Tax

Due to the government shutdown in October, IRS will not begin accepting electronic returns until January 31, 2014. Also, the IRS will not process paper returns until that date. IRS originally was planning to start accepting individual returns on January 21 so we have a 10 day delay. Considering the government shutdown was for 16 days, IRS is making up some of the delay. You can read the entire news release on the IRS’ website.

Interestingly, IRS will begin accepting business returns on January 13, 2014 – news release. Small businesses such as sole proprietors, landlords and farmers are subject to the later individual start date.

Business returns are typically due two months and 15 days after their year-end. For calendar year businesses, the original due date is usually March 15th. Perhaps this is the reason businesses will be able to file earlier. However, there are many more individual returns than business returns so more returns are affected by the later start for individual filers.

photo credit: Zach Klein  via Flickr

Yes, I really mean 2013. They are also going up in 2014 – sigh.

Federal increases, selected:

1. New top federal tax bracket of 39.6% is applied to all income over $450,000, married filing jointly, and $400,000, for a single filer. The prior top bracket of 35% was also retained.
2. The long-term capital gain and qualified dividend rates increase from 15% to 20% for those in the new 39.6% tax brackets.
3. There is a new 3.8% tax on net investment income tax for taxpayers earning more than $250,000 for married filing joint or $200,000 for single filers. In addition to traditional investment income, such as interest and dividends, net investment income includes most rental income, capital gains and many types of business income.
4. A new 0.9% Medicare tax for those with wages, salaries, self-employment income totaling over $250,000 married filing joint or $200,000 for single filers. The tax is only on the excess.
5. Congress added back the phase-out of personal exemptions and the phase-out of itemized deductions (e.g. mortgage interest and charitable contributions). If you make in excess of $300,000 married filing jointly or $250,000 single then count on losing some deductions.
6. Prior to 2013, a taxpayer could deduct medical expenses that exceeded 7.5% of their adjusted gross income. For 2013 and forward the limit is 10%.

NC increases, selected:

1. The qualified tuition deduction, still available in 2013 on your federal, is now eliminated for NC purposes.
2. Qualified mortgage insurance premiums are still deductible in 2013 on your federal but no longer for NC purposes.
3. 2013 is the final year for the special tax free allowance for forgiveness of qualified principal residence debt for federal purposes. This provision is no longer allowed by NC. This one could cost some taxpayers quite a bit of NC tax.
4. The adoption credit is reduced from 50% to 30% for 2013 and eliminated beginning in 2014.

What can we conclude? If you make over $250,000 married or $200,000 single, you will likely pay more income tax for 2013 than you did for 2012.

All NC employees must complete a new NC-4 or NC-4EZ for 2014. This is because the legislature changed quite a few income tax rules and effective January 1, 2014 they lowered tax rates to a flat 5.8%. Some will owe more tax, some will owe less tax and some will owe about the same amount.

NC has more information and the forms here:

http://www.dornc.com/press/2013/nc4requirement.html

Please start on the NC-4 Allowance Worksheet, Part I. Go to the section with your filing status and answer the questions. Notice the instructions following the questions. For example, for Married Filing Jointly the instructions after question 4 read:

“If you answered “No” to all of the above, STOP HERE and enter ZERO (0) as total allowances on Form NC-4, Line 1.”

Notice that if you answered “NO” to all of the 4 questions, you will enter ZERO (0) total allowances and you can stop. No need to complete the rest of the worksheets. Most of the NC-4s I have calculated have allowed me to stop here and I have calculated ZERO allowances. The instructions continue:

“If you answered “Yes” to any of the above, you may choose to go to Page 2, Part II to determine if you qualify for additional allowances. Otherwise, enter ZERO (0) on Form NC-4, Line 1.”

This is where it gets interesting. If you are a current client, please call or send an email if you need assistance. For most of you there will be no charge.