As you may have heard by now, we are not going over the fiscal tax cliff! Below is a quick summary of the retroactive tax changes that may have an effect on any tax planning that was done in December.

2012 -These items lapsed after 2011, but have now been revived retroactively for 2012:

*Research and Development Tax Credit

*Work Opportunity Credit for Disadvantaged Workers

*15 Year Depreciation for Restaurant Renovations/Leasehold Improvements

*100% gain exclusion for investors in small reg. corp. stock

*Income tax exclusion for up to $2 mil. of forgiven personal mortgage debt

*Election to write off sales taxes in lieu of state income taxes

*Deductions for teachers’ class supplies, private mortgage insurance and college tuition

*American Opportunity Tax Credit

*Qual. Charitable Distributions direct transfers up to $100,000 tax from from IRA’s to charity

*Alternative Minimum Tax Exemption increased to $78,700 (had reverted back to $45,000)

*Section 179 Expensing up to $500,000 of qualified assets.

Due to these retroactive changes and increased fraud prevention measures the IRS is expecting refunds to be delayed. There is also a fairly good chance that tax return filings could be delayed in order to allow the IRS to update their computer systems. This doesn’t mean we can’t prepare your tax return. We can still prepare the returns. It just means we may have to wait a few weeks to actually transmit the return for electronic filing.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.

If you own the building that your business is located in, and rent it back to yourself the losses are not treated always treated as “passive”. Firms that rent property to a closely held corporation in which the owner works more than 500 hours per year triggers a special rule that treats net rental income as “nonpassive”.

Why does this matter? Rental income and losses are normally treated as passive activities. If you have a number of rental losses that are carried over due to not meeting the real estate professional test or if your income is too high, the only way to claim those passive losses is by generating passive income. A case has come down from the tax court where a man set up two pass-through businesses to lease tractors and trailers to his corporation. Due to the fact his firms rented property to a closely held corporation which he worked more than 500 hours per year, the income became non-passive. He had tried to write off the non-passive losses against his passive carry forward losses, the IRS came in and recharacterized the amounts.

This is another case where knowing the rules can help you strategize a better way to write off your losses. Since his rentals property with the passive losses were not generating revenue, maybe it would have been good for him to re-evaluate the expenses he was taking on those properties. Could it be that some of those expenses were really related to his other business instead of the passive income properties?

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230 we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.

Kam Wiese, CPA
Kluge and Wiese, LLP
620 N. Hwy 6, PO Box 500
Gretna, NE 68028-0500
All rights reserved.

Beginning on Jan. 1, 2012, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be:
55.5 cents per mile for business miles driven
23 cents per mile driven for medical or moving purposes
14 cents per mile driven in service of charitable organizations

The rate for business miles driven is unchanged from the mid-year adjustment that became effective on July 1, 2011. The medical and moving rate has been reduced by 0.5 cents per mile.

The standard mileage rate for business is based on an annual study of the fixed and variable costs of operating an automobile. The rate for medical and moving purposes is based on the variable costs as determined by the same study. Independent contractor Runzheimer International conducted the study.

Taxpayers always have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates. A taxpayer may not use the business standard mileage rate for a vehicle after using any depreciation method under the Modified Accelerated Cost Recovery System (MACRS) or after claiming a Section 179 deduction for that vehicle. In addition, the business standard mileage rate cannot be used for more than four vehicles used simultaneously.

Please feel free to contact Kam Wiese, CPA at Kluge and Wiese LLP (402) 332-3387 or email kamwiesecpa@gmail.com if you have additional questions.

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230 we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.

Cancelled Debt Anyone…

What is Form 1099-C?

A Form 1099-C is used to report cancellation of debt of an individual or business from a taxpayer’s rental property, business debt, personal debt or personal residence. A financial institution is required to issue a taxpayer a 1099-C if it forgives or writes off more than $600 of the debt’s principal.

To give you an example of when this form would be issued. Say you had credit card debt of $10,000, you call the credit card company and settle to pay $6,000. The credit card company will then issue you a 1099-C for $4,000.

Is Cancellation of Debt income always taxable?

Not always. There are some exceptions. The most common situations when cancellation of debt income is not taxable involve:

• Qualified principal residence indebtedness: This is the exception created by the Mortgage Debt Relief Act of 2007 and applies to most homeowners.
• Bankruptcy: Debts discharged through bankruptcy are not considered taxable income.
• Insolvency: If you are insolvent when the debt is cancelled, some or all of the cancelled debt may not be taxable to you. You are insolvent when your total debts are more than the fair market value of your total assets. To figure out if you are able to report an exclusion – Form 982 must be completed.
• Certain farm debts: If you incurred the debt directly in operation of a farm, more than half your income from the prior three years was from farming, and the loan was owed to a person or agency regularly engaged in lending, your cancelled debt is generally not considered taxable income.
• Non-recourse loans: A non-recourse loan is a loan for which the lender’s only remedy in case of default is to repossess the property being financed or used as collateral. That is, the lender cannot pursue you personally in case of default. Forgiveness of a non-recourse loan resulting from a foreclosure does not result in cancellation of debt income. However, it may result in other tax consequences.

If I have a tenant who doesn’t pay rent can I issue them a 1099-C?

Technically, no, a 1099-C is only to be issued by lenders or financial institutions.

Please feel free to contact Kam Wiese, CPA at Kluge and Wiese LLP (402) 332-3387 or email kamwiesecpa@gmail.com if you have additional questions.

To meet the recently established requirements of the Internal Revenue Service as described in their circular 230 we hereby advise you that any tax advice contained in this communication was not intended or written to be used, and it cannot be used, for the purpose of avoiding penalties that may be imposed on the taxpayer by Internal Revenue Code.