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WATCH WHAT YOU PUT ON A CREDIT APPLICATION

IRS may use it against you, as a woman who ran a cash-intensive massage therapy business at home discovered.  She failed to file tax returns and didn’t cooperate with the Service during the audit.  IRS reconstructed her income, relying on the income she listed on a credit application she filed with a bank. The Tax Court sided with IRS (Trescott, TC Memo. 2012-321).

NEBRASKA INHERITANCE TAX

I recently had a question on the Nebraska inheritance rates. The rate depends on who is inheriting your estate. For example, if a part of your estate goes to a nephew, the county gets a 13% tax.

NEBRASKA INHERITANCE TAX AS OF AUGUST 16, 2012

	Exemption	Rate
Surviving Spouse	All	0%
Class 1 – Near Relatives Father Mother Grandfather Grandmother Brother Sister Son Daughter Child Children legally adopted Grandchild Any lineal descendent Any person to whom the deceased for not less than 10 years prior to death stood in the acknowledger relation of a parent Spouse of any of the personal listed above Surviving spouse of any of the persons named above	40,000.00	1%
Class 2 – Distant Relatives Uncle Aunt Niece Nephew Any of the above related by adoption Lineal descendents of the above (first cousin) Spouse of surviving spouse of any of the above	15,000.00	13%
Class 3 – All Other Inheritances More distant relatives Second cousin Great-Uncle Great-Aunt Great-grandparent Unrelated people		18%

All states are different and there is talk in the Nebraska legislature and by the governor of some changes.

We will keep you posted.

MOVING OUT OF CALIFORNIA

I am sure you have heard about Mickelson saying publicly about moving from California to a state with no income tax, check out this article on The Wall Street Journal that discusses why California residents are doing just that…moving out

HOW TO TRACK YOUR TAX REFUND

After taxpayers file a return, they can track the status of the refund with the "Where's My Refund?" tool available on the IRS.gov website. New this year, instead of an estimated date, "Where's My Refund?" will give people an actual personalized refund date after the IRS processes the tax return and approves the refund.

"Where's My Refund?" will be available for use after the IRS starts processing tax returns on January 30th. Here are some tips for using "Where's My Refund?' after it is available on January 30th:

• Initial information will generally be available within 24 hours after the IRS receives the taxpayer's e-filed return or four weeks after mailing a paper return.
• The system updates every 24 hours, usually overnight. There is no need to check more than once a day.
• "Where's My Refund?" provides the most accurate and complete information that the IRS has about the refund, so there is no need to call the IRS unless the web tool says to do so.

To use the "Where's My Refund?" tool, taxpayers need to have a copy of their tax return for reference. Taxpayers will need their social security number, filing status and the exact dollar amount of the refund they are expecting.

SCIENCE GOES WILD #4

And, finally, the last of the Ig Nobel prize winners:

Researchers looked at the how liquids slosh, to find out what occurs when someone walks around while carrying a cup of coffee.

Two researchers discovered that chimpanzees can identify other chimpanzees individually from seeing photographs of their rear ends.

It will be interesting to see next year's winners!

IRS REMINDER ON PHONY WEBSITES

The IRS just posted a tax tip on phony IRS websites. It is worth the couple minutes it takes to read.

DON'T FALL FOR PHONY IRS WEBSITES

The Internal Revenue Service is issuing a warning about a new tax scam that uses a website that mimics the IRS e-Services online registration page.

The actual IRS e-Services page offers web-based products for tax preparers, not the general public. The phony web page looks almost identical to the real one.

The IRS gets many reports of fake websites like this. Criminals use these sites to lure people into providing personal and financial information that may be used to steal the victim’s money or identity.

The address of the official IRS website is www.irs.gov. Don’t be misled by sites claiming to be the IRS but ending in .com, .net, .org or other designations instead of .gov.

If you find a suspicious website that claims to be the IRS, send the site’s URL by email to phishing@irs.gov. Use the subject line, 'Suspicious website'.

