX RELIEF

Adoption Credit/Assistance

The American Taxpayer Relief Act extends permanently Bush-era enhancements to the adoption credit and the income exclusion for employer-paid or reimbursed adoption expenses up to $10,000 (indexed for inflation) both for non-special needs adoptions and special needs adoptions.

The adoption credit phases out for taxpayers above specified inflation-adjusted levels of modified adjusted gross income. The phase-out level for 2012 started at $189,710. For 2013, the beginning point for phasing out the adoption credit is projected to be $191,530. The limit on the adoption credit is projected to be $12,770 for 2013.

Child And Dependent Care Credit

The American Taxpayer Relief Act extends permanently Bush-era enhancements to the child and dependent care credit. The current 35 percent credit rate is made permanent along with the $3,000 cap on expenses for one qualifying individual and the $6,000 cap on expenses for two or more qualifying individuals.

Expenses qualifying for the child and dependent care credit must be reduced by the amount of any dependent care benefits provided by the taxpayer’s employer that are excluded from the taxpayer’s gross income. For 2012, total expenses qualifying for the credit are capped at $3,000 in cases of one qualifying individual or at $6,000 in cases of two or more qualifying individuals subject to income thresholds. For 2013, absent extension, these monetary amounts would have decreased to $2,400 in cases of one qualifying individual or $4,800 in cases of two or more qualifying individuals, subject to income thresholds.

The amount of the credit under the American Taxpayer Relief Act continues to be adjusted gross income (AGI) sensitive. The credit is reduced by one percentage point for each $2,000 of AGI, or fraction thereof, above $15,000 through $43,000. Taxpayers with AGI over $43,000 are allowed a credit equal to 20 percent of employment-related expenses. Absent the American Taxpayer Relief Act, the AGI range would have been reduced to $10,000 through $28,000.

The child and dependent care credit is intended to help individuals pay child and dependent care expenses so the taxpayer (if married, a joint return must be filed) can work or look for work. A child, for purposes of this tax benefit, must be under 13 years of age at the close of the tax year. A qualifying dependent who is disabled, however, may be of any age if he or she is a dependent, or spouse, who lives with the taxpayer for more than half the year. EGTRRA and subsequent legislation increased the maximum amount of eligible employment-related expenses for purposes of the dependent care credit and made other enhancements. The 2010 Tax Relief Act had extended these enhancements through 2012.

Employer-Provided Child Care Credit

The American Taxpayer Relief Act extends permanently the Bush-era credit for employer-provided child care facilities and services.

American Opportunity Tax Credit

The American Taxpayer Relief Act extends through 2017 the American Opportunity Tax Credit (AOTC). The AOTC is an enhanced, but temporary, version of the permanent HOPE education tax credit.

IMPACT.

The AOTC rewards qualified taxpayers with a tax credit of 100 percent of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000, for a total maximum credit of $2,500 per eligible student. Additionally, the AOTC applies to the first four years of a student’s post-secondary education. The HOPE credit, in contrast, is less generous and applies to the first two years of a student’s post-secondary education.

The AOTC was one of the signature pieces in President Obama’s American Recovery and Reinvestment Act of 2009 and the President has often urged Congress to make the AOTC permanent.

OTHER EDUCATION INCENTIVES

The American Taxpayer Relief Act makes permanent or extends a number of enhancements to tax incentives designed to promote education. Many of these enhancements were made in Bush-era legislation, extended by subsequent legislation and are scheduled to expire after 2012. Some enhancements, notably the American Opportunity Tax Credit, had been made in President Obama’s first term.

Deduction For Qualified Tuition And Related Expenses

The American Taxpayer Relief Act extends until December 31, 2013 the above-the-line deduction for qualified tuition and related expenses. The bill also extends the deduction retroactively for the 2012 tax year.

The above-the-line deduction for higher education tuition and related expenses expired after 2011. The higher education tuition deduction was created by EGTRRA and extended by subsequent laws, most recently by the 2010 Tax Relief Act, but only through the end of 2011.

IMPACT.

In 2011, the last year in which the deduction was available under current law, the deduction reached a maximum of $4,000 for taxpayers whose modified AGI did not exceed $65,000 ($130,000 for joint filers), and $2,000 for taxpayers whose modified AGI exceeded $65,000 but did not exceed $80,000 ($160,000 for joint filers)

Taxpayers cannot claim the higher education tuition deduction in the same tax year that they claim the AOTC or the Lifetime Learning credit. A taxpayer also cannot claim the hither education tuition deduction if anyone else claims the AOTC or the Lifetime Learning credit for the student in the same tax year.

