Tax Time 2013

_____Now is the time to take stock of 2013, at least financially, by gathering your income and deduction records in preparation for filing your annual tax returns. The primary changes in tax law this year are the new taxes designed to help fund the Affordable Care Act. If you owe either of these taxes, congratulations—it means you are in the top 10% of income earners in the United States of America. If you have earned income in excess of $200,000 as a single person or over $250,000 as a couple filing jointly, you will pay an additional 0.9% tax on the excess toward the medicare system (single payer health care coverage for the elderly and disabled). If you have adjusted gross income in excess of those thresholds, you will pay an additional 3.8% tax on the smaller of your net investment income or the excess of your adjusted gross income above those levels. In this area, that tax will apply primarily to individuals who sold farmland and realized a large capital gain. Speaking of capital gains, the maximum tax rate on capital gains increased from 15% to 20% for 2013, but that is still just a hair over half of the maximum income tax rate on earned income, which is still 39.6%.

_____In the depreciation arena, for 2013, you can still expense up to $500,000 on up to $2,000,000 of eligible purchases, but this year (2014) you can only expense up to $25,000 on up to $200,000 of eligible purchases (IRC §179).

_____As was the case last year, you must have a contemporaneous written receipt for donations totaling over $250 to a particular charity. Also, I cannot prepare your tax return if you hold any assets outside of the United States. Identity theft continues to be a problem. Please do not send any documents by e-mail that contain social security numbers or bank account numbers, unless they are password protected. I am in the process of setting up a secure online drop box and will send you details if you e-mail me.

_____IRS requires mileage logs for vehicles with business use; standard mileage rates for 2013 are:

###############Federal *******Iowa
Business: . . . . . . . . . . 56.5¢/mi. . . . 56.5¢/mi.

Medical & moving: . . . 24¢/mi. . . . . 24¢/mi.

Charitable: . . . . . . . . . 14¢/mi. . . . . 39¢/mi.

_____You are required to send a Form 1099 to any individual, partnership or LLC that you paid $600.00 or more for services, rent or interest. Payments to cooperatives, banks and other corporate entities are excluded. Wages in excess of $150 in any quarter require the filing of Forms W-2 and W-3. If you would like us to prepare these forms, you will need to provide us with the information before January 25, 2014.

_____If you have questions on any of the above or other tax matters feel free to call, e-mail, or stop in. When you have your records ready you may let us know and we will set up an appointment that is convenient for you. Evening or Saturday appointments can be arranged.

_____Best Wishes for the New Year!

Pursuant to U.S. Treasury Regulations, you are hereby advised that any federal tax advice included in this communication is not intended or written to be used, and cannot be used, to avoid any U.S. federal tax penalties or to promote, market, or recommend to another party any transaction or matter. For further information, see IRS Circular 230.

Iowa Business Property Tax Credit

Throughout this year’s overhaul of Iowa’s property tax system, Iowa Senate Democrats were committed to ensuring Iowa small businesses got a fairer shake by bringing their rates closer to the lower rates paid by residential real estate owners. The business property tax credit applies to property taxes due and payable on commercial real estate starting on or after July 1, 2014. When the credit is fully phased in, the tax burden on the first $145,000 of the assessed value of the commercial property of a particular business will be equal to the tax burden imposed on residential property in Iowa. This is intended to significantly reduce the property tax burden upon small businesses.

To receive the credit, property owners must file a claim on forms provided by the applicable city or county assessor. Credits for the fiscal year beginning July 1, 2014 will be based upon the assessed value of properties as of January 1, 2013. These claims will be due January 15, 2014. For subsequent years, claims must be filed with the applicable city or county assessor by the March 15 immediately preceding the fiscal year during which taxes for the credit being claimed are due and payable.

Farm real estate owners continue to pay the lowest property tax rates in the state.

Tax Tip

Remember: Internal Revenue Code Section 179 was amended for 2008 to allow the expensing of up to $250,000 of machinery and equipment purchases (more in some areas).

Tax Tips

1. With the slowing of the economy and the contraction of the housing industry, I am seeing a sharp increase in people tapping into their 401K, IRA, or other retirement accounts. This is a risky thing to do. Not only are these folks losing their retirement nest eggs and the tax deferred compounding that is the secret to having a comfortable retirement fund, they often do not have enough taxes withheld and are greeted with a hefty tax bill the following spring. This is because, in addition to the 10% penalty for withdrawing the funds early, taxpayers are often bumped up into a higher tax bracket or lose tax credits, such as the child tax credit. If you absolutely have to have the money, consider borrowing the money with the retirement account as collateral so that you do not have the distribution penalty and are disciplined to pay the funds back. Be aware that there are regulations restricting how you can borrow against your retirement plan and that you will be in the same tight spot, paying taxes and penalty, if the lender has to foreclose on the retirement fund.

2. Here's another scenario: Retiree is taking a regular withdrawal from his investments. He is taking out about the same amount as the funds are generating in interest, dividends, and capital gain. However, he is being ripped off. Here's why: His funds are primarily invested in dividend-generating stocks and the stocks are set to reinvest the dividend. Normally this is a good practice. It helps you compound your investment and the investment is usually free or very low cost. However, since the retiree is drawing funds out of the account, he should take distribution of the dividends instead of paying his broker fees for liquidating stock to make his distribution. It also makes for an accounting nightmare as the basis of each stock is constantly changing with all the purchases and sales of irregular numbers of shares.

3. If you are thinking about buying an annuity, please, please, talk to your tax adviser first, particularly if you are over 65. Whatever you do, do not get tax advice from the guy who is going to get a big commission for selling you the darn thing.

Good luck with your taxes ("the cost of civilization," as OWH said).