2012 Tax Updates – MYBL Accounting Services, Sam Cho, CPA
In 2012 and 2013, we face a huge challenge because tax laws changed and will change in any direction.
But I feel sure that taxes would go up since the federal and state governments need revenues. I hope
this literature helps you understand the utmost changes. Please remember we are just one phone call
away. Keep referrals flow to MYBL because we all fail without referrals. Grand Opening on 12/5 at
5:30PM and please RSVP as soon as possible at 661-254-2359.
Personal Taxation
Basics:
1. Personal Exemption: $3800, No Phase-out per income level in 2012. But CA: 6% of federal AGI
2. Need to get Form 8332 signed by ex-spouse to claim a qualifying child for divorce from 1/1/2009.
Need a divorce decree for divorce by 12/31/2008.
3. Qualifying Child: natural, step-, adopted, foster child or sibling or descendant of any of the
above. Younger than 19 or 24 if full time student, US citizen or alien resident, residing over 6
month with taxpayers paying over half of living costs. Qualifying child can’t file a joint return.
4. Dependent test for HOH filing: have a qualifying child, a relative dependent if not a qualifying
child, maintaining a home for dependent parent regardless of whether they lived with taxpayers.
Gross Income:
1. Qualified Dividends 15% in 2012 but Ordinary Income in 2013. So it is taxed at your tax rates.
2. LT capital gain 0%(10%,15% tax bracket) or 15%(25% and plus tax bracket) in 2012 but 20% in
2013
3. Accelerate Long-term capital gains in 2012. In 2013, rates go up to 20% plus 3.8 extra taxes for
high income earners ($200K or $250K)
4. Compensation from personal injury or sickness: not taxable under IRC 104. Employment
discrimination settlement: taxable. Whistleblower award: ordinary income
5. Foreign earned income: no taxes up to $95,100 earned income per person if bona fide test is
met. California has no exclusion.
6. (Restricted) Stock Option for service is recognized as income equal to difference between option
price paid and FMV at the excise date. But the income recognition is delayed under IRC 83(a) if it
is both (1) subject to a substantial risk of forfeiture and (2) not transferable. Later when these
two restrictions are removed, it is taxed as ordinary income instead of capital gain. Huge tax
disadvantage. Under IRC 83(b) election, taxpayer reports ordinary income on excess of FMV on
the option date over the $ amount paid for the stock even though the two restrictions exist. The
value increase thereafter will be taxed at LT capital gain rates.
Above The Line Deduction, Standard Deduction, Itemized Deduction:
7. $250 Educator Deductions Expired! Tuition & Fee Deduction (max $4,000 per tax return) Expired!
8. HSA Contribution Limit: $6,250 + $1k Catchup (+55) per family, $3100+$1k(+55) for self only
9. Standard Deduction (IRC 63): $11,900 MFJ, $8,700 HOH.
10. Itemized Deduction: No Phase-out in 2012!
11. Medical Expenses AGI Threshold: 7.5% in 2012 but 10% in 2013
12. LT Care Insurance Premium Limit: $4370 in 2012, $4550 in 2013
27201 Tourney Road Suite 125, Valencia, CA 91355.
samcho@myblaccounting.com P(661)254-2359, F(661)254-2261, www.myblaccounting.com
2012 Tax Updates – MYBL Accounting Services, Sam Cho, CPA
13. State & Local General Sales Tax Deduction Expired!!!
14. $1.1 Million mortgage debt threshold applies up to two residences. (Sophy v. Comm)
15. MFS can deduct only 50% of $1.1million mortgage debt interests even though other spouse
doesn’t deduct.
16. Trust beneficiaries can deduct mortgage interests on property held by the trust if they pay even
though they don’t possess right, title, or interest on the property.
17. Mortgage Insurance Premiums Deduction Expired!!!!
18. Charitable Contributions (IRC170): Taxpayer can’t be his own appraiser (Mohamed v. Comm).
Contemporaneous written acknowledgement from a charity: (1) $ amount contributed,
(2) indicates whether goods or services were provided, and (3) provide a description and good
faith value of such goods and services. (Durden v. Comm)
19. Ponzi Scheme: theft loss, House fire timely filed with insurance claim: casualty loss
20. Alternative Minimum Tax: AMT Exemption and Credits Not Extended Yet!!!
21. Adoption Credits: $12,650 Non Refundable in 2012. MFS can’t claim. Foreign Adoption must be
finalized to claim.
