Summer 2012 Tax Briefing

On May 16, in an effort to strengthen the economy and create more jobs, the Obama Administration released a new “To-Do” list to Congress. The 5 issues the President wants Congress to address before it leaves for the summer recess include:

  1. Establishing a 20-percent tax credit for costs associated with moving jobs out of foreign countries and back into the United States
  2. Enabling easier mortgage refinancing for responsible home owners
  3. Extending 100-percent expensing and creating a new 10- percent income tax credit for small businesses with new hires or wage increases
  4. Extending tax credits for clean energy production; and
  5. Creating a Veteran Jobs Corps to aid military veterans in finding employment.

It is unclear whether we will actually see any action on these items. In the meantime, we thought we would pass along the following tax-related information:

New “Repair” Regulation – The IRS has recently issued comprehensive guidance regarding the deduction and capitalization of expenditures related to acquiring, improving, replacing and maintaining tangible property. They are effective for tax years beginning after January 1, 2012. The temporary regulations clarify and expand on the standards in the current regulations and provide certain bright-line tests for applying these standards. There is a de minimis rule. The new regulations may require taxpayers to review how repairs and maintenance have been treated for tax purposes and file Form 3115 to change their methods of accounting to comply with these rules. Call us if you would like us to assess how these new rules might apply in your situation.

Extenders – Passage of expired tax incentives will be one of the items discussed by Congress in 2012. Some of the tax incentives that expired in 2011 include the R&D credit, higher tuition deduction, teacher’s expense deduction, 15-year depreciable lives for certain real estate developments and tax-free distributions from IRAs for charitable purposes. If extended, there has been no word on whether these incentives will be retroactive to January 1.

Uncertainty of “Bush-Era Tax Cuts” – The fate of the Bush-era tax cuts remain uncertain as there appears to be no resolution in sight. This uncertainty will impact taxpayers as they begin planning for the 2013 tax year. Details of the Bush-era tax cuts can be found in our 2012 Payroll Tax Holiday Extension tax briefing at www.wblcpa.com. There, you will also see a discussion about the estate and gift tax rules which for 2013 also remain uncertain, causing high net worth clients to consider making gifts this year to take advantage of the current $5,120,000 gift tax exemption.

Other Snippets:

Health Insurance Premium Tax Credit – The IRS issued final regulations on Health Insurance Premium Tax Credit enacted by the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010. The final regulations made several changes to the proposed regulations, for example clarifying that a family may include all individuals not subject to the Section 5000A penalty and also amending the definition of “modified adjusted gross income” to include Social Security benefits.

Identity Theft – In the 2012 filing season, the IRS has already flagged 2.6 million returns for possible identity theft. Reports disclosed that the IRS will spend approximately $330 million during the year to combat identity theft and return fraud.

IRS Eases Offer-In-Compromise Requirements – The increase in flexibility of the Offer-In-Compromise program will enable a larger number of financially distressed taxpayers to clear up their tax problems faster than in the past. Resolving tax problems might previously have taken four or five years, but the recent changes will allow taxpayers to resolve their problems in as little as two years. Changes announced by the IRS include revising the calculation of the taxpayer’s future income, allowing taxpayers to repay their student loans, allowing taxpayers to pay state and local delinquent taxes, and expanding allowable living expense allowances.

Georgia 2012 Sales Tax Holidays – On May 2, the Georgia Department of Revenue issued guidance on the sales tax holidays scheduled to take place in the state during 2012. The back-to-school sales tax holiday period (August 10-11, 2012) applies to purchases of clothing and footwear, personal computers, and computer-related accessories for noncommercial use, and noncommercial purchases of general school supplies. An additional sales tax holiday will take place October 5-7, and will apply to noncommercial purchases of energy-efficient and water-efficient products meeting or exceeding Energy Star and WaterSense qualifications. This holiday does not apply to purchases for trade, business, resale, or commercial use.

Georgia Retirement Income Exclusion – For the 2012 tax year, taxpayers who are age 62, but less than 65 can exclude up to $35,000 of income for each taxpayer. Taxpayers who are age 65 or older during any part of 2012 can exclude up to $65,000 of income each.

Jumpstart Our Business Start-up (JOBS) Act – Although not tax-related, this recently-passed Act will make it easier for smaller businesses to raise capital. Certain “accredited investor” rules have been eased and now companies can solicit potential investors with as little as $100k of annual income or net worth for investments. And the limit of the number of allowable investors for unregistered companies has been raised four-fold.

The summary above does not include all rulings and court cases from the past year; it focuses on those we feel are the most widely applicable. We will continue to monitor these and all tax legislation and be your resource should issues arise. In the meantime, if there are any provisions noted above for which you need more detail or if you have any questions, please let us know.

Pursuant to IRS Circular 230 disclosure requirements, please be advised that any written tax advice or information contained herein is not intended to be used to avoid any penalty imposed by a taxing authority, nor may the recipient of this document use such information for that purpose. Please contact us with any questions regarding this disclosure.