Be aware that the IRS does not initiate contact with taxpayers by email to request personal or financial information. This includes any type of electronic communication, such as text messages and social media channels.

If you get an unsolicited email that appears to be from the IRS, report it by sending it to phishing@irs.gov.

The IRS has information at www.irs.govthat can help you protect yourself from tax scams of all kinds. Search the site using the term “phishing.”

Links:

• Suspicious e-Mails and Identity Theft
• Reporting Phishing
• Identity Theft resource page
• Publication 4523, Beware of Phishing Schemes (PDF)

IRS YouTube Videos:

• Phishing-Malware - English | Spanish | ASL

IRS Podcasts:
Protect Yourself From Identity Theft - English| Spanish

INEPTOCRACY

I couldn’t find it in the dictionary, so I Googled it, and discovered it is a recently "coined" new word.

Read this one over slowly and absorb the facts that are within this definition!

I love this word, and believe that it will soon become a fully recognized English word. At last, we have a word to perfectly describe our current political situation......

 INEPTOCRACY

(in-ep-toc'-ra-cy)- a system of government where the least capable to lead are elected by the least capable of producing and where the members of society least likely to sustain themselves or succeed, are rewarded with goods and services paid for by the confiscated wealth of a diminishing number of producers.

FAILING TO KEEP CURRENT ON PLAN BENEFICIARIES CAN SPOIL YOUR ESTATE PLANNING

Failing to keep current on plan beneficiaries can spoil your estate planning. A pension plan member neglected to name anyone to replace his spouse as a beneficiary after she died, even though his intention was to leave his entire estate to his two stepsons.

The plan provided that if someone dies without a beneficiary, benefits are paid to the surviving spouse, children, parents and siblings, in that order. After his death, the plan paid out his benefits to his siblings and not to his stepsons, because the stepsons weren’t his biological or legally adopted kids.

An Appeals Court decided this interpretation of the plan was reasonable (Herring v. Campbell, 5th Cir.). Similar problems can arise if your IRA beneficiary dies before you do and you die without naming a replacement beneficiary. In that situation, your heirs will be stuck with a much shorter distribution period to clean out your account.

IRA CHARITABLE ROLLOVER

If you are over age 70 1/2, you can save on last year's taxes by giving directly from your IRA this January.

In the 2012 Taxpayer Relief Act, there is a provision that is retroactive.

How? With an Individual Retirement Account "IRA" Charitable Rollover, also called a "qualified charitable distribution."

What is an IRA Charitable Rollover? An IRA Charitable Rollover is a direct transfer of up to $100,000 from your traditional IRA to a qualified charity.

Who is eligible to make an IRA Charitable Rollover? Traditional IRA owners who are at least 70 1/2 years old.

How does an IRA Charitable Rollover benefit me? Because the donation is made directly to charity, you benefit by not having to count the donated amount as income for tax purposes - this can be particularly helpful in excluding all or part of your required minimum distribution.

What if I already took my required distribution this year? If you received a distribution between December 1, 2013 and December 31, 2012, you may donate all or part of that distribution by writing a check to your desired charity by February 1, 2013 and that donation will count as an IRA Charitable Rollover for 2012.

How long do I have to act? You are allowed to make an IRA Charitable Rollover before February 1, 2013 and have it apply to your 2012 taxes. You are also eligible to make an IRA Charitable Rollover for your 2013 taxes any time throughout 2013.

How do I make an IRA Charitable Rollover? Instruct your IRA trustee to make the contribution directly to your designated charity before February 1, 2013.

Contact us if you need further information.

WHY YOUR 2013 PAYCHECKS ARE 2% LESS

The questions are already rolling in: "Why did my pay drop?" The simple answer is the expiration of the payroll tax holiday as part of the fiscal cliff deal. The payroll tax holiday was enacted in 2011, which reduced the employee share of the Social Security payroll tax from 6.2% to 4.2%. The holiday was not renewed when it expired at the end of 2012. The payroll tax holiday proved popular, but it cut federal revenues by some $10 billion per month.

