Janell A. Israel & Associates
1585 Kapiolani Blvd., Suite 1604, Honolulu, Hawaii 96814 Phone: 808-942-8817
February 2013 Tax Newsletter
What's New in Taxes:
IRS Delays Start to The 1040 Filing Season
The delayed passage of the "American Taxpayers Relief Act of 2012" has put the IRS behind schedule. Due to several provisions of the law affecting 2012 tax returns, the IRS could not open the Form 1040 filing season for the majority of taxpayers until late January.
Those taxpayers filing Form 5695 (Energy Credit), Form 4562 (Depreciation), and Form 3800 (General Business Credit) will not be able to file until late February or possibly not until March. Apparently a large percentage of taxpayers in this group typically file later in the season because they have more complex returns.
The IRS must complete the updating of forms and computer programming and testing before it is ready to accept any filings either on paper or electronically. The IRS said that taxpayers will receive refunds faster by e-filing and using direct deposit.
If we can be of assistance to you in preparing any of your 2012 tax filings, please contact us.
Inflation Changes Several Tax Numbers For 2013
The IRS and the Social Security Administration have published some inflation-adjusted numbers for 2013. Use these numbers as you begin your tax and financial planning this year.
* The social security taxable wage limit for 2013 will be $113,700. Retirees under full retirement age can earn up to $15,120 without losing benefits.
* The threshold for unearned income a child can earn in 2013 without having the kiddie tax apply is $2,000.
* The amount that can be given this year (per recipient) without paying gift tax is $14,000 ($28,000 for joint gifts).
* The amount that can be set aside in a health savings account is limited to $3,250 for individuals and $6,450 for families. Those 55 or older can contribute an additional $1,000.
* The maximum salary deferral for a 401(k) increases in 2013 to $17,500. The catch-up limit for those 50 or older remains unchanged at $5,500.
* The maximum IRA contribution limit increases to $5,500; the limit for those 50 or older is $6,500.
* The maximum salary deferral for SIMPLEs increases in 2013 to $12,000. The catch-up limit for those 50 or older remains unchanged at $2,500.
* The standard mileage rate for business driving increases to 56.5¢ a mile. The rate for medical and moving mileage increases to 24¢ a mile, and the rate for charitable driving remains at 14¢ a mile.
* The nanny tax threshold remains at $1,800.
* The alternative minimum tax exemption amount for 2013 is $51,900 for singles and $80,800 for couples filing a joint return.
* The amount exempt from estate tax for deaths occurring in 2013 is $5,250,000.
* The personal exemption for 2013 is $3,900. This year the exemption phases out for those with adjusted gross income over $250,000 (single) and $300,000 (couples).
* The standard deduction for 2013 is increased to $6,100 for singles, $8,950 for heads of household, and $12,200 for couples filing joint returns.
Contact our office if you have questions or wish to discuss early 2013 tax planning.
What's New in Finances:
"Chained CPI" -- Do You Know What It Is?
As the politicians in Washington start once again to tackle the same old problems, you're likely to hear more about a new way of measuring inflation called the "chained CPI."
The standard way to measure inflation has been with the consumer price index. It has been used to calculate annual adjustments to social security benefits, federal pensions, military and veterans' benefits, tax brackets, exemptions, deductions, and credits. According to some experts, the consumer price index currently used overstates increases in the cost of living.
So how is the "chained CPI" different? It makes different assumptions about how people spend. An oversimplified example: If a severe freeze drives up the cost of oranges and orange juice by 20%, people are likely to switch to a cheaper alternative, say, apples and apple juice instead of continuing to pay the higher price for oranges. This keeps spending more level than the regular consumer price index would indicate.
A switch to the chained CPI would mean that those government payments linked to inflation would rise more slowly. Applied to the tax code, the chained CPI would mean smaller inflation adjustments to tax brackets and other tax numbers, resulting in higher taxes over time.
Want to Help Your Child Buy a Home?
Are you looking for a way to help your child with buying a home? Some strategies you might consider include lending your child money, gifting under the annual gift tax exclusion, pledging securities, and equity sharing.
Assuming you have enough liquid assets, you can effectively act as the mortgage lender to your child by lending money to pay for the house.
Another option is to give the child money for a down payment on a house. Making a gift to your child for the down payment is an ideal situation for parents who are primarily concerned with decreasing the size of their estate and the taxes on it after their death. Current tax law lets individuals make annual gifts of up to $14,000 per person. If both parents join in the gift, they can give the child $28,000 without any gift tax liability.
With some planning, even larger gifts can be made. For instance, if the child is married, his or her spouse is also eligible to receive gifts. Collectively, a married couple could receive $56,000 in gift-tax-free cash for a home purchase. If the gift is spread over a new year, it can be increased to double the amount, giving the child and his or her spouse $112,000 toward the cost of the home.
Another possibility is pledging securities to secure a child's home loan at a financial institution. By pledging securities instead of selling them, the parents can be saved from a potentially taxable event.
Finally, another alternative is equity sharing where the ownership of the home is shared. Typically, the parent makes the down payment, and the child pays the mortgage payment, utilities, taxes, and other ongoing expenses. The home is jointly owned, and the family can agree on a split of any appreciation in value if the home is later sold.
For details on these and other options available to parents who want to help their child buy a home, give us a call.
All information is believed to be from reliable sources, however we make no representation as to its completeness or accuracy. The information contained in this newsletter is provided by Mostad & Christensen, Inc. The information is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance. For more information on anything in this newsletter, or for assistance with any of your tax, business, or financial strategy concerns, contact our office.
Securities and advisory services offered through National Planning Corporation (NPC), Member FINRA/SIPC, a Registered Investment Adviser. Mosted & Christensen, Janell Israel & Associates and NPC are separate and unrelated companies.
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