Student Loan Interest Deduction

The American Taxpayer Relief Act permanently suspends the 60-month rule for the $2,500 above-the-line student loan interest deduction. The American Taxpayer Relief Act also expands the modified adjusted gross income range for phaseout of the deduction permanently and repeals the restriction that makes voluntary payments of interest nondeductible permanently.

IMPACT.

Absent the American Taxpayer Relief Act, the 60-month limitation on the number of months during which interest paid on the student loan is deductible was scheduled to be revived after 2012.

Coverdell Education Savings Accounts

The American Taxpayer Relief Act extends permanently Bush-era enhancements to Coverdell education savings accounts (Coverdell ESAs). These enhancements include a $2,000 maximum contribution amount and treatment of elementary and secondary school expenses as well as post-secondary expenses as qualified expenditures.

IMPACT.

Absent the American Taxpayer Relief Act, the maximum contribution amount to a Coverdell ESA was scheduled to decrease from $2,000 to $500 after 2012.

Under the American Taxpayer Relief Act, qualified educational expenses continue to include expenses incurred while attending an elementary, secondary or post-secondary school.

Employer-Provided Education Assistance

The American Taxpayer Relief Act extends permanently the exclusion from income and employment taxes of employer-provided education assistance up to $5,250.

The employer may also deduct up to $5,250 annually for qualified education expenses paid on behalf of an employee.

Federal Scholarships

The American Taxpayer Relief Act makes permanent the exclusion from income for the National Health Service Corps Scholarship Program and the Armed Forces Scholarship Program.

2012 AMERICAN TAXPAYER RELIEF ACT – Part 2 AMT & Federal Estate, Gift and GST Taxes

Sheckenkemper — Thu, 10 Jan 2013 10:30:14 +0000

SPECIAL REPORT

President Signs Eleventh-Hour Agreement To Avert Fiscal Cliff

The 2012 American Taxpayer Relief Act answers many questions and raises others, this is a comprehensive and complicated bill. This post is Part 2 of 3 this week as we take a closer look at a few of the key points in this new legislation. Please note that I will not be posting the complete text of the bill here, however a full copy can be provided to you upon request. For specific discussions on how these changes may impact you and your tax situation feel free to contact Paul Muret at (918) 301-1100.

PERMANENT AMT RELIEF

The American Taxpayer Relief Act “patches” the AMT for 2012 and subsequent years by increasing the exemption amounts and allowing nonrefundable personal credits to the full amount of the individuals regular tax and AMT. Additionally, the American Taxpayer Relief Act provides for an annual inflation adjustment to the exemption amounts for years beginning after 2012.

The American Taxpayer Relief Act increases the 2012 exemption amounts to $50,600 for unmarried individuals; $78,750 for married taxpayers filing jointly and surviving spouses; and $39,375 for married taxpayers filing separately. The 2013 AMT exemption amounts are projected to be $80,750 for married filing jointly and qualified widow(er)s, $51,900 for single and head of household, and $40,375 for married taxpayers filing separately.

IMPACT.

Without the AMT patch, the AMT exemption amounts for 2012 would have been $33,750 for unmarried individuals; $45,000 for married taxpayers filing jointly and surviving spouses; and $22,500 for married taxpayers filing separately, down dramatically from the $48,450/$74,450/$37,225 levels of 2011. The latest patch immediately saves over 60 million taxpayers from being subject to AMT on returns about to be filed for the 2012 tax year.

IMPACT.

The American Taxpayer Relief Act provides that all nonrefundable personal credits are allowed to the full extent of the taxpayer’s regular tax and AMT liability, effective for tax years beginning after 2011.

Acting IRS Commissioner Steven Miller estimated that 80 to 100 million taxpayers may experience a delay in filing their 2012 returns if Congress failed to enact an AMT patch before year-end 2012.

Although a “permanent” AMT patch is welcomed by many taxpayers, the future of the AMT itself could be decided later this year or next year if Congress tackles comprehensive tax reform. The AMT could, as some lawmakers have proposed, be abolished. President Obama previously proposed to replace at least part of the AMT with the so-called Buffett Rule as a part of comprehensive tax reform. The White House has explained the Buffett Rule in general terms as ensuring that taxpayers making over $1 million annually would pay an effective tax rate of at least 30 percent. In 2012, the Senate rejected the Paying a Fair Share Act, which would implement the Buffett Rule. It is unclear if Democrats will reintroduce the bill or whether it will be considered within the overall framework of possible tax reform later in 2013.