SCIENCE GOES WILD #3

Our third winner- if you can follow it:

The U.S. Government General Accountability Office won a well-deserved literature Ig Nobel "for issuing a report about reports about reports that recommends the preparation of a report about the report about reports about reports." Got that?

PAYROLL TAX INCREASES MAY SPOIL THE PARTY

I WARNED YOU THAT THIS WAS COMING.

Despite the federal tax relief for taxpayers passed at the last minute, or actually after the last minute, payroll tax increases may spoil the party. As we have been warning you, the payroll tax reduction of 2% on employees that has been in place for 2011 and 2012 was allowed to expire on December 31^st.

Lawmakers did not renew the two-percentage-point cut in the employees’ share of the Social Security tax. They did not like the idea that government funding was required to make up the decrease in tax revenue for the Social Security trust fund. As a result, they decided to let this break lapse. Thus, employees will see smaller paychecks as the rate returns to normal.

So the result of all of this…Since the cliff bill was passed the federal tax withholding stayed the same as in 2012 instead of going up, but since the 2% withholding of Social Security went up people will see 2% less in their 2013 paychecks.

IRS WILL BEGIN 2013 FILING SEASON AND PROCESSING OF INDIVIDUAL RETURNS ON JANUARY 30

If you are expecting a refund you will have to wait a little longer this year. The IRS has announced that it plans to open the 2013 filing season and begin processing individual income tax returns on Jan. 30, 2013. The announcement follows on the heels of the enactment of the American Taxpayer Relief Act of 2012 (the 2012 Taxpayer Relief Act) on Jan. 2, 2013, which, apart from permanently extending the Bush-era tax cuts for most taxpayers and increasing the income tax rates for some high-income individuals for 2013 and later years, retroactively restored many deductions and credits and patched the alternative minimum tax for 2012. IRS will begin accepting tax returns only after updating forms and completing programming and testing of its processing systems to reflect these retroactive changes. IR 2013-2

It appears we are going to file returns later than normal. The following is a list of forms that the IRS will not accept until late February or March. Depreciation is on this list, so this will impact a lot of our clients.

• Form 3800 General Business Credit

• Form 4136 Credit for Federal Tax Paid on Fuels

• Form 4562 Depreciation and Amortization (Including Information on Listed Property)

• Form 5074 Allocation of Individual Income Tax to Guam or the Commonwealth of the Northern

Mariana Islands

• Form 5471 Information Return of U.S. Persons With Respect to Certain Foreign Corporations

