Not The Best Place to Buy Foreclosures

Jan 31, 2013, 10:11am PST

Portland: Not such a great place to buy foreclosed homes in 2013 

Wendy Culverwell  Business Journal staff writer- Portland Business Journal

 

The Rose City is not going to be a great place to buy a foreclosed home this year.
RealtyTrac, an Irvine, Calif.-based real estate research firm, released its year-end foreclosure report and list of the best cities to buy a foreclosed home in the coming year today.
It said foreclosure activity decreased in 181 of the 2012 metro markets it tracks in 2012. Portland foreclosure activity fell more than 28 percent, it said.
Notable exceptions include Tampa (up 80 percent), Miami (up 36 percent), Baltimore (up 34 percent), Chicago (up 30 percent) and New York (up 28 percent).

“Markets with increasing foreclosure activity in 2012 took the first step in finally purging delayed distress left over from the bursting housing bubble,” said Daren Blomquist, vice president.
To select the best places to buy foreclosed properties, RealtyTrac computed the months’ supply of foreclosure inventory, percentage of foreclosure sales, foreclosure discount and percentage increase in foreclosure activity in 2012 for metro areas with populations of 500,000 and above.
Portland — and Seattle — missed making the Top 20.

In fact, it was the opposite. RealtyTrac said Portland will be one of the worst cities to buy foreclosed properties, along with McAllen, Texas; Ogden, Utah; Little Rock, Ark.; Las Vegas; Salt Lake City; Boise, Idaho; Buffalo, N.Y.; and Phoenix.

Wendy Culverwell covers real estate, retail and hospitality.

What Are The Chances of an IRS Audit?

What tax deduction is likely to get a small business audited?

Staff Sacramento Business Journal

What type of tax deduction is most likely to get a small businesses audited?

“No one deduction versus another will automatically trigger an IRS audit. Rather the IRS compares taxpayers’ expenses to a variety of statistical data it has compiled to see if the expenses are in line with what is reasonable and customary for the type of business the taxpayer has. If the expenses are outside of these statistical ranges, the return could be flagged for audit. Since 2001, IRS audit rates have quadrupled, and the volume of notices to taxpayers have gone up sevenfold. … The best defense against an audit is to keep accurate books and records for your business and to maintain the required documentation to support your deductions. Taxpayers lose in audits because they do not have sufficient documentation to support the deductions.”

— Steve McCormick, CPA, Scott & Baldwin CPAs
“The IRS has recently announced that it will be paying special attention to the returns of small contractors, especially those filed on Schedule C of an individual’s Form 1040. Thus, all small contractors, whether they file as a stand-alone business or as part of an individual return, should make sure that they have proper documentation for all expenditures. Particular areas of emphasis include car and truck expenses; travel, meals and entertainment; supplies; and repairs and maintenance.”

— Mark A. Bellows, CPA, partner, Gallina LLP
“Deductions that can be ‘matched’ such as salary, rent paid (and) consulting expenses are an easy audit question, if they are significantly different from the reporting mechanism (such as W-2s, 1099s, etc.). Also, expenses that seem large in comparison to gross revenue, after giving consideration to the type of business (such as extraordinarily large automobile expense for a small fixed-retail shop.) Also, those who have cost-of-goods-sold greater than gross revenue are likely to be given a second look. Lastly, obviously ‘rounded’ amounts, such as $20,000 and $310,000, are a dead giveaway that support may be lacking ; this is particularly evident when all or several deductions are nice round numbers!”

Filling out your 1099-Misc for Vendors in 2012

There a several different types of 1099s that exist in the federal 1099 information reporting series. However, one of the most popular forms that small businesses need to file is the Form 1099-MISC.
What is a Form 1099-MISC?
Form 1099-MISC is essentially an information report that is required to be sent to certain recipients who have been paid during the year in the course of a trade or business. A copy of the Form 1099-MISC is also reported to the Internal Revenue Service (and some states) for their records as well. Failure to file a required 1099 may result in denied expense deductions upon audit and additional penalties and fees (typically $30 to $100 per missed filing for federal purposes).
Form 1099-MISC Filing Requirements
Form 1099-MISC is required to be filed in several instances. However, some of the most common examples are as follows:

• Nonemployee Compensation/Independent Contractors – required when $600 or more is paid during the year to a nonemployee. Includes payment for professional services (fees to attorneys, accountants, engineers, repairman, etc.).
• Rents – all types when the amount paid is $600 or more (unless made to a real estate agent). Examples include real estate rentals for office space, machine rentals, etc.
• Royalties- amounts that exceed $10. Examples include payments to authors, musicians, artists, etc.
• Direct Resellers – required when sales are made in the amount of $5,000 or more of consumer products anywhere other than to a permanent retail establishment.

1099-MISC Filing Exemptions
There are a few cases when Form 1099-MISC does not need to be filed even though it may have met the aforementioned requirements.  A few examples are as follows:

• Note that 1099-MISC generally do not need to be issued to corporations.
• Amount paid via credit card, debit card, or third-party settlement company (i.e., PayPal) should not be reported on a 1099-MISC as they will be now be reported on Form 1099-K by the bank or third-party.

