December 10, 2012
It’s time for my year-end tax update for 2012. I knew I’d have to wait until after the election (just like in 2010) to write this, because no one in Washington had the guts to take a stand before the election. And now, a full month after the election and less than a month away from the lemmings leading us to the edge of the fiscal cliff, it seems like just more of the same. Personally I’m not so sure that a trip to (or off) the “fiscal cliff” is such a bad thing. Forced reduction in government spending, close down the government for a while, default on some payments, lay off a million or so government employees, raise taxes about 30% for 2013 (with the Bush tax cuts expiring). It’d be an interesting reality check both for the elected and the electorate. Unpleasant, yes, but interesting. Who knows what these clowns will do!
That aside, how does this continuing stalemate affect your tax filing this season?
Uncertainty on many deductions - The so-called extenders which get renewed every year or two for another year or two are currently “off the books.” These include:
- No $250 teacher’s deduction
- No Higher education tuition deductions (college tuition credit still remains at this point)
- No State sales tax deduction
- No AMT patch (don’t ask)
- No Charitable IRA contributions
That said, the IRS forms are currently “reserving lines” for many of these deductions in case Congress passes them RETROACTIVELY to January 1, 2012. The morons did this also back in mid-December 2010 which totally sludged the system in 2011.
NOTE: These WERE all renewed for 2012-2013 in January of 2013
Delayed start to filing season - Because of the above, the filing season will have a delayed start. Those of you who’d like to file VERY early (like January 10th) will have to wait until January 30, 2013 for the first day of filing season. (I had clients last year who had received and spent their refunds by January 30. And certain common forms won’t be accepted for filing for several more weeks after that.
Refunds will be slower in 2013 - Because of the above issues and other reporting changes, we are told that refunds will also be delayed this filing season. Last year, we saw refunds as quickly as 4-8 days with direct deposit and 10-15 days with paper checks by mail. This year they are telling us 3 weeks minimum for most returns. It seems that they are updating the e-file system to what is called “Modernized E-File.” This new system will slow your refunds down. This is your federal government at work in all its efficiency.
All of this will impact us in this next filing season. In 2013 your paycheck will be 2% smaller due to the payroll tax increase and . . . well don’t even get me started on the Obamacare tax increases, Bush tax cuts expiring, debt ceiling, spending, tax rates, marriage penalty, alternative minimum tax or . . . you get the idea.
I will say that I found it interesting that the Supreme Court decided that Obamacare was in fact a “tax” as opposed to a health care mandate. A few years ago I was bored at a seminar, so I downloaded the bill when it was HR3200. And I read the tax provisions of it. I quickly realized that it was just that . . . a TAX bill. Let me show that in two ways:
1. The IRS is hiring thousands of new employees to enforce Obamacare. Some estimates go as high as 16,500 new employees. If it’s not a tax, why is the IRS so involved? Personally I thought it might involve . . . say . . . doctors, nurses, hospitals, but apparently not.
2. Starting in 2014 if you don’t have health insurance, you have to pay a tax . . . excuse me . . . a “penalty” to the IRS. It grows significantly over the first few years to a minimum of $2,085 per household of four. And after you pay this penalty guess what you still don’t have? You still don’t have health care!!
Now that I’ve totally depressed you, let me throw out some other amazing stories of tax and financial issues that will leave you shaking your head.
Courts in New York are trying to decide if lap dances are “artistic expression” and therefore exempt from sales tax as a “dramatic or musical arts performance.” Normally this would include theatrical plays and musicals, the ballet, concerts, etc. Some of the issues being considered in the case are: choreography, training, and the cultural anthropology of lap dances(?). I think the club lawyer had the best quote on the matter. “What we’re saying is the state of New York doesn’t get to be a dance critic.” Hmmm, I wonder if they need auditors for this?
Not really a tax issue, but with a local connection to Las Vegas, the estate of Huguette Clark (Clark County is named for her father, William Andrews Clark) is being disputed in court. She died in May of 2011 at age 104 spending the last 20 years of her life in a hospital in New York. While most of the estate goes to charity, there is a fight over the rest between her long-time nurse of 30 years and a “grand-half-nephew” and two “grand-half-nieces.” I wonder how often they visited?
More of your government at work for you - The IRS has over $14,000,000 in unpaid payroll taxes due to it from . . . are you ready . . . 70 federal government agencies!! You’d think the IRS could easily collect these, but think again. Agencies cannot use current year’s funding to pay old years’ bills and the old funding for the delinquent year has all been spent. And the IRS cannot charge them penalties or interest. Nor can the IRS lien or confiscate government property. Instead they “educate” and “encourage” them to pay in full and on time.
An example of classic political hypocrisy: Nancy Pelosi said that Romney releasing only two years of tax returns made him unfit for the cabinet, let alone to be President. Harry Reid said that it made him unfit to be a dogcatcher. But apparently refusing to release your tax returns is perfectly fine for a Speaker of the House or Senate Majority Leader. Both Pelosi and Reid (and 516 other members of Congress) refuse to release their tax records. While I rarely agree with Harry Reid, I do find myself concurring that a dogcatcher does reflect a higher ethical standard than the Senate Majority Leader.
Alright that’s enough ranting Randall. I hope you all have a very Merry Christmas, Happy Chanukah, great New Year and I’ll be in touch in early January with an update on the extenders (if they get extended) and your pre-season checklist for 2012 tax preparation.
“If you are truly serious about preparing your children for the future, don’t teach them to subtract - teach them to deduct.”
- Fran Lebowitz