Author: Eric Buechler

Did the 2008 housing market crash finally catch up to you, as it did with so many Americans?

 If it did, you’re not alone.  I’m your witness! During my first 16 years in the trenches of tax accounting – filing tax returns, providing tax planning, and resolving IRS and state tax issues for clients – I prepared only three returns reporting cancellations of debts.

Yes, just three.

But in the last four tax seasons, I’ve filed 12 federal returns with cancellation-of-debt forms, 1099-C and/or 1099-A. I have three more returns scheduled for the current year.  Yikes!

This once shameful financial issue has become so common, that many taxpayers now are talking openly with others about their mortgage debt dilemmas and tax issues surrounding them. Taxpayers are searching nervously for solutions to what appear to be very large tax bills.

Some simply will pay Uncle Sam and forget this awful time in their lives. But, in some circumstances, IRS codes do allow taxpayers to exclude at least part of the canceled debt on a mortgage.  In short, you might not need merely to write a check to the IRS.  A little fact-finding might reduce or eliminate taxation on your debt.   

At the same time, this tax issue is complex and daunting! At EricJohn Ltd., we are able to look for the important facts and put them in place on your tax returns. Frankly, in my practice, I’ve found that a majority of clients have very little, if any, tax due.

If you like to self-prepare your return, here are some items you’ll need:

Information required to figure any tax due:

• Effective date for cancellation of debt.
• FMV (Fair Market Value) of the property on the day before cancellation.
• Was the property for personal or business use?
• Was the debt(s) recourse or non-recourse?
• Does a Form 982 exclusion apply? (See below.)

Tax forms you may need to file:

• Form 982 – Reports the amount of canceled debt associated with an exclusion item and any adjustments to the property’s basis.
• Schedule D – Reports taxable gain (or non-allowed loss) on property associated with the canceled debt.
• Form 4797 – Reports gain or loss on business property associated with the canceled debt.
• Form 1040, Line 21 – Reports the taxable portion of the canceled debt.

If you try to file your federal tax return as early as possible each year, be prepared for a slowdown in the 2013 filing season.

It seems the new Affordable (Health) Care Act may complicate filings for taxpayers affected by it. Among other things, they simply may not receive all the tax documents related to the new health care act by the end of January 2014, as has been required in past years.

Here are some effects expected from the new law:

• Every household seeking a tax credit for insurance premiums paid into the new health insurance exchange program now will be required to file a full tax return.  The requirement applies even if the taxpayer’s income is below the regular threshold for filing a return.
• It is going to take additional new health information to file an accurate return.
• Parents will be responsible for any health premium penalty for a dependent claimed on their tax return.
• State and federal tax rules may differ, further complicating the tax returns.

One more common benefit also will be affected. Flexible Spending Account (FSA) contributions into your employer pretax health reimbursement plan will be limited to $2,500 for 2013.

Ask us at EricJohn Limited or your tax professional to steer you through the ins and outs of the new Affordable Health Care Act.

Tomorrow (Aug. 15) is the formal due date for refund of 2012 property taxes. Now, there’s no need to panic if you or your tax advisor haven’t filed that return yet. The state Department of Revenue says homeowners and renters will get a grace period of one year, pushing out the effective deadline for filing a 2012 return to Aug. 15, 2014. But, if you haven’t filed for a refund of your 2011 property taxes, you will have to rush. That refund expires tomorrow. Submit Form M1PR by the end of the day

Minnesota soldiers, sailors and veterans who have served in combat zones can claim a significant state tax credit, whether or not they know it. More than 2,300 members of the Armed Forces who served during 2009 still have not filed and are facing an Oct. 15 deadline for making a claim, the Minnesota Department of Revenue says. The tax credit is refundable, meaning it applies even if the taxpayer has no income or does not owe any state income tax.

To file, use Form M99, “Credit for Military Service in a Combat Zone.” (www.revenue.state.mn.us/Forms_and_Instructions/2009/forms_m99_09.pdf).

Soldiers and veterans who served in hazardous duty areas in 2010, 2011 and 2012 also can submit claims now.

The Minnesota Department of Revenue lists other tax breaks at its “Members of the Military” Web page.

 The Internal Revenue Service allows workers to tap their IRAs before the normal distribution age of 59½ — if it’s done correctly. There is a provision for early distributions which does not carry the 10% early withdrawal penalty.  The early withdrawals from the IRA account need to be equal payments over a minimum period of 5 years.

 But, if you modify those regular payments, you’ll lose the exception and trigger the 10 percent “early distribution recapture tax.”

 So, view that account only as an outgoing one. For example, you’ll want to be careful NOT to roll over money from your workplace 401(k) or 403(b) plan — or from one of your other IRAs — into it. The IRS will look at that as a change in the payment schedule and you’ll wind up owing the penalty!

 Early distributions from IRAs are complex for other reasons, too. Contact us to find your way through the taxing details.

So, what’s new in state taxes?

A slew of tax changes occurred in this year’s session of the Minnesota Legislature! The  Department of Revenue now is churning out “What’s New” updates and various Fact Sheets to explain 2013 tax codes.

You can read them at the agency’s Web site at www.revenue.state.mn.us. Some educational videos also are available.

In one update, the state agency says it is still is waiting for IRS guidelines to figure out how same-sex marriage will affect taxation of those couples. But, beginning Aug. 1, Minnesota will accept the “married” as the filing status for legally married same-sex couples. That new filing status extends to other forms given to employers, such as Form W-4 for withholding.

An extensive discussion of property taxes also has been issued by MDOR.

So, here are some briefings that may fit your tax situation:

Assumed Names filed before September 6, 2011, have a 10-year term and will not need to be renewed until l six months prior to the expiration on date. At the end of the 10 years, filing an annual renewal will change the duration on of the assumed name from a 10-year term to perpetual. From then on, an annual renewal must be filed each calendar year, as is the case for other business types; failure to file a renewal will result in expiration on of the business. Any assumed name that expires as a result of failing to file the annual renewal may be reinstated by filing the annual renewal with the reinstatement fee, effective August 1, 2013.

This office will no longer mail the required paperwork to assumed name-holders at the end of the 10-year period.

See more at http://www.sos.state.mn.us/index.aspx?page=180

News Laws Governing Business Filings Effective August 1

Laws 2013, Chapter 110 passed the Legislature without opposition, was signed into law by Governor Dayton and is effective August 1.  This bill provides many technical improvements in the laws governing business filings in Minnesota.

High-income Minnesotans received a state tax hike earlier this year, but many hadn’t felt it in their paychecks – until now. That could create a problem.

On June 20, the state Department of Revenue reflected new legislation and added a top-end tax bracket of 9.85 percent to the withholding tax tables used by employers. That was an increase from the prior 7.85 percent.

Here’s the stickler. The new income tax rate actually applied to all 2013 pay, from Jan. 1 forward. So, some Minnesotans could come up short in state tax payments at year-end if they don’t try to catch up.

To offset the shortfall, the Department of Revenue suggests two options: Boosting withholding from paychecks further (use Form W-4MN) or making separate, estimated tax payments.

You’ll probably want to talk to your personal tax advisor to see if you’re affected and what you should do. In general, the 9.85 percent bracket applies to income above:

· $250,000 for married people who file a joint return, or for qualifying widows(ers),
· $125,000 for married people who file separate returns,
· $200,000 for heads of households, and
· $150,000 for single people.