Showing posts from December, 2012

What will the Fiscal Cliff Do to Income Taxes?

On January 1, 2013 income tax rates are set to dramatically increase. Taxes on wages, investment interest, and other types of ordinary income, the top rates will rise from 35% to 39.6%.

In addition, the 3.8% Obamacare Medicare surtax will start January 1, 2013. The total rate that a top-bracket taxpayer will face will be 43.4%. In addition there is a .9% increase in the Medicare Tax on Wages above $200k ($250k for married joint returns.) The total jump from 35% to 43.4% is the largest tax increase in decades.

Investors will really suffer. The 2013 tax law will eliminate the maximum rates on dividends of 15% and instead treat dividends as ordinary income. The result would be dividends with taxes at the same top 43.4% rate that applies to ordinary income. The effect is dividend income tax would almost triple from 15% to 43.4%.

As of December 28, 2013, Congress and the President keep playing "chicken" with our tax laws and economy.

Tax Court Rules Check Signer Responsible for Employer Taxes

In the case of Romano-Murphy, TC Memo 2012-330, Thompson/Reuters reports:

The Tax Court has ruled that a corporate officer should be held liable for the trust fund recovery penalty. It didn't buy her contention that she had made a reasonable effort to pay the delinquent employment taxes. Background on trust fund recovery penalty.Code Sec. 6672 imposes the trust fund recovery penalty on any person who: (1) is responsible for collecting, accounting for, and paying over payroll taxes; and (2) willfully fails to perform this responsibility. The amount of the penalty is equal to the amount of the tax that was not collected and paid. The penalty is imposed on a “responsible person,” i.e., anyone in a business entity who has the duty to collect, account for, or pay over the tax. In determining whether there is “willfulness,” the courts have focused on whether a taxpayer had knowledge about the non-payment of the payroll taxes, or showed reckless disregard with respect to whether the paymen…

IRS Increases Mileage Rate to 56.5 cent per mile

The 2013 standard mileage rates are set at 56.5 cents per mile for business transportation or travel, 24 cents per mile for medical care, and 14 cents per mile for charity purposes. The 2012 rates are 55.5 cents per mile for business transportation or travel, 23 cents per mile for medical care, and the rate for charity purposes stayed the same at 14 cents per mile. See IRS announcement... The new rates will take effect on January 1, 2013. These rates don’t necessarily reflect what a company has to pay their employees for these types of errands. However, employees and self-employed workers can use these numbers to calculate their approximate transportation costs and deduct them for tax purposes. As always, taxpayers can choose to calculate the actual costs of using their vehicle for these purposes and deduct that amount rather than using the IRS’s standard mileage rates. For businesses that reimburse their employees for transportation costs, rates can be lower than the IRS’s standard …

IRS Interest Rates Remain at 3%

Interest Rates Remain the Same for the First Quarter of 2013
The Internal Revenue Service announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2013.  The rates will be:  • three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000. Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis.  For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.  Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage poi…