The timing of taxable income and deductions for federal income tax purposes is relatively straightforward. Generally, income is taxable in the year it is earned and received. Likewise, deductible expenses incurred and paid this year can offset taxable income on this year’s return. The Internal Revenue Code is riddled with exceptions, but these basic rules usually apply, especially for calendar-year taxpayers.
The tax law also includes several provisions commonly referred to as “carrybacks” and “carryforwards” (or “carryovers”). As their names imply, the tax item can be carried back to a prior year or carried forward to a succeeding year.
Two items that are often carried forward by individuals are capital losses and excess charitable deductions. For instance, capital losses realized in 2012 offset capital gains plus up to $3,000 of ordinary income for the year. If you have an excess capital loss of $10,000, you can carry forward $7,000 to 2013 after offsetting $3,000 of ordinary income in 2012.
Similarly, your current deduction for charitable donations may be limited by one or more percentage thresholds in the law. For example, donations of appreciated property are generally limited to 30% of your adjusted gross income (AGI). If you exceed the 30%-of-AGI limit this year, you may carry over the excess for up to five years.
Carrybacks aren’t as common, but may also be available in certain situations. Take a “net operating loss” (NOL) sustained by your small business. If you have an NOL in 2012, you can carry back the loss for two years. Thus, you’re effectively able to reduce your tax liability for one or two of the previous years for a refund of taxes already paid. Then you can carry forward any remaining NOL for up to 20 years. If it suits your purposes, you can elect to waive the NOL carryback. For more information on carrybacks and carryforwards, give us a call. We can help you make the best tax return choices for your situation.
Due date for calendar-year corporations to pay the last installment of 2012 estimated income tax.
Deadline to complete 2012 tax-free gifts of up to $13,000 per recipient.
Deadline for paying expenses you want to be able to deduct on your 2012 income tax return.
Deadline for taking 2012 required minimum distributions (RMDs).
Here’s an important reminder for small nonprofit organizations: If your organization had its tax-exempt status revoked for failing to file an annual return from 2007 through 2009, the IRS is giving you a chance to get reinstated.
The IRS has issued guidance for small organizations with gross annual receipts of less than $50,000 that will allow them to regain tax-exempt status retroactive to the date of revocation. To qualify for this reinstatement and a reduced application fee of $100, the organization must submit an application postmarked no later than December 31, 2012.Contact our office if you need details or filing assistance.
If you requested a six-month extension to file your 2011 income tax return, you face a major deadline on October 15. That’s the final date for filing your 2011 return; the IRS does not give filing extensions beyond that date.
October 15 is also the deadline for undoing a 2011 conversion of a regular IRA to a Roth IRA. If you did a conversion to a Roth last year, you can switch it back to a regular IRA without penalty if you do so by October 15.
If you need details or filing assistance, contact our office.
With the recent economic downturn experienced by many taxpayers, there is a tax concept that is very important: cancellation of debt. You would think that the cancellation of debt by a credit card company or mortgage company would be a good thing for the taxpayer. And it can be, but it can also be considered taxable income by the IRS. Here is a quick review of various debt cancellation situations.
Consumer debt. If you have gone through some type of credit “workout” program on consumer debt, it’s likely that some of your debt has been cancelled. If that is the case, be prepared to receive IRS Form 1099-C representing the amount of debt cancelled. The IRS considers that amount taxable income to you, and they expect to see it reported on your tax return. The exception is if you file for bankruptcy. With bankruptcy, generally the debt cancelled is not taxable.
Even if you are not legally bankrupt, you might be technically insolvent (where your liabilities exceed your assets). If this is the case, you can exclude your debt cancellation income by reporting your financial condition and filing IRS Form 982 with your tax return.
Primary home. If your home is “short” sold or foreclosed and the lender receives less than the total amount of the outstanding loan, you can also expect that amount of debt cancellation to be reported to you and the IRS. But special rules allow you to exclude up to $2 million in cancellation income in many circumstances. You will again need to complete IRS Form 982, but the exclusion from taxable income brought about by the debt cancellation on your primary residence is incredibly liberal. So make sure to take advantage of these rules should they apply to you.
Second home, rental property, investment property, business property. The rules for debt cancellation on second homes, rental property, and investment or business property can be extremely complicated. Generally speaking, the new laws that cover debt cancellation don’t apply to these properties, and the IRS considers any debt cancellation income taxable. Nevertheless, given your cost of these properties, your financial condition, and the amount of debt cancelled, it’s still possible to have this debt cancellation income taxed at a preferred capital gains rate, or even considered not taxable at all.
Be aware that many of the special debt cancellation provisions are set to expire at the end of 2012. If you’re unsure as to how debt cancellation affects you, contact our office to review your situation and determine how much, if any, cancelled debt will be taxable income to you.
June 15, 2012, is the due date for making your second installment of 2012 individual estimated tax. Your check to the United States Treasury should be accompanied by Form 1040-ES. June 15 is also the due date for calendar-year corporations to make their second quarter 2012 estimated tax payment.
Tuesday, April 17, is the deadline for filing certain returns and taking certain tax-related actions. Here are the major deadlines:
- Filing 2011 income tax returns for individuals. If you cannot file your return by this deadline, be sure to file an extension request by April 17. The automatic extension (you don’t need to explain to the IRS why you need more time) gives you until October 15, 2012, to file your return. An extension does not, generally, give you more time to pay taxes you still owe. To avoid penalty and interest charges, taxes must be paid by April 17. (See article about penalty relief available to qualifying taxpayers.)
- Filing 2011 partnership returns for calendar-year partnerships.
- Filing 2011 income tax returns for calendar-year trusts and estates.
- Filing 2011 annual gift tax returns.
- Making 2011 IRA contributions.
- Paying the first quarterly estimate of 2012 individual estimated tax.
- Amending 2008 individual tax returns (unless the 2008 return had a filing extension).
- Original filing of 2008 individual income tax return to claim a refund of taxes. Some taxpayers have tax refunds due them for prior years, and unless a return is filed to claim the refund by the three-year statute of limitations, the refund is lost forever.
It’s time to file various tax returns once again. If any of the following tax deadlines will apply to you, circle the dates on your 2012 calendar.
- January 17 – Due date for the fourth quarterly installment of 2011 estimated taxes for individuals unless you file your tax return and pay any taxes due by January 31.
- January 31 – Employers must furnish 2011 W-2 statements to employees. Payers must furnish payees with Form 1099s for various payments made. The deadline for providing Form 1099-B and consolidated statements to customers is February 15.
- January 31 – Employers must generally file annual federal unemployment tax returns.
- February 28 – Payers must file information returns, such as Form 1099s, with the IRS. This deadline is extended to April 2 for electronic filing.
- February 29 – Employers must send Form W-2 copies to the Social Security Administration. This deadline is extended to April 2 for electronic filing.
- March 1 – Farmers and fishermen who did not make 2011 estimated tax payments must file 2011 tax returns and pay taxes in full.
- April 17 – Individual income tax returns for 2011 are due.