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The IRS reported that National Taxpayer Advocate Nina E. Olson recently issued her annual report to Congress. In it she stated that tax reform was the overriding priority in tax administration.
“The existing tax code makes compliance difficult, requiring taxpayers to devote excessive time to preparing and filing their returns”, Olson stated.
Since 2001, Congress has made nearly 5,000 changes to the tax code, an average of more than one a day, and the number of words in the code has approached nearly five million. To reduce the burden on taxpayers and improve the public’s confidence in the integrity of the system, the report urges Congress to simplify the tax code. If Congress were to eliminate all tax expenditures, i.e. income exclusions, exemptions, deductions and credits, the indications are that individual income tax rates could be cut by 44 percent.
The report suggests that a tax break should be retained only if a compelling argument can be made that the benefits of that break outweigh the complexity burden it creates. Does the incentive provided make sense? If so, can it be administered without imposing unreasonable burdens on either taxpayers or the IRS?
The report recommends that Congress take several steps, including:
To accomplish such a dramatic change in congressional thinking seems insurmountable, but the report does offer serious food for thought.
The IRS has just announced plans that the 2013 tax season will begin on January 30, 2013 (a Wednesday if you’re wondering). 
This misses the previously set date of January 22, 2013, but given that Congress passed the American Taxpayer Relief Act (ATRA) in 2013 when it should have passed it in 2012, a late start of only eight days is impressive. If we could just get Congress to get things done so quickly.
Starting on January 30, the IRS says more than 120 million households should be able to begin filing returns. Those households include people who are “affected by the late Alternative Minimum Tax (AMT) patch as well as the three major ‘extender’ provisions for people claiming the state and local sales tax deduction, higher education tuition and fees deduction and educator expenses deduction.” For the rest of tax filers unable to file starting January 30, look to late February or into March to be able to submit a return. This group of tax filers includes people who claim the residential energy credits (Form 5695), depreciation and amortization (Form 4562), or general business credits (Form 3800). 
The IRS has posted a list of the forms that won’t be accepted until a later date at IRS.gov. It often happens that those in this tax filing group don’t file until later in the season anyway or they just go ahead and file an extension, so the delay in being able to file may not cause much of a delay at all.
The IRS does remind all of us that it will not process paper returns before the January 30th opening date, so there’s no rush to get that return finished and in the mail in the next couple of weeks. Also, paper filing is not the most efficient way to file. If you want your tax refund sooner you should e-file with the direct deposit option checked.
If you have any questions, please feel free to contact us here at Barnard Vogler & Co.
When I advised my clients to complete their transactions in 2012, it was apparent that the effects of the actions our elected officials were going to take to avoid the “fiscal cliff” could only have a negative effect on taxes. 
At the twelfth hour, Mitch McConnell, Republican Senate Minority Leader bypassed Nevada’s own Harry Reid and reached out to Vice President Joe Biden with whom he had worked with when Biden was in the Senate. They worked out a compromise that was passed in the Senate and the House on January 1.
How does this affect you?
The tax rate for taxpayers with income over $450,000 married and $400,000 single increased from 35% to 39.6%. The tax rate on capital gains and dividends increase from 15% to 20% also applies to this threshold. When combined with the 3.8% healthcare tax, that tax rate on capital gains and dividends becomes 23.8%.
Some of you may be breathing a sigh of relief that the tax rate increase will apply only to those taxpayers. However, the 3.8% healthcare tax on investment income will hit those of you with taxable over $250,000 married and $200,000 single (see my blog in November 2012 regarding the healthcare tax of 3.8%). Also, itemized deductions are phased out at $300,000 for joint filers and $250,000 for singles, effectively raising their taxes.
Interestingly, the bill does not say whether the $400K/$450,000 threshold refers to adjusted gross income (AGI) or taxable income. AGI doesn’t include subtractions for itemized deductions, while taxable income does. With so many phase-outs of itemized deductions for taxpayers in the higher brackets, this may not be of much consequence to most of these affected taxpayers.
The payroll tax holiday reducing payroll taxes and self-employment taxes by 2% is over. 
The tax rate increases from 4.2% to 6.2%. That means for an individual earning the maximum 2013 cap of $113,700 or more, the increase would be $2,274, or nearly $200 per month.
