New 3.8% Net Investment Tax

This is the new Obamacare tax that starts 1/1/2013 for all single filers making over $200,000 and joint filers making over $250,000. Given the following set of facts the new tax would be $3,800 on the 2013 income tax return:

Single filer with adjusted gross income of $300,000 and net investment income of $200,000 included in the $300,000:
Tax is the lesser of 300,000-200,000 x 3.8%=$3,800 or 200,000 x 3.8%= $7,600

Net investment income is defined as all dividends, interest, capital gains, net rental income, and passive activity income. Earned income and retirement income are not included.

Charitable Cash Donations $250 or More

When you write a check to a charity for this amount, the charity is required to issue you a written receipt that indicates, the name and address of the charity, amount contributed, the date of the donation, and whether any goods or services were provided to you in return for the contribution. A charity will usually provide you with a receipt immediately. This acknowledgement letter must be received by you prior to the due date or the extended due date of the return. You will lose this deduction upon audit if you don't have a timely acknowledgement letter even if you have a cancelled check. Look at your records now to make sure you have a written receipt for each applicable donation you have made in 2012.

Social Security Benefits for Those Born 1943-1954

Your normal retirement age for social security for this age group is 66 at which point you would get 100% of your monthly benefit. If you start taking social security at age 62 which is the earliest you could take it, your benefit would be 75%. At age 65 the benefit is 93.33%, and at age 67 it is 108%. At age 70 you stop earning any bonus percentage, and your benefit maxes out at 132%. You can go online at www.ssa.gov to apply to view your annual social security benefit statement.

Business Travel Expenses

Taxpayers and the IRS have disagreed on the deductibility of travel expenses many times. If the trip is primarily for business, then most of the expenses are deductible such as meals, lodging and transportation costs. How does one determine if the trip is primarily for business? You have to look at all the facts and circumstances and see if you can make a reasonable case. How much time was spent on personal activities versus business activities? Was your spouse with you? Does your spouse have a legitimate business reason to be on the trip? Is your spouse one of your employees or independent contractors? If the trip is primarily for personal reasons, then no costs are deductible except direct business expenses such as a business meal. This issue reminds me of an old tax saying, "When a pig becomes a hog it gets slaughtered."