22. Child Tax Credit until 16 yr old: $1,000 in 2012, AGI less than $110K MFJ, $75K HOH
23. American Opportunity Tax Credit & Lifetime Learning Credit good until 2012(IRC 25A): $2500
per student for 1st four years of college. Up to 40% ($1,000) Refundable. AGI Phase out: $80$90K Single. $160K-$190K MFJ
24. Nonbusiness Energy Credits (energy saving windows, doors, water heaters) Expired!DS
25. Residential Energy Efficient Property Credits: Solar panel, Geothermal, Wind Power 30% of
costs. CAN’T REDUCE AMT! in 2012 unless Congress corrects it. No AGI Limitation!
26. Nanny Tax: Salary Threshold $1800 in 2012: if met, employer withheld FICA
27. Estate Tax Max Rates: 35% and $5.12M in 2012. DSUE available only in 2011 & 2012 if 706 filed
and DSUE elected. Annual Gift Tax Exclusion: $14K in 2012
28. 2% payroll cut still good in 1012 but expires in 2013!!!
29. Mortgage Debt Relief for primary residence (up to $2M) expires on 12/31/2012!!!
2013 Heath Care Act (Obamacare): Additional Medicare Tax 0.9% and 3.8%
1. 0.9% on over $200k(Others)/ $250K(MFJ) Earned Income
-0.9% taxes pass to only employee. Employer doesn’t pay***
-Self-employment loss (schedule C, F, Partnership K-1, or Royalties Schedule E) can’t offset
wages for this 0.9% extra tax computation purpose***
-K-1s from S Corp shouldn’t be treated as Earned Income but IRS will clarify this issue in Dec.
2. 3.8% on Investment Income: Taxed on the lesser of over $200K(others)/$250K(MFJ) earned
income or net investment income
-Investment income includes interest, dividends, annuities, royalties, RENTS, and CAPITAL GAINS
from disposition of properties other than properties held in a trade or business. This 3.8%
generally doesn’t apply to trade or business.
-K-1 income from S Corp, Partnerships, and Trusts without material participation might be
subject to 3.8% extra tax. *****Passive investors pay 3.8% on K-1 but if they materially
participate in trade or business, their K-1s is not subject to 3.8% taxes.
27201 Tourney Road Suite 125, Valencia, CA 91355.
samcho@myblaccounting.com P(661)254-2359, F(661)254-2261, www.myblaccounting.com
2012 Tax Updates – MYBL Accounting Services, Sam Cho, CPA
3. Medical Expense Deduction Under Sch A: Excess of 10% of Federal AGI deductible in 2013.
4. FSA (Flexible Savings Account) under cafeteria plans: contribute unlimited $ in 2012 and use it
for medical expenses and then no income taxes on contribution. But now limit the FSA
contribution to $2,500 per year in 2013.
Business Taxation
Depreciation:
1. Bonus Depreciation for new assets: 50% in 2012 and Expired in 2013.
2. 15-yr life Qualified Real Property up to 250K expired in 2011. They are 39 yr assets in 2012.
3. IRC 179 Depreciation: Max $139K deduction with new or used acquired asset in 2012. (2013?)
Phase-out range: $560K to $699K assets acquisition. CA $25K exp and $200k assets acquisition.
4. Taxpayers may make IRC 179 late election on amended tax returns through 2012 under IRC
179(c)(2). (See Rev Proc. 2008-54)
5. Section 179 for Qualified Real Property up to $250K (restaurant property, LHI, qualified retail
improvement) expired in 2011 because they are 39-year assets in 2012
6. Revoking Section 179 without consent: yes in 2011 and 2012. No in 2013 and thereafter.
7. Form 8594 Asset Allocation Statement can be filed differently by buyer and seller.
Automobile:
2012 Std Mileage Rates: Biz 55.5 cents per mile, Charity 14 cents per mile, Medical 23 cents per mile
2012 Auto Depreciation: Luxury passenger car: max $11,160 1st year. SUV weighing over 6K lbs: max
$25K, Trucks over 6K lbs: max $139K
Home Office: Usually commuting is not deductible. If a taxpayer has an exclusive home office as a
principal place of biz, he can deduct commuting from home to worksite.
Local Lodging on IRS Proposed Regulations: Usually reasonable and necessary lodging is deductible while
traveling away from home. Local lodging is deductible if ordinary and necessary in a trade or business.
Transportation Fringe Benefit under IRC 132: No income to employee up to the following benefit:
Vanpool $125 in 2012 & 2013, Transit Passes $125 in 2012 & 2013, Parking $240 in 2012, $245 in 2013
IRC 1202 Small Business Stock: Capital Gain from sale of qualifying small biz stock held over 5 yrs is
excluded as below:
1. 50% excluded for stock purchased before 2/18/09.