The alternative minimum tax (AMT) still effectively eliminates many tax breaks for the higher income tax brackets. AMT was created in 1969 to ensure that wealthy taxpayers pay at least some minimum amount of federal income tax, regardless of deductions, credits or exemptions. In essence, it is a flat tax with two brackets, 26 percent and 28 percent. Under the new deal, Congress has finally created a permanent inflation “patch” that would allow millions to escape AMT. Without the patch, the AMT would have hit 31 million taxpayers this year, reaching deeply into the middle class.
What the bill did not include:
The bill only addressed the revenue side of the budget question and deferred action on the spending side for two months. Additionally, the agreement does not address any increase in the nation’s debt ceiling.
A strong economy depends upon predictable behavior and decision-making by the government. The competitive environment is unpredictable enough without our government making it more unpredictable. This has been lost on our elected officials much to the consternation of almost everyone: businessmen, employees, bankers, homeowners, and investors. Get ready for the budget and spending standoff two months from now.
Referencing a recent article in Bloomberg.com, President Barack Obama and House Speaker John Boehner have a big job ahead of them in the coming weeks. 
They hope to come together in act of solidarity to work out an agreement to avert the so-called fiscal cliff which happens at the end of this year if no deal is struck.
Obama, claiming a mandate from voters after his Nov. 6 re- election, has called for an immediate tax-cut extension for people earning less than $250,000 and insisted that top earners pay more. Boehner has cited public support for the re- elected House Republican majority and said tax rates must not go up. While both said they were willing to compromise and act quickly, Obama and Boehner have offered no public concessions. Their differences may take weeks to reconcile.
Obama and Boehner will meet at the White House in the next few days, along with House Democratic Leader Nancy Pelosi, Senate Majority Leader Harry Reid and Senate Minority Leader Mitch McConnell.
If Congress does not act by the end of the year, $607 billion in automatic spending cuts and tax increases are scheduled to take effect starting in January. They stem from previous decisions by Congress, including from the deal last year to raise the federal debt ceiling and the 2010 extension of tax cuts.
In recent remarks, Obama and Boehner have left open the possibility of agreement on preserving current tax rates while limiting tax breaks for top earners to raise revenue. Such an approach, should it come to fruition, would let Obama claim the higher tax payments he seeks from the wealthy and allow Boehner to avoid the higher rates he calls unacceptable.
Since his re-election, Obama has repeated the outline he laid out during his re- election campaign for a “balanced” approach to cutting the deficit that would include higher taxes on the wealthiest and some spending cuts. 
Boehner has also outlined the Republican approach to the fiscal cliff: avoid tax rate increases and spending cuts while beginning a process to overhaul entitlement spending and the tax code.
The president wants to let George W. Bush-era tax cuts lapse on income of individuals above $200,000 and of married couples above $250,000. That would push the top tax rate to 39.6 percent from 35 percent. Boehner has emphasized opposition to higher tax rates, rather than talking about higher taxes or higher revenue. He has endorsed the idea of increasing government revenue through an overhaul of the tax code without saying explicitly whether he would support a tax increase or the elimination of tax breaks without a corresponding rate cut.
Obama’s plan to cap tax breaks, which has gotten no traction in Congress, would raise about $584 billion over a decade, compared with the more than $900 billion that would be generated from higher rates on income, capital gains, dividends and estates.
Some Democrats may however insist on higher tax rates. Representative Sander Levin, the top Democrat on the House Ways and Means Committee, has said talk of limits on tax breaks was little more than “glittering generalities” that doesn’t reflect that the biggest breaks, including the mortgage interest deduction, are tax policies and not loopholes. Republicans have said that any additional tax revenue should come through a restructured tax code and from so-called dynamic scoring that relies on revenue from macroeconomic changes generated by the tax overhaul itself.
When pressed by reporters recently, Boehner reiterated his previous statements and said he wanted to preserve flexibility for negotiations with Obama on a deal to avert the fiscal cliff and reduce the federal budget deficit.
The blueprint for a deal to avoid a fiscal nightmare early next year may be found in the failed debt negotiations between Obama and Boehner in mid-2011. The contours of that plan included revenue increases, spending cuts and changes to lower the long-term costs of entitlement programs. Before the talks collapsed, Boehner was willing to accept $800 billion in revenue increases and Obama was ready to settle for $1.2 trillion.
