If you’re looking forward to getting a refund on your taxes, be prepared to wait.
The last-minute “fiscal cliff” deal passed by Congress on Jan. 1 led to changes that have left tax professionals scrambling to get 2012 returns ready on time.
“The late changes to 2012 rules set off a long chain of events which is being felt in our office,” said Conrad Seales, a certified public accountant in Santa Cruz. “When Congress passes tax laws months later than usual, our tax software company gets a late start on developing 2012 forms.”
Because of that, he said, the filing of some returns will be delayed, as will the related refunds.
Another Santa Cruz CPA, Chris Codiga, agreed.
“Tax season is definitely starting late this year,” Codiga said.
If your return is not ready by the April 15 deadline, you can get a six-month extension.
If you have a refund coming from the IRS — as about three out of four taxpayers do every year — then there is no penalty for filing late. But if you owe money and don’t pay by April 15, even if you get an extension, you’ll have to pay penalties and interest.
“People aren’t going to want to file for extensions,” Codiga said, “so we’ll just have to work harder than usual to get returns done by April 15.”
Taxpayers who need to file forms for such things as residential energy credits, depreciation and amortization and the general business credit are most likely to see delays in filing their 2012 taxes.
The late changes make filing your 2012 tax returns more complicated, but the changes that went into effect for 2013 are bigger.
Income tax rates enacted under President George W. Bush became permanent. Tax brackets stay the same as they were in 2012, except for single filers who make more than $400,000 and married couples earning more than $450,000. Their tax bracket rises from 35 percent to 39.6 percent.
Qualifying dividends and long-term capital gains will continue to be taxed at a 15 percent rate, except for the same high-income taxpayers, who will pay 20 percent.
“Long-term” means the asset has been held for more than a year. Short-term gains and nonqualifying dividends, such as those paid by most money market funds, are generally taxed at the same rate as income.
In addition to the tax changes passed in January, a new 3.8 percent Medicare tax on investment income that was passed in 2010 as part of the Affordable Care Act, sometimes called ObamaCare, will be levied on single filers earning more than $200,000 and joint filers earning more than $250,000.
Adding it all up, high earners could see a huge jump in their tax on long-term capital gains, from 15 percent to 23.8 percent.
Middle-class taxpayers are also seeing a jump in 2013 taxes as a result of the fiscal cliff deal. The payroll tax that funds Social Security jumped back up to 6.2 percent from 4.2 percent, where it was in 2011 and 2012. That increase translates to about $700 a year for the average worker.
Codiga pointed out another change that will hit a wide range of taxpayers in 2013: a drop in the limits on contributions to flexible spending accounts. An FSA allows an employee to put pretax money into an account to be used for medical expenses or child care.
Most employers allowed workers to put $5,000 a year into FSAs, but that limit drops to $2,500 starting this year.
The loss of that write-off will be partly offset by higher limits on how much you can stash away in a 401(k) or individual retirement account.
These are only some of the changes in tax law for 2013. And tax reform is a hot topic in Washington, so there may be more changes to come.
- Mark Rosenberg is an investment consultant for Financial West Group in Scotts Valley, a member of FINRA and SIPC. He can be reached at 439-9910 or email@example.com.