Transfer tax provisions kept intact with slight rate increase. The Act makes permanent for exemption lever of $5,000,000 (as indexed for inflation) and increases the top estate, gift and rate from 35% to 40%. The Act also continues the portability features that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse. All changes are effective for individuals dying and gifts made after 2012.

Historical Individual Extenders. The Act extends the following items for the period indicated beyond their prior termination date as shown in the listing:

1. the deduction on Form 1040 of up to $250 for certain expenses of elementary and secondary school teacher is revived for 2012 and continued through 2013;
2. the exclusion from income of cancelled debt on a qualified principal residence is extended to debt cancelled before January 1, 2014;
3. parity for the exclusions for employer-provided mass transit and parking benefits is continued through 2013;
4. the treatment f mortgage insurance premiums as qualified residence interest is continued through 2013;
5. the option to deduct State and local general sales tax continued through 2013;
6. the deduction for qualified tuition and related expenses on Form 1040 is continued through 2013; and
7. tax-free distributions from individuals retirement plans for charitable purposes is continued through 2013. Because 2012 has already passed, a special rule permits distributions taken in 2012 to be transferred to charities for a limited period in 2013. Another special rule permits certain distributions made in 2013 as being deemed made on December 31, 2012.

Energy-related tax breaks extended. Various energy credits are extended. The include:

1. The non-business energy property credit for energy-efficient existing homes is retroactively extended for two years through 2013. A taxpayer can claim a 10% credit on the cost of: (i) qualified energy efficiency improvements, and (ii) residential energy property expenditures, with a lifetime credit limit of $500 ($200 for windows and skylights).
2. The alternative fuel vehicle refueling property credit is retroactively extended for two years through 2013 so that taxpayers can claim a 30% credit for qualified alternative fuel vehicle refueling property placed in service through December 31, 2013, subject to the $30,000 and $1,000 thresholds.
3. The credit for 2- or 3-wheeled plug-in electric vehicles is modified and retroactively extended for two years through 2013.
4. The cellulosic biofuel producer credit is modified and extended one year through 2013.
5. The credit for biodiesel and renewable new homes is retroactively extended for two years through 2013. Applies to builders.
6. The credit for energy-efficient appliances is retroactively extended for two years through 2013. Applies to manufacturers.

Source: IR-2013-10, January 28, 2013

WASHINGTON - As preparations continue for the January 30 opening of the 2013 tax filing season for most taxpayers, the Internal Revenue Service announced that processing of tax returns claiming education credits will begin by the middle of February.

Taxpayers using Form 8863, Education Credits, can begin filing their tax returns after the IRS updates its processing systems. Form 8863 is used to claim two higher education credits - the American Opportunity Tax Credit and the Lifetime Learning Credit.

The IRS emphasized that the delayed start will have no impact on taxpayers claiming other education-related tax benefits, such as the tuition and fees deduction and the student loan interest deduction. Taxpayer otherwise able to file and claiming these benefits can start filing January 30.

As it does every year, the IRS reviews and tests its systems in advance of the opening of the tax season to protect taxpayers from processing errors and refund delays. The IRS discovered during testing that programming modifications are needed to accurately process Forms 8863. Filers who are otherwise able to file but use the Form 8863 will be able to file by mid-February 2013. No action needs to be taken by the taxpayer or their tax professional. Typically through the mid-February period, about 3 million tax returns include Form 8863, less than a quarter of those filed during the year.

The IRS remains on track to open the tax season on January 30 for most taxpayers. The Jan 30 opening includes taxpayers claiming the student loan interest deduction on the Form 1040 series or the higher education tuition or fees on Form 8917, Tuition and Fees Deduction. Forms that will be able to be filed later are listed on the IRS website.

It all started in December 1999, when I first met my beautiful wife. I remember, the first thing she asked me was, “Are you the one?” Of course, without hesitation I replied, “Yes, I am the one”. She was visiting from Chicago for the holiday and was expected to return in a week.

 

Before I met her, I passed by a flower shop to buy a dozen of long stem red roses but instead I saw this simple white roses flower arrangement which I said to myself, “It’s more like me, simple”.  That first night, we went out with all my friends that I’ve known since high school.

