SAME-SEX MARRIAGE AND THE 2013 NJ-1040

The “What’s New” page in the NJ-1040 instruction booklet, which I referenced yesterday, does not make specific mention of the tax treatment of same-sex married couples.

The only mention I could find of “same-sex marriage” in a quick review of the booklet was in the section explaining Filing Status -

“Any reference in this booklet to a spouse also refers to a spouse that entered into a valid same-sex marriage in another state or foreign nation and a partner in a civil union (CU) recognized under New Jersey law.”

The wording is a bit odd, and I expect that it also applies to a “valid same-sex marriage in New Jersey”, since NJ now apparently allows same-sex marriage - due to a state court's September 27 order that the state must allow same-sex couples to marry and the New Jersey Supreme Court’s denial of the Christie Administration’s request to temporarily prevent same-sex marriages.

So it appears that for the 2013 NJ-1040 legally married same sex couples must file their state tax return as married – either filing joint or separate.

I will be attending the NJ chapter of NATP’s annual “Famous State Tax Seminar” this coming Saturday, and I expect this issue will be addressed at the seminar.  I will report on the event here at TWTP on Monday.

TTFN

WHAT’S NEW FOR NJ STATE TAXES FOR 2013

The 2013 NJ-1040, supplemental forms and schedules (except for the NJ-BUS forms), and instruction booklet are now available at the NJ Division of Taxation website.  Click here.

The NJ-1040 available on the website has a new look.  For one – it is no longer red.  However the format is the same, and there is no change to the tax rates or tax rate schedules.

Here, according to the instruction booklet, is what is new for 2013 -

• Excludable Pensions, Annuities, and IRA Withdrawals (Line 19b). You must enter on this new line the excludable portion of any distribution from a pension, annuity, or IRA to which you made contributions.

• Alternative Business Calculation Adjustment. The percentage used to calculate the Alternative Business Calculation Adjustment on Schedule NJ-BUS-2 increases to 20 percent for 2013 as part of a five-year phase-in. If you have losses in certain business-related income categories, you will use this percentage to calculate an adjustment to your taxable income.

• Girl Scouts Councils in New Jersey Fund. This fund joins the list of charitable funds to which you can contribute when filing your New Jersey return.  

• Change of Address Oval. If you are filing a paper return and your address has changed since you last filed, or if any of the address information on your preprinted mailing label is incorrect, fill in the new “Change of Address” oval on Form NJ-1040 or NJ-1040NR.

• Check Amount Boxes. If you owe tax and are enclosing a check or money order with your paper return, enter your payment amount in the boxes below the signature line on the first page of Form NJ-1040.  

As I no longer live in NJ I no longer get the NJ-1040 package in the mail.  I will need to wait until a client gives me the 2013 package.

TTFN

WHAT'S NEW FOR NEW YORK INCOME TAXES FOR 2013

The New York State Department of Taxation and Finance tells us that the 2013 Form IT-201 (resident income tax return) and IT-203 (non-resident and part-year resident income tax return) “will not be available until sometime in January”.  However the 2013 instruction packages for both forms are available online – click here for the IT-201 instructions and here for the IT-203 instructions.

Here is what is new for New York State individual income tax returns for 2013 -

·      While the actual tax rates have not changed, for the first time the New York State standard deduction and tax rate schedules have been indexed for inflation.  And special tax calculations are required if the New York AGI is more than $102,900, the original $100,000 amount indexed for inflation.

·      If you have a balance due on your IT-201 or IT-203 and you are paying the tax by check you now must complete and submit the new IT-201-V ‘Payment Voucher for Income Tax Returns”.  The IT-201-V is used for both IT-201 and IT-203 payments.

 

·      Same-sex legally married couples must now file their NY state returns using the married filing status rules.  Under New York’s “Marriage Equality Act”, which took effect on July 24, 2011, all marriages, whether between same-sex couples or different-sex couples, are treated equally under the laws of New York.  For all taxes administered by the NYS Tax Department, any references in the Tax Law or department documents to “spouse “or “married individual” includes a person in a marriage with a same-sex spouse.

·      The return of the “Pease” reduction of federal itemized deductions is reflected in the calculation of the New York itemized deduction.

There is a new credit for “alternative fuels and electric vehicle recharging property” and some changes to existing credits and some new and revised “income modifications” – but none of these affect my clients, or most NY resident and non-resident filers.

The “What’s New for 2013” section of the instruction booklets indicate that New York has a new Web File option, which will allow most New York filers to submit their income tax returns electronically via the Tax Department’s website free of charge (without purchasing flawed and expensive tax preparation software?) - similar, or so it seems, to the NJWebFile system.  However I have not found any specific information on this new option on the Department website.  I expect I will learn more about this at the January NJ-NATP state tax seminar, which includes a presentation on New York State updates.

I will let you know when the 2013 forms become available.

TTFN

IT'S BACK!

The New Jersey chapter of the National Association of Tax Professionals’ annual 2014 “Famous State Tax Seminar” will be held once again at the Hilton Woodbridge in Iselin NJ on Saturday, January 11^th. 