Part of their negotiations on a $4 trillion deficit-cutting plan included a gradual increase in the Medicare eligibility age to 67 and an alternative yardstick for calculating inflation that would reduce annual Social Security cost-of-living adjustments and raise taxes by slowing the annual adjustments in tax bracket thresholds.
Regardless of where the negotiations begin and end, the citizens of this great country need to stand up and have their voices heard. We cannot rely on the leaders of each party to interpret the results of the recent election to benefit their position.
I encourage each of us to take the time to contact our respective Senators Harry Reid and Dean Heller and Representatives Shelley Berkley, Mark Amodei and Joe Heck to let them know the importance of resolving this crisis. I know they appreciate hearing from their constituents and letters, phone calls and e-mails (the preferred method I believe) are the best way to let them know that we care and want some action.
If you recently got an e-mail telling you that on January 1st all real estate transactions will be subject to a 3.8% federal sales tax, don’t believe it. That is simply not true.
The facts are as follows:
• First of all, the new tax is applicable only to the gain on sale, not the entire sales price.
• The tax applies only to single taxpayers with modified adjusted gross income in excess of $200,000 and married taxpayers with modified adjusted gross income over $250,000 if filing a joint return, or $125,000 if filing separately.
• The tax is actually only equal to 3.8% of the lesser of the taxpayers’ “net investment income” or the amount by which their modified adjusted income exceeds the threshold amount.
• Only taxpayers with modified adjusted gross income over $200,000 (or $250,000 if married filing jointly) who sell their principal residence AND realize more than $250,000 in GAIN ($500,000 if married filing jointly) will be subject to the 3.8% tax and only on the amount of gain they realize OVER the $250,000/$500,000 threshold (and on their other net investment income).
Our nation’s founders believed in certain core values that have served as the foundation upon which this great country has survived and thrived – prudence, thrift, limited debt, savings and stewardship. However, in the last several decades, our country and many of its citizens have strayed off course. Our future is now at risk. If we do not address the huge structural debt we face and re-order our nation’s finances, our position as a world leader and our overall standard of living is in jeopardy.
Our policymakers can address our fiscal challenges in a pre-emptive prudent manner OR they can wait for a crisis to provide political cover. Clearly, the preferred choice would be to put our fiscal house in order now, but this will require reasonable compromise and a healthy dose of political courage.
When you combine all our known liabilities with our various commitments, contingencies and unfunded debt, as of September 3, 2010 the U.S. was in a $61 trillion hole! That amounts to over $200,000 per person and over $500,000 per household. Contrast this with an annual median household income in America of about $50,000.
From a comparative standpoint, the U.S. now ranks 28th out of 34 for major nations in fiscal responsibility and sustainability, according to the recent Standard University Sovereign Fiscal Responsibility Index, which is essentially a fiscal fitness index.
It is time for our policymakers to design and implement a plan that will allow the U.S. and its people to move into a better fiscal neighborhood for our collective future.
Information for the preceding was taken from a report published by keepingamericagreat.org
So you think you have financial issues? Just listen to what Nina Olson, National Taxpayer Advocate, has to say about the IRS. In her annual report to Congress she suggested that the IRS’s increasing workload and declining resources are the most serious problems facing taxpayers. So how does she connect the dots to conclude that this is a “taxpayer” problem?
She reasons that the resulting inadequate taxpayer service, erosion of taxpayer rights and reduced taxpayer compliance are causing harm to the taxpayers. That’s how! I don’t know. Seems to me like an IRS problem rather than a taxpayer problem. But, then again, doesn’t the taxpayer always get stuck with the tab?
But wait. Maybe there is a solution that doesn’t stick the taxpayer with the bill. It turns out that increasing funding for the IRS might actually be a good investment. Current inadequate funding contributes to many of the problems facing today’s IRS. When the federal individual income tax was first enacted in 1913, it applied only to high-income taxpayers, which totaled about 358,000 people. That total today stands at 141.2 million with one tax return for about every two people in the United States. And believe me, the returns are a lot more complicated now than they were almost 100 years ago.
It seems that as the collection agency for the U.S. government, the IRS does a pretty good job. On a budget of $12.1 billion, the IRS collected $2.42 trillion in fiscal year 2011. That is to say that for every $1 that Congress appropriated for the IRS, it collected about $200. Now with the current “tax gap” at about 15%, every household is paying an annual “noncompliance surtax” of about $2,700 to enable the federal government to raise the same amount of money it would have collected if all taxpayers had reported their income and paid their taxes in full.