 

The second day, I called her over the phone and wanted to tell her how much I enjoyed the night and wanted to know her more. She asked me if, “Where will I be spending Christmas Eve?” and I told her that, “I’m going to church with my family”.  I was shocked when she asked what my religion is. When I replied, “I am a Christian”. I was even more shock when she asks if she can come because she is a Christian herself and wanted to go to church for the Christmas. So, I did pick her up and went to church where she met all my family. During the service, we fell in line for the lighting of candles where I fell behind when I saw a long time family friend that I haven’t seen in years. When I came back in line, she was already at least seven people ahead. But, something happened. Somehow, the other line from the other end finished before us and I was asked to go to the other side. I felt like I was getting married when I saw her lighting the candle the same time, I was.

 

The third day, I was suppose to attend Christmas brunch with family which we usually do every year and she was suppose to spend time with her family on a trip and was to come back four days later. But, something happened earlier that morning. I woke up and had a dream. In that dream, I was to go with her on the trip and I have to bring the ring which I have purchased ten years back which I plan to give to the right person who I will be spending my whole life with. So, I decided to go. During the five hour trip, I asked all the questions that I have, to see if she is the one that I’ve been searching and waiting for (my soul mate). And, it made me come to a decision to propose that evening. So, I waited for the right time and asked her if she can go for a little walk with me. When we reached a romantic spot, I ask her if she believes in faith and was going to reach for the ring when she kept saying, “No, It can’t be...” and she kept repeating it until I ask her if she knows what I was reaching for. That’s when she told me about her 3 wishes. She prayed and asks for a partner who first needs to be a Christian, Second, someone who will give her white flowers and finally, somebody who will give her a ring. Then, I realize that I was giving each of her wishes every day from the time I met her. The fourth day, we got married.

 

From today, it has been 13 years 9 months and 11 days and still very much in love. I wanted to share our love story and ask for prayers. She was diagnosed with hepato pulmonary syndrome and was told that she might need to under go a liver transplant. I am asking each and every one to pray with me for her sickness to come to pass and be healed. Matthew 18:19

Recovery Act Extenders. The Act extends for five years the following items that expired December 31, 2012:

• the American Opportunity tax credit, which permits eligible taxpayers to claim a credit equal to 100% of the first $2,000 of qualified tuition and related expenses, and 25% of the next $2,000 of qualified tuition and related expenses (for a maximum tax credit of $2,500 for the first four years of post-secondary education);
• the $3,000 income level for claiming the refundable child credit; and
• expansion of the higher earned income tax credit amounts for eligible taxpayers with three or more children, and increases in threshold phaseout amounts for singles, surviving spouses, and head of households.

Permanent AMT Relief. For tax years beginning after 2011, the Act permanently increases the AMT exemption amounts to $50,600 for unmarried taxpayers, $78,750 for married filing joint and $39,375 for married persons filing separately. In addition, for tax years beginning after 2012, it indexes these exemption amounts for inflation.

Capital Gain and Dividend Rates. For tax years beginning after 2012, the top rate for capital gains and dividends will permanently rise to 20% (up from 15%) for taxpayers with incomes exceeding $400,000 ($450,000 for married taxpayers). Note that the 3.8% surtax on investment type income and gains will also apply so the overall rate for taxpayers in this income level will be 23.8%.

For taxpayers in tax brackets below 25%, capital gains and dividends will permanently be subject to a 0% rate. Taxpayers who are subject to a 25% or greater rate on ordinary income, but whose income levels fall below the $400,000/$450,000 thresholds, will continue to be subject to a 15% rate on capital gains and dividends. The rate will be at 18.8% for those subject to the surtax.

Highlights of fiscal cliff tax consequences. Absent from the legislation was the extension of the 2% reduction to the payroll tax that reduced the employee portion of the payroll tax from 6.2% to 4.2% for the last 2 years. As a result, as of January 1, 2013 the tax is back to 6.2%, a 2% tax hike for all workers earning under $113,700. The social security portion of the self-employment tax increases from 10.4% to 12.4% making the total SE tax 15.3%