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IRS Increases Deductions and Exclusions for the Tax Year 2012

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The Internal Revenue Service recently announced that for tax year 2012, personal exemptions and standard deductions will increase, and tax bracket thresholds will rise because of inflationary effects. This article will explain some of these changes.

Personal Exemptions, Standard Deductions and Tax Bracket Changes

The increased amount of each personal and dependent exemption will be $3,800 (up $100 from 2011). The updated standard deduction will be $11,900 for married couples filing joint returns (up $300), $5,950 for single individuals and married individuals filing separately (up $150), and $8,700 for heads of household (up $200).

Tax-bracket thresholds will also increase for each filing status. For married couples filing a joint return, the 25% taxable income threshold will begin at $70,700, up from $69,000 for tax year 2011.

401(k) Contribution Changes

The IRS also announced that the maximum 401(k) contribution amount will increase by $500 to $17,000.

Foreign Earned Income Deduction

The IRS stated that the maximum foreign earned income deduction will increase by $2,200 to $95,100 for tax year 2012.

Estate and Gift Tax Exclusions

The basic estate tax exclusion will increase to $5,120,000 (up from $5,000,000 for calendar year 2011) for the estate of any decedent dying during calendar year 2012. Further, the aggregate decrease in value of an estate’s property cannot exceed $1,040,000 (an increase of $1,020,000 for 2011) for executors electing the special use valuation method for qualified real property.

The annual gift exclusion will stay at $13,000.

Conclusion

This article is intended to give a brief summary of these issues, and should not be construed as legal or tax advice. Please consult IRS materials independently for further verification. If you have further questions regarding your own tax circumstances, Sherayzen Law Office offers professional advice for all of your US and international, and estate planning tax needs. Call our office (952) 500-8159 or email [email protected] for a consultation today.

Form 2290: Highway Use Tax Return is Now Due on November 30, 2011

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On July 15, 2011, the IRS advised truckers and other owners of heavy highway vehicles that their next federal highway use tax return (which is usually due on August 31) will instead be due on November 30, 2011.  IRS Notice 2011-77 explains that the main reason for the extension of the deadline is to alleviate any confusion and possible multiple filings of Form 2290 that could result if Congress reinstates or modifies the  highway use tax after September 30, 2011.

Generally, the highway use tax of up to $550 per vehicle applies to trucks, truck tractors and buses with a gross taxable weight of 55,000 pounds or more. A variety of special rules apply to vehicles with minimal road use, logging or agricultural vehicles, vehicles transferred during the year and those first used on the road after July. Ordinarily, vans, pick-ups and panel trucks are not taxable because they fall below the 55,000-pound threshold. The tax is currently set to expire on September 30, 2011.  For trucks and other taxable vehicles in use during July, the Form 2290 and payment are, under normal circumstances, due on August 31.

The new November 30 filing deadline for Form 2290 (Heavy Highway Vehicle Use Tax Return) applies to the tax period that begins on July 1, 2011. It covers the vehicles used during July, as well as those first used during August or September. Returns should not be filed and payments should not be made prior to November 1, 2011.

To aid truckers applying for state vehicle registration on or before November 30, 2011, the new regulations require states to accept as proof of payment the stamped Schedule 1 of the Form 2290 issued by the IRS for the prior tax year (the one that ended on June 30, 2011). Under federal law, state governments are required to receive proof of payment of the federal highway use tax as a condition of vehicle registration. Normally, after a taxpayer files the return and pays the tax, the Schedule 1 is stamped by the IRS and returned to filers for this purpose. Prior to the new regulations, a state normally would accept a prior year’s stamped Schedule 1 as a substitute proof of payment only through September 30.

For those acquiring and registering a new or used vehicle during the July – November period, the new regulations require a state to register the vehicle, without proof that the highway use tax was paid, if the person registering the vehicle presents a copy of the bill of sale or similar document showing that the owner purchased the vehicle within the previous 150 days.

Making Work Pay Credit

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Making Work Pay Tax Credit is a refundable tax credit of available to many taxpayers in the tax year 2010.  The credit is up to $400 for individuals and up to $800 for married taxpayers filing joint returns.  Taxpayers who file Form 1040 and 1040A must use Schedule M to figure out their Making Work Pay Tax Credit (in particular, whether they have already received the full credit in their paychecks).  Taxpayers who file Form 1040-EZ should use the worksheet for Line 8 on the back of the 1040-EZ to figure their Making Work Pay Credit.

There is an income limitation on claiming the tax credit.  If a taxpayer’s modified adjusted gross income is or exceeds $95,000 (for individuals) or $190,000 (if married filing jointly), then he is not eligible to take the credit.

Additional limitations also exist.  In particular, the credit is not available for a taxpayer: who is claimed as a dependent on someone else’s tax return, has not a valid social security number, or who is a nonresident alien.

Contact Sherayzen Law Office to discuss your case with an experienced Minneapolis tax attorney!

