Tax Filing: What You Need to Know About Federal Tax Laws for the 2012 Year

By now, most of us have received our W-2s and if self-employed, collected the receipts, statements and other paperwork related to filing for the 2012 tax year.

Yes, tax season is already here and depending on your taxing status, you have from a few weeks to a few months to file:

• March 1, 2013: Deadline for farmers and fishermen with a balance due on their taxes to file their individual tax returns and pay that balance without being hit with any late payment penalties.
• March 15, 2013: Deadline for corporate tax returns or to request automatic 6-month extension.
• April 15, 2013: Deadline to file individual tax returns or to request a six-month extension for the 2012 tax year.
• May 15, 2013: Deadline for non-profit organizations to file information returns or to request an extension.

Buckhead Patch asked E. Wayne Williams Jr., a certified public accountant and director of real estate services at Metcalf Davis for some guidance on tax law changes and key things taxpayers should know in preparation of filing.

Q. What are the big tax law changes, if any, folks need to know for this filing season?

A. There are very few changes for 2012. The American Taxpayer Relief Act of 2012 extended most of the tax benefits that expired at the end of 2011. These included an Alternative Minimum Tax exemption, the $250 above-the-line deduction for elementary and secondary school teachers and the research credit.

More significant changes are in store for 2013, but even those are somewhat limited. Currently, the end of a payroll tax holiday is reducing everyone’s paycheck by two percent and, according to a recent Wall Street Journal article, is reflected in consumer spending.

Q. To what should small business owners pay particular attention?

A. Although documentation is critical for individuals, it is extremely important for closely-held businesses for them to secure the tax benefits from any planning to structure their business’ organization and operation to maximize after tax profits. This is absolutely imperative for related party transactions between an owner and their business and between various businesses they may own. Add multiple owners to the mix and you need a structure that details each party’s economic interest with taxes factored in.

Planning is of little value if it is not properly documented and followed. There are also legal implications when you mix and mingle these activities and don’t have documentation or don’t follow the documentation that you may have. Ask your attorney.

Q. What is an example of critical documentation for individuals?

A. Charitable contributions. The rules vary depending primarily on the size of the contribution. For any monetary contribution up to $250, you must have a bank record or written communication from the charity. A contribution of $250 or more requires a written acknowledgement from the charity with the amount of contribution and a statement that no goods or services were provided by the organization or the value of any goods or services provided. This acknowledgement must be obtained by the taxpayer before they file their return and retained by the taxpayer in case they are audited. If a charity does provide a taxpayer with goods or services in exchange for a payment of $75 or more (think about the $200 charity dinner), the charity must provide written disclosure to the taxpayer of the amount contributed and the value of the goods or services to enable the taxpayer to determine if the payment was a partial charitable contribution. For contributions of property over $5,000 a taxpayer must have a qualified written appraisal and have the appraiser and the charity sign IRS Form 8283 included in his or her tax return.

There can be other requirements, but this gives an idea of the documentation associated with this tax benefit. Keep in mind that the burden is on the taxpayer to properly substantiate any tax deduction with proper documentation.

Q. What new tax legislation do you anticipate for 2013? Do you think there will be tax reform?

A. Several years ago I heard a member of the Joint Committee of Taxation of the US Congress say, "you can only predict tax legislation after it is passed." I thought, how true.

Everyone wants less complexity, even us tax accountants and advisors! Legislators say the tax laws are too complex, but their next tax law is as complex as the last with carve-outs, phase outs, exceptions, and effective and expiration dates.

There has been a great deal of discussions about decreasing tax rates and eliminating deductions in a manner that provides greater simplicity, encourages economic growth, and reduces debt. But, very few are willing to give up their deductions that spur economic growth and and/or are fair.

This is despite several bipartisan commissions and groups since 2005 that have generally come to the very similar conclusions regarding these issues. Simpson-Bowles is the latest.

As much as I would like it, I am not encouraged about sweeping tax reform or even a “grand bargain.” Even lesser, but important, initiatives are beyond prediction — at least until the legislation is passed.