Alternative Minimum Tax for 2012

Alternative minimum tax or AMT will hit a lot more taxpayers on their 2012 income tax return unless Congress increases the exemption amount like they have in prior years. The increase in exemption (about $30,000 for joint filers) has been done in the past only on a yearly basis so it gets revisited every year. The AMT is a fun parallel tax that disallows certain deductions like taxes, miscellaneous itemized deductions, and personal exemptions. You have to pay the higher of the regular income tax or the AMT on form 6251. Let's hope that Congress fixes this again for 2012 before the end of this year.

New Obamacare Taxes

There are twenty new or higher taxes in Obamacare. Here are some of the more significant ones: Unless noted the new taxes start in 2013 or are already in place.

1. Dividends and other investment income earned by higher income taxpayers will have a new 3.8% surtax. The tax on dividends will be 43.4% for taxpayers in the highest income tax bracket.
2. Medical device manufacturers will have to pay a 2.3% excise tax on gross sales which will increase the cost of health care.
3. Medical itemized deductions for individuals will have a new 10% threshold of adjusted gross income which is up from 7.5%. You don't get the benefit of a medical deduction unless it is more than the threshold. This could hurt if you have high medical bills and itemize deductions.
4. Medicare payroll taxes on wages and  self employment income will increase from 2.9% to 3.8% on wages and self employment income exceeding $200,000 for individuals and $250,000 for joint returns.
5. There is a 10% tax on indoor tanning services.
6. You won't be able to contribute more than $2,500 to a flexible spending account. This is a pretax contribution for medical expenses that used to be unlimited.
7. Employers will have to pay a 40% tax on too generous healthcare plans starting in 2018. These are defined as Cadillac health care plans costing $10,200 for an individual or $27,500 for families.
8. Those not buying health insurance are subject to taxes of between $695 per person to $4,700 per person depending on income. This penalty tax will phase in between 2014 and 2016 and be collected by the IRS. Those making less than $9,500 will be exempt from the penalty, along with Indian tribes, and members of certain religions. The penalty tax though is generally going to be less than the cost of health insurance so many people, particularly young people will still choose just to pay the penalty.

Failure to File Penalty

The failure to file penalty is the reason it is so important to file a return by the extended due date which is today for 2011 individual returns. The Federal penalty is 5% for each month or part of a month up to a maximum of 25% of any unpaid balance of tax due. Georgia has the same penalty also. It is better to file an incomplete return and then amend later when you have all of the information.

IRS and Georgia Interest Rates on Tax Liability

The IRS charges 3% on an annual basis on past due tax liabilities for this current quarter. You have to pay in all the tax you owe by April 15 each year or you will be charged this interest. That also goes for Georgia, but Georgia charges a whopping 12% on an annual basis on past due tax. Usually it it better then to pay off  Georgia before the IRS. The IRS interest rate is subject to change each calendar quarter. The Georgia rate has been the same for over 10 years.  

Offers in Compromise

An offer in compromise(OIC) is a process which allows  taxpayers to settle their debt with the IRS for less than what was originally owed. The taxpayer fills out a form showing assets, liabilities, monthly income, and monthly basic living expenses. Documentation must be provided to support the amounts on the form. Using this information, the form calculates the offer amount. There is no negotiation involved. There is a $150 application fee and a 20% down payment if you propose to pay the tax in 5 or fewer installments. You can  submit a schedule to pay with more than 5 installments and then the first payment is due with the application. The payments are nonrefundable even if the IRS rejects the offer. As part of an acceptance of an OIC, the taxpayer agrees to comply with all tax return filing requirements for 5 years. In case of a default on a payment or a failure to file a return, the IRS can then sue the taxpayer for the balance due. The OIC is a difficult road to take with the IRS as most are rejected, but may be appropriate in some situations.