Getting Prior Year Tax Information from the IRS

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If you need to obtain certain prior year tax return information, it is possible to a copy of the actual processed return from the IRS. Often, however, the information you need may be contained in a tax transcript, which can also be obtained directly from the IRS.

Tax Return Transcript versus Tax Account Transcript

There are two types of tax transcripts: tax return transcript and tax account transcript.

A tax return transcript shows most line items from your tax return as it was originally filed, including any accompanying forms and schedules. It does not, however, reflect any changes made after the return was filed.

On the other hand, a tax account transcript shows any later adjustments either you or the IRS made after the tax return was filed. However, a tax account transcript reveals only the most basic data, such as marital status, type of return filed, adjusted gross income and taxable income, is included in the transcript.

Obtaining Transcripts

There are three ways to order either type of transcripts: on the phone (800-908-9946), online (the IRS website), and by mail. If you choose to obtain your tax transcript by mail, you need to figure out which form you need to file.

1. 1040, 1040A, 1040EZ tax return transcript: you will need to complete and mail Form 4506T-EZ.

2. Business Forms and Other Individual Forms: you will need to complete and mail Form Form 4506T, Request for Transcript of Tax Return.

If you order online or by phone, you should receive your tax return transcript within 5 to 10 days from the time the IRS receives your request. Allow 30 calendar days for delivery of a tax account transcript if you order by mail using Form 4506T or Form 4506T-EZ.

The IRS does not charge a fee for transcripts, which are presently available for the current tax year as well as the past three tax years.

Obtaining Actual Copy of a Previously-Processed Tax Return

If you need an actual copy of a previously processed tax return, it will cost $57 for each tax year that you order. You need to complete and mail (to appropriate address) Form 4506, Request for Copy of Tax Return. Copies are generally available for the current year as well as the past six years. The general wait period is about 60 days.

Contact Us

If you have any tax questions, contact Sherayzen Law Office to discuss your case with an experienced Minneapolis tax attorney.

Tax Lawyers Minneapolis: Preparing for Initial Consultation II (for Individuals)

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In previous article, I discussed the first part of preparation for an initial consultation with Minneapolis tax lawyers; the first part was mainly concerned with what type of information you should bring to your Minneapolis tax attorney. In this essay, I shift the focus toward the second part of the preparation which is about what type of questions you need to ask your tax lawyer.

Usually, the questions that you want your tax attorney to answer should, at the very least, cover the following four areas:

1. Cost and Billing

One of most important areas that you need to cover is the cost of the case as well as the manner in which you will be billed. Unless this is a flat-fee case, you should not expect your attorney to give you a precise amount of money you will need to spend on your case. Usually, your tax lawyer will give you an estimate, which, in the end, may or may not correspond to the actual cost of the case. I usually provide a fairly conservative estimate and it is rare for my clients to pay above the estimate; usually, it occurs where a client fails to fully disclose the circumstances of the case or otherwise causes a significant delay in the proceedings of the case.

In terms of the manner of billing, you are likely to billed per hour in most tax litigation and voluntary disclosure matters. Regular tax returns, especially for returning clients whose circumstances have not changed in any significant way, are usually subject to a flat fee.

2. Time

The next area you should question your Minneapolis tax attorney about is how long the case will need to be conducted. The estimates here are likely to vary significantly. While it is fairly easy to predict when a tax return will be finished, it is much harder to estimate an amount of time a voluntary disclosure process may take (especially if more issues come up during the disclosure process).

3. Participation

Ask your Minneapolis tax lawyer about who will handle your case – i.e. whether the attorney will handle it personally or turn it over to his associates. When you are dealing with a large law firm, you run the risk that the attorney with whom you are having the initial consultation will not be the one handling your case, especially if you are a small business or an individual. Due to common division of labor in large law firms, it is very likely that the case will be turned over to inexperienced associates whose work will be only reviewed by the attorney who conducted the initial consultation.

If, however, you are hiring a small firm or a solo practitioner, you are very likely to avoid this problem and your case will be handled from the beginning through the end by your experienced tax lawyer who is probably an owner of the law firm and personally responsible for the case.

4. Percentage of Practice

Ask your Minneapolis tax lawyer about how much time per month, on the average, he devotes to his tax practice. At the very minimum, your tax attorney should devote about 25% of his practice to tax law. If, however, the attorney has specialized associates (for example, someone who is a lawyer and a CPA), then he can have a lower percentage devoted to tax law because he may work closely with his experienced and specialized associate.

Conclusion

While these four questions do not represent a complete list of questions you should ask your tax attorney, they are likely to provide that minimum background necessary for the review of a retainer agreement with your Minneapolis tax lawyer.

Sherayzen Law Office can help you with your tax issues, whether you want to check your tax return, negotiate with the IRS, or engage in complex tax planning.

Contact Sherayzen Law Office NOW to discuss your tax case with an experienced Minneapolis tax attorney!