Tax Reporting of 1099-MISC
There is now a question on tax returns which specifically ask if a business was required to issue 1099s and if so, whether they were filed.  Therefore, the IRS has implemented extra measures to make sure the 1099s are filed and will likely begin strictly enforcing the rules.  It is advised to collect a Form W-9 from all vendors so that 1099s can be issued if needed.
Form 1099-MISC Due Date
Form 1099-MISC is due each year to the recipient by January 31 and to the IRS by the last day of February. However, if filing your 1099-MISC electronically the date is extended to March 31st. Each state also varies with its deadlines and requirements. For example, North Carolina 1099-MISC reflecting NC income tax withheld must be submitted by the last day of February.

How Much Did My Taxes Increase In 2013?

Fiscal cliff deal raises taxes on 77% of Americans

By Tami Luhby @CNNMoneyJanuary 3, 2013: 5:12 PM ET

Click on the chart to see how much more you'll pay in taxes.

NEW YORK (CNNMoney)

More than three in four Americans will pay higher taxes for 2013, thanks to the fiscal cliff deal passed in Congress on New Year's Day.

Over 77% of filers will pay more, according to the Tax Policy Center. The average increase is expected to be $1,257, but that figure belies the wide disparity in impact.

Those making less than $10,000 a year will pay $68 more in federal taxes, on average, while those making between $50,000 and $75,000 will see an $822 jump. Wealthy filers with incomes of $1 million or more will see a $170,341 spike, on average.

The ending of the payroll tax break will have the broadest reach, with most of the nation's 160 million workers seeing smaller paychecks. Wage earners will have to pay the full 6.2% in payroll taxes, up from the 4.2% they'd been paying for the past two years. This means those earning $30,000 annually will get $50 a month less in their paychecks, while those making $113,700 (the maximum amount subject to payroll tax) will see $189.50 less each month.
Related: No word on tax refunds

The rich will also get hit by the increase in the tax rate to 39.6% for couples with adjusted gross incomes above $450,000, or single filers above $400,000. Millionaires will pay $122,560 more a year just from this provision alone, according to the Tax Policy Center. And they'll have to pay a 20% levy on capital gains and dividends, up from 15%.
                                        
Americans, mainly wealthy ones, will also pay more in tax because of a variety of other measures both in the fiscal cliff deal and in President Obama's health care reform law. Joint filers making more than $300,000, or single taxpayers earning more than $250,000, will see their personal exemption and itemized deductions limited. And well-off taxpayers will pay 0.9% more on their family income above $250,000 for couples, or $200,000 for singles. And some will pay 3.8% on certain levels of investment income.

A Great Article From the Tax Foundation on Fiscal Cliff Deal

Details of the Fiscal Cliff Tax Deal

January 01, 2013

By

Joseph Henchman

At 2AM this morning, the Senate passed H.R. 8, the American Taxpayer Relief Act of 2012, by a vote of 89-8. Voting no were Bennet (D-CO), Carper (D-DE), Grassley (R-IA), Harkin (D-IA), Lee (R-UT), Paul (R-KY), Rubio (R-FL), and Shelby (R-AL). Not voting were DeMint (R-SC), Kirk (R-IL), and Lautenberg (D-NJ). TaxProfBlog has the text of Senate-passed bill (157 pages). The Joint Committee on Taxation (JCT) has also produced a revenue estimate, as has the Congressional Budget Office (CBO). The House of Representatives is expected to vote on the bill today sometime. (UPDATE: Just after 11pm, the House of Representatives voted 257-167 to adopt the Senate bill without amendment.)
Because the tax cuts were scheduled to expire anyway, JCT scores it as a $3.9 trillion tax cut over 10 years; compared to current policy, however, it is a $620 billion tax increase (plus $15 billion in spending cuts according to JCT, or minus $57 billion in spending increases according to CBO). (More details on the fiscal cliff and the 10-year budget estimates here.)
Key elements of the deal:

