In, oh for the love of God make it stop, news, Judge Alan Gold has allowed the IRS and UBS more time to hammer out a deal over 52,000-someodd names of American account holders.
There was supposed to be a deal today but then the judge said the 10th would be fine. Now the 12th is the date and if that doesn’t work, then they have until 17th. OH to hell with it. Who needs a drink?
U.S. and UBS Get More Time to Reach a Deal [DealBook]
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Possible New Tax Forms Under Healthcare Reform
As we plod into the glistening new vistas of Obamacare, what sort of wonderful tax returns await us there?
The biggest change, one that will hit every 1040 from the simple 1040-EZ to the full-blown 1040 starting in 2014, will be the new “personal responsibility payment.” The PRP is the marketer’s name for a fine for not having an approved health insurance plan.
We’ve mentioned some of the weird enforcement problems this will bring – problems addressed in more technical detail here. The PRP can’t possibly work with rting – the individual numbers are just too small, and the IRS can’t audit everyone. If they are ever serious about this, there will have to be a new information reporting form issued by the health insurers, something like the 1098 form. The form will need to have the taxpayer’s social security number, and maybe some new number identifying the taxpayer’s IRS-approved health insurance plan. We’ll call this Form 1098-BCBS.
The 1040s will have a new form, or at least a new schedule – we’ll call it Schedule DRE. Schedule DRE will have a space to put the number from the 1098-BCBS, or lacking that, boxes to check for why you have failed to do your part to support health care in this great nation. If you don’t check the right boxes, there will be further lines to compute your PRP, which can range as high as 2% of your income. The final tax will carry to the taxes summary at the bottom of the second page of the 1040.
In the higher rent district, there will be new forms, or at least worksheets, to compute the two new Medicare taxes that apply starting in 2013. An additional .9% wage tax will apply to wages over $200,000 for single filers, $250,000 for joint returns, and $125,000 on married filing separate returns. While employers of single taxpayers who employ them all year will cover their tax through withholding, single job-switchers and married taxpayers will have to do this weird new computation on their 1040s somewhere. This one isn’t indexed for inflation, so we should all be there in a few years.
The wage tax computations will be childs play compared to the new 3.8% tax on “unearned income” – a phrase reeking of chutzpah, coming as it does from freaking Congress. This tax applies not only to old-fashioned investment income – interest, dividends and capital gains – but to royalties, rents, and to “passive” income from partnerships and S corporations. Auditing this tax may require all 16,000 of the new IRS agents called forth by Obamacare. “Passive” is defined here by the Sec. 469 rules, which were enacted to deal with tax shelter losses. Tax preparers will need to be very careful in distinguishing “passive” from “non-passive” income in many cases where it never used to matter.
IRS agents will have a field day trying to trip up folks who liked the income to be “passive” when it enabled them to use other losses. This will stimulate the economy of high-end tax consultants, who will quickly earn enough to qualify for the tax themselves, where they don’t already.
The unearned income tax tax will apply to the lesser of “unearned income” or the amount adjusted gross income exceeds $200,000 for single filers, $250,000 on joint returns ($125,000 on separate returns). So a new form will have to add up the “unearned” income from Schedule B, Schedule D, Schedule E, and maybe Schedule F, and compute the tax, which will also carry to the nether regions of Schedule 1040, page 2.
There will be plenty of other changes applying to 1040s between now and whenever Obamacare fully kicks in. There is a nice timetable here.
The IRS isn’t waiting to prepare to enforce these new rules. Going Concern has obtained an exclusive early draft of Schedule DRE.
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Gerri Willis Doesn’t Care What A Couple of Old Men Think About Tax Cuts
In case you haven’t heard, there’s a bit of a debate over what to do about the expiring Bush tax cuts. And because it’s an election year, they make for a perfect political pigskin to throw around.
Fox Business Network is marking this momentous occasion with Taxed to Death Week (a demise that we do wish for our worst enemies) and w ons to Gerri Willis of the Willis Report.
Going Concern: Tax cuts are a pretty popular way for politicians to pander to their constituents. It seems pretty convenient that they are set to expire right after the mid-term elections. Who should we blame for this?
Gerri Willis: There are plenty of people to blame – George W. Bush put them into place way back in ’01 and ‘03 and we knew way back then they had an expiration date – so take yer choices, there are plenty of politicians to point the finger at.
GC: And God knows Americans need someone to blame. Since Congress let the estate tax expire, is there a real risk that the tax cuts could expire without any action?
GW: Sure, it’s actually the easiest action to take because it requires absolutely no effort on the part of anybody – Congress doesn’t have to do anything. The President doesn’t even have to pick up a pen to sign the bill. They could all just dither until midnight December 31. Whoosh! Tax hikes.
GC: Just like tornadoes in Brooklyn. And that’s not good for anybody. Anyway, there’s a lot of information and misinformation out there with regard to the tax cuts. Can we safely assume that objectivity is taking a back seat to political gain and Americans are at the mercy of the rich and powerful (who, incidentally, are the ones greatest affected by the ultimate outcome)? How can Americans know what’s really going to happen? How can accountants best sort through all the noise to best serve their clients?
GW: Surprise! Politics are involved – of course they are, but Americans aren’t stooges. There are plenty of places to get objective information on the tax cuts. I’d suggest Fox Business and The Willis Report. Frankly there is no way for accountants or anyone else to know what is going to happen – Congress is really holding us hostage – my financial advisor sources say nobody is going on vacation in December because they know that something can happen anytime that will change the landscape.
GC: Here’s something strange – Warren Buffet has indicated that he’s in favor of eliminating tax cuts for the wealthiest Americans. Alan Greenspan is in favor of letting all the tax cuts expire. So we have one of the richest people in the world saying he’s willing to pay more taxes and the former head of the Federal Reserve saying that everyone should pay more taxes. Generally speaking, these are smart guys. Are they onto something or is this a sign that we need to start ignoring everything that old men say?
GW: Okay, to be fair here there is wealthy and then there is wealthy, right? $250,000 in San Francisco or LA or NYC is not the same thing as $250,000 in Omaha or Comanche TX. And, Greenspan simply continues to try to resurrect his reputation which was harmed by the mortgage meltdown.
GC: Ultimately though, the one thing Congress agrees on is that tax cuts for the middle class should stay and the big debate is whether the wealthy get a short extension on their cuts or a “permanent” (although it’s not really permanent) one. But do rich people really need an additional moderately-priced BMW?
GW: Heehee. Maybe they won’t buy a BMW – maybe they’ll hire someone! The thing for the middle class to know is that it isn’t just your income taxes at stake – there are a handful of beloved middle class tax credits at stake too – write-offs for college loan interest; child tax credit; and of course there is no AMT patch yet this year – if that doesn’t come to pass tens of thousands of Americans could owe AMT — a tragedy.