Tax season 2013: What's in store for taxpayers and the tax prep industry

With tax season in full swing, local CPAs are as busy as ever preparing tax returns, while also preparing for a much different tax season in 2014.

The Patient Protection and Affordable Care Act is chock-full of complex rules, mandates, incentives and tax code changes. Some of the first provisions became effective in January 2013, and many more are coming in 2014 (see an overview in the on the next page). Beverly Koehler, who operates bookkeeping, payroll and tax services in Cape Girardeau and Jackson, says her business saw a slight delay in the usual tax rush this year. Some new provisions were passed at the start of the year, and few returns had been filed by Jan. 30, the earliest returns could be filed this year.

"It's already hitting us, but it has been delayed," she says. "I think that's mostly because the tax season got a later start than it normally does. We are starting to catch up with things."

Dana Steffens, a partner with Baer & Edington LLC, says her firm has been working steadily with business clients. Individual clients are just starting to come in as they receive the last of their tax information.

As for next year, says Steffens, "I am not sure that we will be busier, but I think that many of our individual clients and businesses will continue to have questions and concerns as to how this new Affordable Health Care Act will impact them. ... Helping some of the clients, especially our business clients, gather the information needed to take advantage of the health care credits will take some extra time. I do think we will have more business clients come to us for advice and help as they implement the new requirements of the Affordable Care Act."

Steffens says her best tax advice for this year and next is to take the time to sit down with your tax adviser and make sure you are maximizing the use of deductions and tax credits allowed by the IRS.

"Keep good records every year," adds Koehler.

TAX CREDITS TO LOOK INTO THIS YEAR

> American Opportunity Tax Credit: For parents and students to help cover college expenses; was set to expire in December 2010 but was extended through December 2012 and made retroactive.

> Tax credits for teachers: Up to $250 reimbursed for teachers who spend their own money on classroom supplies. Was set to expire but has been brought back and made retroactive.

> Credit for Child and Dependent Care: For parents with children in day care.

> Adoption Credit and Adoption Assistance: For adoption expenses including court costs, attorney fees, travel and more.

> Energy tax credits: Various credits for building an energy-efficient new home, making energy-efficient improvements to an existing home, installing alternative energy equipment, etc.

> Retirement credits: For those who contribute to an IRA or employer-sponsored retirement plan.

In Missouri

> Credits are available for contributions to qualified 529 education plans and qualified health insurance plans.

> You can reduce taxable income for qualified health insurance premiums paid.

> Those 65 and older may be eligible for property tax credits.

> There is a small business tax deduction for new jobs created.

Sources: Beverly Koehler, Dana Steffens, www.irs.gov, www.dor.mo.gov

BT asked: Are there any new, extra things we need to be aware of regarding the Affordable Care Act?

The health care law generally has no impact on the individual Form 1040 in 2012; however, if you received a health insurance premium rebate during 2012 you may be one of the few people who needs to include it on your 2012 tax return.

Effective in 2013 there are some provisions that may affect an individual. First, new additional Medicare Taxes went into effect Jan. 1, 2013. The 0.9 percent additional Medicare tax applies to individual wages, Railroad Retirement Tax Act compensation and self-employment income that exceeds a threshold amount based on the individual's filing status. The threshold is $250,000 for married taxpayers filing jointly, $125,000 for married taxpayers filing separately and $200,000 for all other taxpayers. The employer is responsible for holding out the additional Medicare tax from wages if it pays an employee in excess of $200,000.

Second, a new Net Investment Income Tax went into effect Jan. 1, 2013. The 3.8 percent additional income tax applies to individuals, estates and trusts that have income above certain threshold amounts.

Third, effective Jan. 1, 2013, there are new rules on the amount that can be contributed to Flexible Spending Arrangements (FSAs). The limit is a $2,500 annual limit.

Starting in 2014, individuals and families can take a new premium tax credit on their Form 1040 to help them afford health insurance coverage purchased through an Affordable Insurance Exchange. The tax credit is refundable, so taxpayers who have little or no income tax liability can still benefit.

On the business side of things, there are some provisions that may impact employers. First, you are required to report the cost of coverage under an employer-sponsored group health plan on an employee's W-2. However, many employers are eligible for transition relief for tax year 2012 and beyond until the IRS issues final guidance. This reporting is for information purposes only to show employees the value of their health care benefits so that they are more informed.

Second, there is a Small Business Health Care Tax Credit for small businesses who have fewer than 25 full-time equivalent employees, cover at least 50 percent of the cost of single health care coverage and have average wages of less than $50,000. For 2012 and 2013 this credit can be as much as 35 percent for small business employers and in 2014 this the rate will increase to 50 percent.

~ Dana Steffens, partner at Baer & Edington LLC