2. 75% excluded for stock purchased from 2/18/09 to 9/27/10
3. 100% excluded for stock purchased from 9/28/10 to 12/31/11
4. 50% excluded for stock purchased from 1/1/12
5. Fed IRC 1202 AMT tax free! CA 50% exclusion but AMT Preference Items
Built-In-Gain Holding Period: 5 years from the S Corp election date
FUTA Surtax Reduction: 0.6% in 2012.
1099-K for taxpayers with over 20 transactions or over $20K sale.
27201 Tourney Road Suite 125, Valencia, CA 91355.
samcho@myblaccounting.com P(661)254-2359, F(661)254-2261, www.myblaccounting.com
2012 Tax Updates – MYBL Accounting Services, Sam Cho, CPA
Foreign Reporting:
Form 8938 “Foreign Asset Disclosure” under FATCA: Specified Person reports Specified foreign assets
with over thresholds. Exceptions: Mark to Market assets, foreign residence or rentals, foreign social
security or social insurance benefits, foreign currency in your possession.
Real Estate:
Gain from Sale of Primary Residence (Section 121):
1. No taxes up to $500K/$250K capital gains if hold it over 2 years out of 5 years.
2. Revision of Section 121: You need to allocate cap gains between rental periods and primary
residence periods and pay taxes for rental periods “if you converted your previous rental
property to your primary residence and sell it later”!!!!!
Rental Income/Loss: Passive Income/Loss. Loss from rental investment is considered as passive loss
which doesn’t reduce ordinary income. Exceptions to Passive Loss: Self-rental and RE Professionals with
material participation
IRC 1231, IRC 1245, IRC 1250:
Sec 1231 Assets:
1. Sale/exchange of real or personal assets (1) used in a trade/biz and (2) held for over 1 year.
2. Includes 1245 (personal) and 1250 (real). Excludes inventory, copyrights, less than 1-yr asset
3. Gain: LT cap gain, Loss: Ordinary Loss, “LT Cap Loss” in any given year to the extent of net 1231
gain recognized previously in 5 years.
Sec 1245 Assets:
1. Business personal property subject to depreciation such as vehicle, equipment, furniture &
fixtures, non-structural portion of real property, etc.
2. 1245 Gain: Ordinary Income to the extent of deprecation recapture.
Section 1250 Assets:
1. Business real property subject to depreciation
2. 1250 gains: (1) ordinary income for (recaptured) deprecation taken in excess of straight line (RE
till 86), (2) 25% for (non-recaptured) depreciation taken in straight line (all RE after 86)
Insolvency Exclusions under IRC 108: COD income (=FMV of assets discharged from debt – liabilities
discharged) can be non-taxable through either (1) Bankruptcy or (2) insolvency test. Taxpayer excludes
from income a discharge of indebtedness if all liabilities or contingent liabilities exceed FMV of all assets
held immediately before the discharge (insolvency amounts = fmv of all assets – all liabilities).
1. You must compute COD income first. If COD income is less than insolvency amount, no taxes but
report on Form 982.
2. The excluded amount is applied to reduce tax attributes in the order listed on Form 982 unless
taxpayer elects to apply all or a portion of the excluded amount first to reduce basis in assets,
rather than to reduce the tax attributes.
27201 Tourney Road Suite 125, Valencia, CA 91355.
samcho@myblaccounting.com P(661)254-2359, F(661)254-2261, www.myblaccounting.com
2012 Tax Updates – MYBL Accounting Services, Sam Cho, CPA
California: (Ouch!)
1. Sales Taxes up by 0.25% from 2013 to 2016
2. Tax Rates for taxpayers with over $250K taxable income Single, $340K HOH, $500K MFJ.
10.3%, 11.3%, 12.3%. Still the 1% mental health tax is charged for over $1M income taxpayers.
So it adds up!
3. Multi-state businesses!!! CA multi-state businesses should use sales factor rule instead of four
factor rules in 2012 and thereafter. (Currently 21 states are using single sales factor)
Sam Cho, CPA obtained a Masters of Accounting degree from USC Kenneth Leventhal School of
Accounting and developed his expertise in taxation while working at tax department of various
international accounting firms. He is specializing in taxation, accounting, and financial issues that small
to mid-size businesses ran over. He is eager to help clients exceed their business goals and grow
together with his loyal clients.
Nalin Chhim is a senior accountant in charge of write-up services to MYBL clients. She obtained a B.S.
degree in business from California State University, Chico. She worked for a prestigious accounting firm
in Chico and an international insurance service company in L.A. before she joined MYBL in 2007. She is
specializing in accounting, payroll, sales taxes, and business management consulting services. She is
excited to meet with and assist any of clients.
27201 Tourney Road Suite 125, Valencia, CA 91355.
samcho@myblaccounting.com P(661)254-2359, F(661)254-2261, www.myblaccounting.com