• Retains the 10 percent, 15 percent, 25 percent, and 28 percent income tax brackets from the Bush tax cuts permanently
• Retains the 33 percent and 35 percent income tax brackets from the Bush tax cuts for taxable income under $400,000 (single), $425,000 (head of household), and $450,000 (joint filers). Imposes 39.6 percent tax rate on income above this level.
• Phases out personal exemptions (PEP) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers)
• Limits itemized deductions (Pease) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers)
• Capital gains tax and dividends tax will be 20 percent for taxpayers with income over $400,000 (single) and $450,000 (joint filers). This does not include the new 3.8 percent health care tax on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income, so the top rate for capital gains and dividends will be 23.8 percent. For lower income levels, the tax will be 0 percent, 15 percent, or 18.8 percent.
• Continues setting the standard deduction for joint filers at 2 times single filers (would have otherwise reverted to 1.67 times single filers)
• Permanently sets Alternative Minimum Tax (AMT) exemption at $50,600 (single) and $78,750 (joint filers) for 2012 and adjusts for inflation thereafter
• One year extension of 50 percent bonus depreciation rules
• Extends American Opportunity Tax Credit (education) through 2017
• Extends the various “extenders” tax incentives through 2013
• Retains the doubled child tax credit ($1,000) permanently, its refundable portion through 2017, and the expanded earned income tax credit (EITC) through 2017
• Raises estate and gift tax to 40 percent, but above the current exemption level (~$5.12 million) and adjusted for inflation in future years
• Extends emergency unemployment compensation (EUC) and extended benefits (EB) unemployment insurance program through January 1, 2014
• One year “doc fix” for Medicare payment physicians
• Extends existing agricultural programs for one year (preventing the “dairy cliff”)
• Postpones sequester by two months; will now occur on March 27, 2013 (same day as the continuing resolution expires)
• Permits 401(k) plan participants to convert their plan to a Roth plan, under which contributions are taxed going in but withdrawals are tax-free. The result is a short-term revenue boost now and more tax-free savings accounts.
• Ends 2 percent payroll tax cut; taxpayers should expect greater FICA withholding from their next paycheck.
• No action on the debt ceiling. The U.S. hit the debt ceiling on New Year's Eve, although Treasury actions to juggle books and defer payments will forestall default until late February. Biden has reportedly pledged to liberal Democrats that the President will not negotiate over the debt ceiling.

Additionally, the House is considering a bill to cancel the scheduled congressional pay increase (from $174,000 to $174,900) and to continue the 2-year non-military federal employee pay freeze for another year. President Obama issued an executive order on December 27 to raise pay by 0.5 percent beginning April 2013.
UPDATE: There's a rumor that the Senate bill has a "benefit recapture" provision, applying the 35% rate to all income for high-income individuals. This is not true. The alleged provision, on page 7 of the Senate bill, exists because the new 39.6% top rate is not in the tables where it ought to be, but in a different section. The provision thus states that the 35% rate applies to all taxable income from the dollar amount where the highest rate bracket begins for each filing category, up to the threshold for the 39.6% rate. It also clarifies that the 39.6% rate applies to taxable income. There is no provision stating that lower amounts of income are subject to the 35% rate. (They presumably have different rate tables because 10-15-25-28-33-35 rate bracket levels inflation-adjust from a different base year than the new 39.6% rate bracket level, which will inflation-adjust from 2013.)

Table: 2013 Taxable Income Brackets and Rates Under H.R. 8 as Amended by Senate
Rate	Single Filers	Married Joint Filers	Head of Household Filers
10%	>$0	>$0	>$0
15%	>$8,950	>$17,900	>$12,750
25%	>$36,250	>$72,500	>$48,600
28%	>$87,850	>$146,400	>$125,450
33%	>$183,250	>$223,050	>$203,150
35%	>$398,350	>$398,350	>$398,350
39.6%	>$400,000+	>$450,000+	>$425,000+

Table: Major U.S. Tax Provisions, 2001-2013
Tax Category	2000	2001	2002	2003	2004-2005	2006-2007	2008-2009	2010-2012	2013*
Income Tax Brackets	-- 15% 28% 31% 36% 39.6%	10% 15% 27.5% 30.5% 35.5% 39.1%	10% 15% 27% 30% 35% 38.6%	10% 15% 25% 28% 33% 35%					10% 15% 25% 28% 33% 35% 39.6%**
Capital Gains Tax (max)	20%			16.7%	15%				23.8%***
Dividend Tax (max)	39.6%	39.1%	38.6%	15%					23.8%***
PEP & Pease	Full					Minus 1/3	Minus 2/3	Repealed	Full****
Marriage Penalty	Joint Filer = 1.67 x Single			Joint Filer = 2 x Single					Joint Filer = 2 x Single
Child Tax Credit	$500	$600		$1,000					$1,000
Source: Tax Foundation *Under fiscal cliff tax deal passed by the Senate on January 1, 2013. **Applies to taxable income over $400,000 (single), $425,000 (head of household), and $450,000 (joint filers) ***Capital gains tax and dividends tax will be 23.8 percent for taxpayers in the 39.6 percenttax bracket. This includes the 20 percent top tax rate and the new (for 2013) 3.8 percent health care tax on investment income on adjusted gross income over $200,000 (single) and $250,000 (joint filers). For lower income levels, the tax will be 0 percent, 15 percent, or 18.8 percent. ****Applies to tax filers with adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).

Table: Estate Tax Rates & Exemption Levels, 2000-2013
	Estate tax (top rate)	Estate tax exemption
2000	55%	$675,000
2001	55%
2002	50%	$1,000,000
2003	49%
2004	48%	$1,500,000
2005	47%
2006	46%	$2,000,000
2007	45%
2008
2009		$3,500,000
2010	Repealed	Repealed
2010-2012	35%	$5,120,000
2013*	40%	$5,120,000 (or inflation-adjusted level)
Source: Tax Foundation; Internal Revenue Service. *Under fiscal cliff tax deal passed by the Senate on January 1, 2013.