 

This seminar is a must-attend for all tax professionals who prepare NJ state income tax returns.

 

Scheduled to speak at the seminar are returning favorites attorney Michael Feinberg, with another presentation on the NJ Inheritance Tax, and EA Kathryn Keane, who will provide NY state tax updates.  Susan Feeney will discuss NJ Sales and Use Tax and Alexis DeRosa from the NJ Division of Taxation will cover NJ state tax updates.

 

I miss the “Jim and Jake” show NJDOT updates from past years.  They were a hard act to follow.

 

The keynote speaker is once again Michael Bryan, Director of the NJ Division of Taxation.  As a personal aside, there were high hopes when Mr Bryan took over as Director.  However there has been no noticeable change to the Division, which still, unlike the IRS, unethically keeps silent on taxpayer overpayments hoping to keep the money for the state’s legislators to waste on pork and entitlements.

 

Thankfully this is one of the few tax CPE offerings that does not waste our time with 2 hours of ethics preaching.  The entire day is full of useful information.

 

Registration begins at 7:30 AM and the seminar runs from 8:00 AM to 4:25 PM.  Continental breakfast, lunch, and afternoon dessert is included.  The program qualifies for 8 hours of CPE.

 

The cost of the seminar is $200 for NATP members and $250 for non-members.  Click here to download the registration form.

 

I hope to see you there!

 

TTFN

THE REST OF THE 2013 INFLATION ADJUSTMENTS

Now that the American Taxpayer Relief Act of 2012 has become law the IRS has issued the balance of the annual inflation adjustments for 2013.  Here are some of these adjustments (all amounts below pertain to 2013 income tax returns filed in 2014) -

• A new tax rate of 39.6 percent has been added for Single filers whose income exceeds $400,000, $425,000 for Head of Household, $450,000 for Married Filing Joint, and $225,000 for Married Filing Separate. The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years.  

 • The Standard Deduction rises to $6,100 for Single and Married Filing Separate, $8,950 for Head of Household, and $12,200 for Married Filing Joint.

The Standard Deduction for a dependent is the greater of (1) $1,000, or (2) the sum of $350 and the individual's earned income (up to $6,100).

The additional Standard Deduction amount for the age 65 or older or blind is $1,200 for married individuals and $1,500 for Single and Head of Household.

• The personal exemption rises to $3,900.  The exemption is subject to a PEP phase-out that begins with adjusted gross incomes of $250,000 for Single, $275,000 for Head of Household, $300,000 for married couples filing joint, and $150,000 for Married Filing Separate.

 • The Pease limitation for itemized deductions claimed on returns of Single filers with incomes of $250,000 or more, $275,000 for Head of Household, $300,000 for Married Filing Joint, and $150,000 for Married Filing Separate.

• The Alternative Minimum Tax exemption amount is $51,900 for Single and Head of Household, $80,800 for Married Filing Joint and $40,400 for Married Filing Separate.  The 28% AMT tax rate kicks in at AMT taxable income of $179,500 ($89,750 for Married Filing Separate).

 • The Estate Tax “unified credit” exclusion is $5,250,000.

The 2013 inflation adjustments are identified in Revenue Procedure 2013-15.

TTFN

HAPPY NEW YEAR!

{I hear that the Senate has passed a bill.  But it ain't over till it's over.  And I do not hear the fat lady warming up yet.  The House still has to accept, reject, or revise the bill}

Well we have done it – American has fallen over the “fiscal cliff”.

Actually that is not quite true.  As Rex Nutting explained in his commentary “Stop Calling It A Fiscal Cliff” at MARKETWATCH.COM -

“The fiscal cliff is a misleading metaphor. The laws will change on that day, it’s true, but the impact will be spread out over many, many months. In fact, the effects are already being felt, particularly in financial markets. Businesses, investors, workers and consumers have begun to prepare for the changes, and that’s caused the economy to slow a bit already.

It’s not a Niagara Falls, with billions of gallons going over a cliff. It’s more like a bathtub slowly filling up. And, on Jan. 1, it’s going to spill over the edge. Eventually, it will flood the house, but that’ll take time.

It’s not an explosion; it’s water torture.”

What has happened, from a tax point of view, is this – the idiots in Washington have done nothing to extend the tax law that expired on December 31, 2011, and December 31, 2012.

So what is new for taxes for 2013?

(1)  The contribution limits for tax-deferred pension accounts are -

·      IRA = $5,000

·      IRA Catch-Up Contributions at age 50 and older = $1,000

·      SIMPLE Plan = $12,000

·      SIMPLE Catch-Up Contributions at age 50 and older = $2,500

·      401(k), 403(b), Profit Sharing Plans = $17,500

·      Catch-Up Contributions for these plans at age 50 and older= $5,500

(2)  The Standard Mileage Allowance rates are –

 • 56.5 cents per mile for business 

 • 24 cents per mile for medical or moving

 • 14 cents per mile in in service of charitable organizations  

(3)  The following provisions of Obamacare take affect –

·      The employee’s share of the Medicare tax increases by 0.9% - to 2.35% - for taxable wages over $200,000 for single filers, $250,000 for joint filers, and $125,000 for married couples filing separately. The self-employment tax is similarly increased on these levels of income.

