As filing season approaches for the 2012 tax year, I am presenting here a few selected tax tips and updates that are often overlooked by traditional tax sources, hopefully brief enough to not induce boredom but complete enough to give you some valuable information:
The 1099 Matching Nightmare Continues
- 1099-MISC: Don’t forget to EXCLUDE payments to vendors made with credit cards from your total 1099-MISC payments. Those payments will get reported to vendors on Form 1099-K. If you do get 1099s that are wrong, ask the payer to correct the 1099. If that is a pain, then report the full amount on your tax return, and then back out the erroneous portion somewhere on your expense lines. And, make sure you can document why the 1099 you received is wrong.
- 1099-K: Even though IRS claims it is not now or ever going to match 1099-K payments into your tax returns, there’s a reason you are getting a 1099-K and that is to tap the underground economy by making sure that all businesses are reporting their gross income. If you report less gross income than is shown on your Form 1099-K you will be subject to IRS inquiry, for which they have developed new notices related to Form 1099-K. Be sure to provide all Forms 1099-K to your tax preparer so that they can help you avoid receiving these notices.
- 1099-B: If you receive broker 1099s related to your investments, you are by now used to receiving corrected 1099s, often long after you have filed your returns. Due to new basis matching requirements, you will need to seriously consider whether you are better off extending your tax returns while you wait for all the corrections to come through, rather than having to amend your returns later for the corrections, or having to respond to IRS notices. IRS plans to match all 1099-B reporting on the new Form 8949, first developed in 2011. There are now 6 different ways to report capital gains and losses, and there are 21 different codes to use when reporting. Due to the extra time involved, investors should seriously consider consolidating their brokerage accounts in order to save on accounting fees at tax time.
Charitable Contribution Receipts Must Contain Required Language
Even if you have a “contemporaneous” receipt (one that you have in hand at the time you file your tax returns), it may be defective and result in the complete disallowance of your charitable deductions. It MUST contain required language concerning whether or not the donor received any goods or services in exchange for a contribution. If it doesn’t your contribution deduction will be disallowed in full.
W-2 Reminders to include HSA payments and Health Insurance Premiums
Don’t forget to include ALL H.S.A. payments on the W-2 Form, Box 12, not just payments made by employees through a cafeteria plan. The purpose of this is to make sure that taxpayers are not contributing beyond the maximum amounts allowed in 2012 to their H.S.A. plans.
For 2012, you don’t have to report the value of health insurance premiums on the W-2s if you issue fewer than 251 W-2s. If issue more than 250 W-2s, you must report the value of the health insurance premiums on Form W-2. The reporting is “informational only” and is not subject to income or payroll taxes.
City of Portland Business Tax Rental Property Exemption Is Gone, Gone, Gone
If you own a few rental properties in Portland, but have no other business activities you may be blissfully unaware of the long reach of the City of Portland Business Tax. Beginning in 2012, the City successfully changed its tax code to include ALL rental activity, not just owners with over 9 rental units within the City. Don’t panic yet: there’s a new exemption of $20,000 in gross income with 1 or 2 rentals, but you still have to file a special new Form to receive your exemption. More info is available at the City’s website. Remember that the City of Portland has its own special version of taxation without representation: the gross receipts exemption means gross receipts EVERWHERE, including rentals you own in other states and capital gains on ANYTHING except securities, and includes all activities of your spouse if you file jointly, even if your spouse does not live in the City or have any business interests or activities there.
City of Portland School Arts Tax – You owe the City $35
This was the infamous Measure proposed by Mayor Adams which even arts and education groups such as Stand for Children opposed, mainly because only about ½ of the revenue raised will go to fund arts teachers for our public schools. It did pass, however, so beginning in 2012 a new form is required of EVERY CITY RESIDENT AGE 18 AND OVER, accompanied by a $35 payment, or an exemption request for those below the poverty level. The City of Portland is administering the tax, and the filing form has not even been developed yet. However, the city has designated this link which will go live when the forms are ready: http://www.artstax.net