While I doubt that appropriating an extra $1 would produce the same collection rate when applied to the last 15% of noncompliance, I’ll bet it would provide an attractive return on the investment.
Have you ever wondered just how much you pay in taxes over a year? Not just big tax items like income and property taxes, but even the taxes on the gas you pump into your car to the taxes on your utility bill?
Maybe you haven’t because you’re not obsessed with taxes like us CPAs, but if you are curious, the American Institute of CPAs has come out with a nifty tax calculator that is designed to give U.S. taxpayers a complete picture of their estimated total federal, state, and local tax obligation.
To give you fair warning, you will not be able to just plug in a few numbers and get your calculation. For the calculation to be accurate, you will need your prior year’s tax return, your estimated income, and a good idea of what you spend a 
month on expenses like gasoline, cable, cell phone, electric and gas, alcohol, clothing, etc. With just a click of the button you will be provided with a total estimated annual tax liability and exactly what percentage of your income is paid over to the taxing authorities. If you have a moment – check it out; the results just might shock you! http://www.totaltaxinsights.org/Calculator
The calculator is also available on our website – bvcocpas.com, in the resources/links section.
It’s always interesting to get a look into somebody’s finances, and who better to snoop at than President Obama. He released his 2011 tax return, which can be viewed at: http://s3.documentcloud.org/documents/336093/bidens-and-obamas-release-2011-income-tax-returns.pdf.
It’s a very simple return: Wages from being the President of $394,821, $10,694 in interest income and $441,369 from selling his books, for total income of $789,674.
I always like to deduce how much somebody has in the bank, and by using Obama’s $10,694 in interest income, assuming he is getting a 1.5% return, that implies he has $713,000 in the bank. This is somebody who has made $1.8 million in 2010, $5.5 million in 2009, $2.7 million in 2008, $4.1 million in 2007, $983,826 in 2006 and $1.7 million in 2005 for a total of $18 million over 7 years. With this much income, I find Obama’s saving rate atrocious.
But what is the sense of saving when you can expect hundreds of millions of dollars in income after you leave the presidency? For example, Bill and Hilary Clinton have made over $109,000,000 from 2000-2007 after his two terms were up as President for activities such as speeches and book sales. So I’m sure Obama will be making boatloads of cash after he has left the Presidency, and there is always the few hundred thousand he has contributed to self-employed retirement plans that are tax deferred.
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Next, looking at Obama’s itemized deductions shows he paid over $47,000 in mortgage interest. Assuming he refinanced recently and is getting a 4% interest rate, this means his principal balance is over $950,000 thousand. He has more in mortgage debt than he has in the bank and has made $18 million just in the last 7 years. But at least he isn’t underwater. According to Zillow, the value of his Chicago home is $1,052,100. But, since he purchased it for $1,650,000 in 2005 it appears he’s hurting like the rest of us.
Gold is one of the hot new investments today. 
People invest in this asset by purchasing gold bars, gold company stocks or gold electronic trading funds. These electronic trading funds, commonly called ETFs, have proliferated as evidenced by the ETF with the symbol GLD. This is a fund that started in 2005 and now has over 64 billion dollars of investors money under management. This ETF, as all precious metal ETFs do, purchase the metal for the investor so the investor doesn’t have to worry about storing or purchasing it. These ETFs can allow the investor to have a position in metals like gold, silver, copper or platinum.
But there’s a catch when investing in these, and many people don’t realize this until after their positions are sold or maybe even have calculated wrong on their tax returns. Capital gains on these precious metal ETFs, and also physical holdings of gold, silver or any other precious metal, are taxed at a rate of 28%, significantly higher than most other capital assets, including most stocks which are taxed at a rate of 15%. So assuming that you have a $1,000 gain on the sale of GLD you will have a tax of $280. In contrast, if you have a $1,000 gain from the sale of Newmont Mining Corp., a company that primarily mines gold, your tax will be $150. This is a significant tax burden that can come unexpectedly from investing in precious metal ETFs like GLD. When deciding whether to invest in precious metals or precious metal ETFs this higher tax rate should come into consideration.