·      A new 3.8% “surtax” on “net investment income” is added on the Form 1040 for taxpayers with “modified” AGI (MAGI) over $200,000 for singles, $250,000 for joint filers, and $125,000 for married couples filing separately. 

·      If you are under age 65 you will only receive a tax benefit for your itemized medical expenses if the total of your allowable expenses exceeds 10% of your Adjusted Gross Income (AGI). 

·      Employee contributions to an employer-provided medical expense FSA are limited to $2,500 per year.

What else?  To be honest – God only knows, and he ain’t talking!

If the idiots in Washington continue to do nothing we will be taxed like its 1999, or actually 2000.  The so-called “Bush” tax cuts and the various BO tax benefits expired on December 31, 2012.  Therefore, as of January 1, 2013, the Tax Code pretty much goes back to the way it was on December 31, 2000, unless there is some kind of tax extension or tax reform legislation passed.

Actually, at this point we really do not know how we are being taxed for 2012 either.  The popular “extenders”, including the AMT patch, expired on December 31, 2011.

So, based on the Tax Code as of this writing, American taxpayers will need to dig deep in their pockets to pay their 2012 and 2013 federal income tax bills!

My only hope is that the idiots in Washington at least act on the dreaded AMT and the other “extenders” before the end of January so I can begin the “season” knowing how to properly prepare 2012 tax returns.

Regardless of your political “persuasion” – the Republicans, the Democrats, and BO are all equally guilty of acting like idiots during this nonsense.   

TTFN

OUR PPACA IS HERE TO STAY (AT LEAST FOR NOW)

The Supreme Court recently upheld most of the Patient Protection and Affordable Care Act (PPACA), aka “Obamacare”, and the idiots in Congress have been unsuccessful in 30+ attempts to repeal the Act.  So it looks like we better prepare ourselves for the provisions that will become effective in 2013.

·      Currently you will only receive a tax benefit for your medical expenses if you itemize on Schedule A and the total of your allowable expenses exceeds 7½% of your Adjusted Gross Income (AGI).  If your expenses total $6,500 and your AGI is $80,000 your deduction is $500 ($80,000 x 7½% = $6,000 / $6,500 - $6,000 = $500).

Beginning with 2013, the exclusion rises to 10% of AGI.  In the above example there would be no deduction, as 10% of $80,000 = $8,000, and $6,500 - $8,000 = 0. 

Under the dreaded Alternative Minimum Tax medical expenses are only deductible to the extent they exceed 10% of AGI.

In reality, the allowable medical expenses of most taxpayers do not exceed the current 7½% exclusion – so, unfortunately, the change will only affect those with excessive medical expenses and, in my client base, retired seniors with lower AGIs.

·      There is currently no statutory limit on the amount that employers can permit employees to contribute to a medical expense Flexible Spending Account (FSA).  The limitation is set by the individual plan.

Beginning with 2013, employee contributions to an employer-provided medical expense FSA is limited to $2,500 per year.  This amount will be indexed annually for inflation.

Having medical expenses paid through an FSA is a way of getting a tax deduction for medical expenses “above-the-line” that were not allowed on Schedule A due to the AGI exclusion.  I have often seen as much as $5,000 in FSA contributions for my clients – so this change will increase these taxpayers’ liability by $600-$700.

•  Employees and employers split the cost of Social Security and Medicare tax (FICA) – each pays 6.2% of taxable wages for Social Security and 1.45% for Medicare (although for 2012 the employee pays only 4.2% of his/her taxable wages).  There is a limit on the amount of taxable wages subject to the Social Security portion, but the Medicare tax is applied to all taxable wages.  Taxable wages for FICA may be different that taxable wages for income tax.

Self-employed taxpayers pay both halves of the FICA tax as “self-employment tax”, again with a 2% reduction in the Social Security component for 2012.  They are allowed an “above-the-line” deduction for a portion of the self-employment tax assessment.

Beginning in 2013, the employee’s share of the Medicare tax increases by 0.9% - to 2.35% - for taxable wages over $200,000 ($250,000 for joint filers and $125,000 for married couples filing separately).  The self-employment tax is similarly increased on these levels of income.   

•  Beginning in 2013, a new tax is added on the Form 1040 for taxpayers with “modified” AGI (MAGI) over $200,000 (again $250,000 for joint filers and $125,000 for married couples filing separately.  These taxpayers will be subject to a 3.8% “surtax” on “net investment income”.

Net investment income is taxable interest, dividends, capital gains, annuities, royalties, rents, and pass-through income from a passive S-corporations and partnership, less related investment expense deduction.  Modified AGI is regular AGI with any foreign earned income exclusion or foreign housing exclusion added back.

This change is the source of the nonsense email that has been circulating for the past year that there is a federal “sales tax” on the profit from the sale of your personal residence.  See my post “WTF?”.

TTFN