Today the IRS issued the new mileage rates for 2013. This is the amount that can be deducted per mile for various uses of your vehicle.
The new rate for business use is $0.565 per mile, up 1 cent from 2012. Of that amount, $0.23 remains the amount allocated for depreciation or basis reduction. What that means is that for every 100 miles you drive in 2013 (or 2012 for that matter) you must reduce your "basis" in the vehicle by $23. If you have enough miles, your basis might be reduced to the point that you must report the income if you sell your car.
For an example on the basis reduction, let's assume you paid $10,000 for your car. You drove this a lot for business purposes and the basis reduction came to $9,000 total over the several years you owned the car. Now you sell your car for $1,500. Think you "lost" $8,500 on the car? Guess again. You actually gained $500 on the sale and that income is taxable. Remember, you previously reduced your income by $9,000 so it is time to pay part of that back.
By the way, if you trade that car in on the purchase of a different car, that is actually considered a "1031 exchange" and you must file the appropriate forms with your tax return. That will avoid paying the tax on the $500 gain for now, but it reduces the basis on those new wheels.
The mileage rate for charity work remains at $0.14 per mile. That amount was set by Congress without allowing any authorization for adjustment due to inflation, etc. So until Congress changes it - it isn't changing.
For medical purposes or if you are moving the new rate is $0.24 per mile. That does not require basis adjustments on the vehicle.
Wednesday, November 21, 2012
Monday, November 19, 2012
Delayed Tax Season - Again?!
Last Friday acting IRS Commissioner Steven Miller sent a very clear warning to Congress. Unless an AMT patch is passed (and signed by President Obama) by December 31, the income tax filing season will be seriously impacted. Commissioner Miller states that approximately 60 million taxpayers will be impacted by the delay, and that is almost half the individuals who file a tax return.
Of particular note is that if Congress allows this to slide into 2013, the collision of needed programming changes and the processing of simple returns could delay the ability for these 60 million taxpayers to file their tax returns until late March! It is possible that taxpayers who itemize deductions could be included in that delay. This is presumably because the AMT system treats itemized deductions differently. Thus the processing of itemized deductions (Schedule A) requires "hooks" in the software to capture and treat items differently. Regardless of the details, the interaction is significant enough that we are being warned of a potential delay.
The estimated number of taxpayers that would escape paying AMT if an expected patch is made into law is 28 million.
Last year approximately 130 million individual tax returns were filed. Thus a little more than 1 out of 5 taxpayers have reason to fret over being dragged into "AMT Land" while hoping that Congress will grant a reprieve.
Update: On December 19 Mr. Miller again contacted Congress and updated his information. He now predicts that the number of taxpayers that will be prevented from filing until very late is in the 80-100 million range. This updated number also states about 150 million returns are expected to be filed. Furthermore, in order to guard against fraud, he indicates that all filing may be put on hold until this is resolved.
Of particular note is that if Congress allows this to slide into 2013, the collision of needed programming changes and the processing of simple returns could delay the ability for these 60 million taxpayers to file their tax returns until late March! It is possible that taxpayers who itemize deductions could be included in that delay. This is presumably because the AMT system treats itemized deductions differently. Thus the processing of itemized deductions (Schedule A) requires "hooks" in the software to capture and treat items differently. Regardless of the details, the interaction is significant enough that we are being warned of a potential delay.
The estimated number of taxpayers that would escape paying AMT if an expected patch is made into law is 28 million.
Last year approximately 130 million individual tax returns were filed. Thus a little more than 1 out of 5 taxpayers have reason to fret over being dragged into "AMT Land" while hoping that Congress will grant a reprieve.
Update: On December 19 Mr. Miller again contacted Congress and updated his information. He now predicts that the number of taxpayers that will be prevented from filing until very late is in the 80-100 million range. This updated number also states about 150 million returns are expected to be filed. Furthermore, in order to guard against fraud, he indicates that all filing may be put on hold until this is resolved.
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