• Form 5695 Residential Energy Credits

• Form 5735 American Samoa Economic Development Credit

• Form 5884 Work Opportunity Credit

• Form 6478 Credit for Alcohol Used as Fuel

• Form 6765 Credit for Increasing Research Activities

• Form 8396 Mortgage Interest Credit

• Form 8582 Passive Activity Loss Limitations

• Form 8820 Orphan Drug Credit

• Form 8834 Qualified Plug-in Electric and Electric Vehicle Credit

• Form 8839 Qualified Adoption Expenses

• Form 8844 Empowerment Zone and Renewal Community Employment Credit

• Form 8845 Indian Employment Credit

• Form 8859 District of Columbia First-Time Homebuyer Credit

• Form 8864 Biodiesel and Renewable Diesel Fuels Credit

• Form 8874 New Markets Credits

• Form 8900 Qualified Railroad Track Maintenance Credit

• Form 8903 Domestic Production Activities Deduction

• Form 8908 Energy Efficient Home Credit

• Form 8909 Energy Efficient Appliance Credit

• Form 8910 Alternative Motor Vehicle Credit

• Form 8911 Alternative Fuel Vehicle Refueling Property Credit

• Form 8912 Credit to Holders of Tax Credit Bonds

• Form 8923 Mine Rescue Team Training Credit

• Form 8932 Credit for Employer Differential Wage Payments

• Form 8936 Qualified Plug-in Electric Drive Motor Vehicle Credit

TIME MAGAZINE: IS CONGRESS EYEING YOUR 401(K) AND IRA TO SOLVE FISCAL MESS

(Time) -- Time.com reports, "Everything including the sacred mortgage deduction is on the table as lawmakers wrestle with the fiscal cliff ... With a combined $10 trillion sitting in IRAs and 401(k) plans, retirement accounts make a juicy target. Some of this money has never been taxed, and under current law never will be." According to Time, the left-leaning "Tax Policy Center in Washington has found that about 80% of retirement savings benefits flow to the top 20% of earners. Eliminating the deduction for retirement savings would hit the well-off disproportionately, a condition with a lot of appeal in the current political climate." The story notes Congress "could eliminate the deduction altogether or just for top earners, further restrict the amount that is deductible, start taxing retirement savings growth, or take back the part that has grown tax-free."

FROM THE DESK OF ERNIE GOSS

I have heard Professor Goss speak many times.  He is a conservative economist and his commentary always seems to hit home.  I thought you might find his December commentary interesting. 

Is U.S. Adopting Europe's Anti-Competitive Economic Policies? Import French Wine, Not Economic Policy

Last week, Francoise Hollande, Socialist President of France, recommended homework be eliminated in French schools. He argued that assigning homework provides an unfair advantage to students with stable home environments. This same type of anti-competitive thinking has produced a social safety net in France and most of Europe that has undermined economic incentives and encouraged workers to remain unemployed or underemployed.   

For example, the World Bank estimates the annual cost of the social safety net as a percent of GDP in France is more than twice the size of that in the U.S. (graph). Not surprisingly over the past decade, France's unemployment rate averaged 2.6 percentage points higher than the U.S. rate, and the Gaullist nation's annual GDP growth was about one-third that of the U.S.    

Unfortunately, the Obama administration's proposed tax increases currently under deliberation by Congress on higher income, higher productivity and more highly educated workers pushes the U.S. in France's direction.  

The top five percent of wage earners, or those earning over $154,000, already pay an average income tax rate 11 times that of the bottom 50 percent of U.S. workers. Not only do Obama's tax rate hikes on the most productive Americans shrink incentives, they reduce the yearly budget deficit by less than 10 percent. Instead of diminishing the income of higher wage workers via elevated taxes, U.S. economic policy should be directed at raising the income of lower income workers. The U.S. should import French wines and movies, not French economic policy.

KOPSA OTTE ON THE FISCAL CLIFF

By now you’ve heard that Congress has passed legislation avoiding the tax increases of the “fiscal cliff.” In actuality it is more like a bungee jump off the cliff, because they dealt with the tax increase aspects of the cliff but not the deficit problem.  So, like a bungee jumper, they have hit the first bottom and now are back at the top ready to propel back down for the second half of the cliff. Few of us who watched the process would consider it Washington’s finest hour, but we finally have answers to the questions that have made proactive tax planning so difficult.

Here are the highlights:

• The Bush tax cuts are restored for income up to $400,000 ($450,000 for joint filers). Rates for income above those ceilings rise to 39.6% for ordinary income and 20% for qualified corporate dividends and long-term capital gains. (There actually are six different capital gains rates, but more on that at a later time.)
• The Alternative Minimum Tax is finally indexed for inflation retroactive to January 1, 2012, meaning Washington won’t need to “patch” it every year.
• The estate tax “unified credit” amount that you can bequeath tax-free remains at $5 million, indexed for inflation. The actual rate rises from 35% to 40%.
• The 2% payroll tax holiday has expired, most likely for good.
• The higher expensing of equipment has been increased to $500,000 for both 2012 and 2013.  In addition, the 50% write off of new qualified business purchases in place for 2012 has been extended through 2013.

The legislation also extends several popular tax breaks like deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts and several others that have been reported on by the news organizations.

We realize you’ve already heard this news. But we want you to know we’ll be studying the new law in the coming weeks and months to look for every opportunity to help you save. And of course, if you have any questions, don’t hesitate to call or email us.