NO GRAND BARGAIN

The American Taxpayer Relief Act is nowhere close to the grand bargain as envisioned by the President and many lawmakers after the November elections. Effectively, it is a stop-gap measure to prevent the onus of the expiration of the Bush-era tax cuts from falling on middle income taxpayers. Congress must still address sequestration. Congress is likely to revisit tax policy and spending cuts when it tackles the expected increase on the nation’s debt limit in February. Slowing the growth of entitlements, such as through a “chained-CPI” is certain to be a controversial topic in upcoming debates.

FEDERAL ESTATE, GIFT AND GST TAXES

The American Taxpayer Relief Act permanently provides for a maximum federal estate tax rate of 40 percent with an annually inflation-adjusted $5 million exclusion for estates of decedents dying after December 31, 2012.

IMPACT.

The maximum estate tax rate for estates of decedents dying after December 31, 2010 and before January 1, 2013 is 35 percent with a $5 million exclusion (indexed for inflation for 2012 at $5.12 million). Effective January 1, 2013, the maximum federal estate tax rate was scheduled to revert to 55 percent with an applicable exclusion amount of $1 million (not indexed for inflation), its levels before enactment of estate tax reform in 2001 and subsequent legislation.

The federal estate tax almost appeared to be a deal-breaker in the Senate. Republicans wanted complete repeal while the President insisted on a 45 percent rate with a $3.5 million exemption.

The most recent estate tax legislation, the 2010 Tax Relief Act, provided for a complicated application of the tax depending on the year in which the decedent died. First, the 2010 Tax Relief Act provided for a maximum estate tax rate of 35 percent for decedents dying after December 31, 2009 and before January 1, 2013, and an applicable exclusion amount of $5 million for decedents dying after December 31, 2009 and before January 1, 2013, Second, the 2010 Tax Relief Act allowed estates of decedent’s dying in 2010 to opt out of the revived estate tax. Estates of decedents dying after December 31, 2009 and before January 1, 2011 had the option to elect not to apply the estate tax regime under the 2010 Tax Relief Act. Such estates could have elected to apply either (1) the estate tax based on the 2010 Tax Relief Act’s 35 percent top rate and $5 million applicable exclusion amount, with stepped-up basis or (2) no estate tax and modified carryover basis rules under EGTRRA.

Portability

The American Taxpayer Relief Act makes permanent “portability” between spouses. Prior to the permanent extension, portability was only available to the estates of decedents dying after December 31, 2010 and before January 1, 2013.

IMPACT.

Portability allows the estate of a decedent who is survived by a spouse to make a portability election to permit the surviving spouse to apply the decedent’s unused exclusion (the deceased spousal unused exclusion amount (DSUE)) to the surviving spouse’s own transfers during life and at death.

State Death Tax Credit/Deduction

The American Taxpayer Relief Act extends the deduction for state estate taxes.

IMPACT.

Before 2005, a credit was allowed against the federal estate tax for state estate, inheritance, legacy, or succession taxes. EGTRRA repealed the state death tax credit for decedents dying after 2004 and replaced the credit with a deduction.

More Estate Tax Provisions

The American Taxpayer Relief Act extends a number of provisions affecting qualified conservation easements, qualified family-owned business interests (QFOBIs), the installment payment of estate tax for closely-held businesses for purposes of the estate tax, and repeal of the five percent surtax on estates larger than $10 million.

Gift Tax

The American Taxpayer Relief Act provides a 40 percent tax rate and a unified estate and gift tax exemption of $5 million (inflation adjusted) for gifts made after 2012.

The 2010 Tax Relief Act provided that for gifts made after December 31, 2010, the gift tax was reunified with the estate tax, with a tax rate through 2012 of 35 percent and an applicable lifetime unified exclusion amount of $5 million (adjusted annually for inflation).

GST Tax

The American Taxpayer Relief Act provides for a 40 percent GST tax rate with a $5 million exemption and extends a number of GST tax-related provisions scheduled to expire after 2012. They include the GST deemed allocation and retroactive allocation provisions; clarification of valuation rules with respect to the determination of the inclusion ratio for GST tax purposes; provisions allowing for a qualified severance of a trust for purposes of the GST tax; and relief from late GST allocations and elections.