Tax Breaks That May Change for 2013

Tax Breaks That May Change for 2013

By Tim Frye 

As the tax code shape-shifts at an increasingly drastic and more rapid rate every year, even the most accomplished accountants can be left with their head spinning. So for the average American, who, most likely, would rather be assaulted by a mother raccoon protecting her young than attempt to keep up with the tax code, it can be a daunting challenge just to hold a minute grasp of their tax situation. Pronto Tax to the rescue.

There are many tax changes that have been implemented and are as we speak effecting taxpayers in 2013. The tax hikes that lawmakers levied against taxpayers are more like Jerry-mandered attempts to plug the infinitely flowing debt leaks ravaging the United States economy. These hikes will not raise a sufficient enough amount of revenue to keep the budget woes at bay. Obama is now seeking other ways to raise government funds and he is looking your tax loopholes and deductions dead in the eye. Let’s look at the changes that Congress is discussing.

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Are They Taking Away the Mortgage Interest Deduction?

The unrest is blooming to a fervor amongst homeowner taxpayers who benefit greatly from using the long form, mainly due to their mortgage interest write-offs. There has been rumors circulating that Obama is looking to curtail this deduction, or possibly get rid of it entirely. However, given the still tepid state of the housing market, we doubt the deduction will disappear completely. This would not help the market further it’s recovery in the slightest. Here is what may happen. Scenario #1-Congress reduces the amount of mortgage debt that is permitted to be figured into the deduction from it’s current cap at $1 Million to half that at $500,000. Scenario #2-Lawmakers decide to set a limitation on the deduction to only one residence, as opposed to the current limit of two personal residences. Scenario #3-Congress phases out access to the deduction for high-income taxpayers, for whom the credit benefits most.

If the Mortgage Interest Deduction is given even just a haircut, it could effect the economy significantly. The first year deduction on a $400,000 30 year mortgage with a fixed rate of 3.75% is $14,874. The mortgage interest deduction definitely helps those who fall in higher marginal brackets more than those in the middle to lower income brackets, since the latter usually will be elect to take the standard deduction on their return.

Charitable Deductions

They say that nothing is safe from the long-reaching grasp of taxation. Even those taxpayer attempts at altruistic action. The deduction for charitable contributions, cash and non-cash, was always thought to be the sacred cow of the tax game. Well, it looks like congress is contemplating dicing up this sacred cow into little itty bitty pieces. The Congressional Budget Office has examined eliminating the deduction all together, and they have calculated that the revenue produced by disappearing this deduction would come out to around $20 Billion in 2014. Lawmakers are also reviewing idea of placing a floor of 2%, or another percentage designation, of the taxpayers AGI on the charitable deduction amount. This would be a similar tactic used with the floor that they place on an employee’s miscellaneous work expenses, in that the write off will only count when the qualifying expenses begin to exceed the 2% designation.

Municipal Bond Interest

Municipal Bonds are considered very favorable to investors who sit in sky high marginal brackets due to the fact that this interest is exempt from federal taxes, along with many local and state taxes. Mr. Obama is considered placing limitations on this tax break by targeting the more affluent sections of America by capping the availability of the exemption at 28%. Under this proposed designation, taxpayers who fall in the 35% tax bracket would effectively have a 7% tax levied on their municipal bond interest.

The tax game is regularly going through a metamorphosis, and in the last few years this has stayed true to that reality. The next few years will offer even more change as the government attempts to climb out of the blackest of abysses and into the black. Well, that will never happen it looks like. Unfortunately the taxpayer will continue to bear the brunt of the burden in assisting to create revenue. And Pronto Tax will continue to assist you in understanding this convoluted arena.  See you soon my friend.

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What are the Options for Setting My Prices as a Tax Preparer?

What are the Options for Setting My Prices as a Tax Preparer?

By Tim Frye

When it comes to setting your prices for your services as a tax preparer, you may be puzzled as to which method is going to make you the most money.  Pricing your services can be relatively subjective; the billing method can depend on the tax preparer’s style, experience, and employment classification.  This article will discuss the different ways that a tax preparer can bill his or her client, and will go into the pros and cons of each billing method.

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How Many Tax Returns Do You Plan to Do This Year?

How Many Tax Returns Do You Need to Do to Make It “Worth It” to Become a Tax Preparer?

We received an interesting report yesterday from our partner bank, Refund Advantage. The report showed how many tax returns were e-filed in the 90745 Carson, California zip code during the 2011 tax season. We were happy to see that our Carson team with Kent Frye and Joel Earnest and Sonia Lugo e-filed more tax returns in 2011 than any other tax preparation company in Carson, California. That was gratifying to see all the hard work that Kent, Joel, and Sonia put into serving clients pay off by having the most clients in the 90745 zip code.

But what was a bit troubling was our realization, by looking at this report, that many tax preparers are not doing barely any tax returns per year. This is unfortunate, is somethikng that we’d like to help our Pronto Tax Class Students avoid, and brings us to the question: How many tax returns do YOU need to do this tax season to pull a decent profit as a first-year tax preparer?

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Top 4 Deductions without Itemizing

Top 4 Deductions without Itemizing

By Tim Frye

As a tax preparer you have to be able to adapt and attach a certain level of elasticity to your client’s current situation. The last half decade has been pretty rough on taxpayers, with the real estate bubble burst, the economy tanking, wars continuing for perpetuity, etc. So it goes without saying that tax situations have changed drastically for many people. For example, let’s say you have a client who lost their home to a foreclosure, and now pays rent. This is an individual who used to employ the long form due to the large sum deduction they received for mortage interest to boost them over their standard deduction hump. With that no longer in existence, this client is now reduced to using the short form, and loses many of the deduction options that were previously available to them. So in these situations it is still vital for you to try and get them as many deductions as you can, even when they are not utilizing the Schedule A. Lets take a look at the top four deductions that you can access for your client without them itemizing.

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What is the Section 179 Deduction?

What is the Section 179 Deduction?

By Tim Frye

As the years go by, it seems small businesses are getting their pockets squeezed harder than the guy who owes Uncle Pauly $30 large from money lining the Celtics a few years back and not making good on his debt. And with Obama in office, the invasive procedures of the alphabet soup companies like the IRS and EPA have expanded and grown more unrelenting than ever. The government stated clearly that they would leave those taxpayers making under $250,000 alone. For the most part, they have remained true to their word. Now, there of course is always another side to this coin. Those individuals and businesses that are reporting income in excess of this threshold are getting slapped around pretty good. Consequently, as the tax rates for income and investments that land beyond the designation climb higher, the deductions accessible to the affected taxpayer are more valuable than ever. The Section 179 is one of these vital deductions that has been revised recently to assist small businesses. Section 179 of the tax code permits businesses to deduct the entire purchase price of qualifying equipment and/or software purchased during the year. This article will seek to articulate the specifics of the Section 179 deduction.

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