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New Deduction Phase-outs for 2013 Tax Returns

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Upper-income US taxpayers should be aware that new deduction phase-out IRS rules in effect for 2013 tax returns to be filed in 2014 may increase their tax liabilities or reduce refunds. Two new important changes for high-earning individuals or couples are the new itemized deduction phase-outs and personal and dependent exemption deduction phase-outs. Because of these changes in the deduction phase-out rules, along with other new IRS rules that we have covered in previous articles, the necessity for proper tax planning will only increase in future years.

This article will briefly explain the changes in the deduction phase-out rules; it is not intended to convey tax or legal advice. Please consult a tax attorney if you have further questions. Sherayzen Law Office, PLLC can assist you in all of your tax and legal needs.

New Itemized Deduction Phase-Out Changes

Under the new US tax rules, the amount of itemized deductions that high-earning individuals or couples may take on Form 1040 is subject to a phase-out limitation. Specifically, allowable itemized deductions will be reduced by 3% of the amount of adjusted gross income (AGI) above the certain income thresholds (however, this reduction will not exceed 80% of the original total amount of a taxpayer’s itemized deductions).

The income thresholds are the following: $250,000 for single individuals, $300,000 for married filing jointly couples, $150,000 for married filing separately couples, and $275,000 for heads of households. As an example, consider a married couple filing jointly with AGI of $500,000, and $50,000 of original itemized deductions for Schedule A. Because their AGI is $200,000 over the income threshold, their allowable itemized deductions will be reduced by 3% of the excess ($200,000 multiplied by 3%, equaling $6,000). Thus, their allowable itemized deductions will be reduced to $44,000.

New Personal and Dependent Exemption Deduction Phase-Out Changes

While under the general IRS rule, the amount that taxpayers may deduct for each applicable exemption increased from 2012 (at $3,800) to 2013 (now $3,900), certain taxpayers may lose some or all of the benefit of their exemptions if their AGI exceeds certain thresholds under the new Personal Exemption Phase-out (PEP). Under this rule, the dollar amount of each personal exemption must be reduced from its original value by 2 percent for each $2,500 or part of $2,500 ($1,250 for married filing separately) that AGI is above the above specified income thresholds.
For 2013 tax year returns, the phase-out starts at the following amounts: $250,000 for single individuals, $300,000 for married filing-jointly couples and qualifying widowers, $150,000 for married filing separately returns, and $275,000 for heads of households. If taxpayer’s AGI exceeds these applicable amounts by more than $122,500 ($61,250 for married filing separately returns), their deductions for exemptions amount will be reduced to zero.

Contact Sherayzen Law Office for Help With Your Tax and Estate Planning

Combined with the new 3.8% Medicare surtax on investment income and the new 0.9% Medicare surtax on salaries and self-employment income earned by certain high-earning individuals, and the increased threshold amount for Schedule A itemized medical expense deductions, the new phase-out rules detailed in this article will dramatically impact many taxpayers. Professional tax planning may help lower your future tax liabilities.

This is why you need to contact the experienced tax law firm of Sherayzen Law Office to help you create a thorough tax plan aimed at taking advantages of the various provisions of the U.S. tax code.

Tax Lawyers Minneapolis | 7 Reasons To File Tax Return Even if You Do Not Have to Do It

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In some case, you may want to file a tax return even though you do not have to. Here are the top seven reasons for this course of action for the tax year 2010.

1. Tax Refund. If federal income tax was withheld from your paycheck, you made estimated tax payments, or had a prior year overpayment applied to this year’s tax, you may be entitled to a tax refund. You will only be able to get it if you file a tax return.

2. Making Work Pay Tax Credit. You may be able to take this credit if you had earned income from work. The maximum credit for a married couple filing a joint return is $800 and $400 for other taxpayers.

3. Earned Income Tax Credit (“EITC”). You may qualify for EITC if you worked, but did not earn a lot of money. Remember, EITC is a refundable tax credit; this means you could qualify for a tax refund.

4. Additional Child Tax Credit. This is also a refundable tax credit. It may be available to you if you have at least one qualifying child and you did not get the full amount of the Child Tax Credit.

5. American Opportunity Tax Credit. The maximum credit per student is $2,500 and the first four years of post-secondary education qualify.

6. First-Time Homebuyer Tax Credit. In order too qualify for the credit, you must have bought – or entered into a binding contract to buy – a principal residence located in the United States on or before April 30, 2010. If you entered into a binding contract by April 30, 2010, you must have closed on the home on or before September 30, 2010. The credit is a maximum of $8,000 or $4,000 if your filing status is married filing separately. If you bought a home as your principle residence in 2010, you may be able to qualify and claim the credit even if you already owned a home. In this case, the maximum credit for long-time residents is $6,500, or $3,250 if your filing status is married filing separately.

7. Health Coverage Tax Credit. Certain individuals, who are receiving Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, or pension benefit payments from the Pension Benefit Guaranty Corporation, may be eligible for a Health Coverage Tax Credit. The credit is worth 80% of monthly health insurance premiums when you file your 2010 tax return.

If you have questions with respect to whether you should file your tax return, contact Sherayzen Law Office NOW and 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!