. this is "nightly business report" with tyler mathisen and susy gearing. brought to you in part by -- >> the street.com, an independent source for stock market analysis, it's home to his multimillion dollar portfolio. learn more at thestreet.com/nbr. good evening, everyone. welcome to a special holiday edition of i'm tyler mathisen. suzie garding has the night off. we begin with presidential trivia. under which president was the first peacetime income tax imposed. it was under president grover cleveland back in 1984, but that time it didn't last. but thanks, or maybe no thanks, to the 16th amendment, the income tax is here to stay, and

tax season is now under way in earnest. so tonight we'll have some tips from some experts, ways you can avoid some surprises new this year, and how to plan ahead for changes that come with the new health care law. well, so as the clock ticks toward april 15th, there are some changes that have gone into effect this year. hampton pearson looks now at filing season 2014 and what to expect. >> the 2014 tax filing season may have started two weeks late because of the government shutdown, but if last year is any guide, by april 15th, the internal revenue service will process the neighborhood of 147 million returns, with more than 109 million taxpayers receiving refunds, averaging $2700. on his first visit to capitol hill since confirmation, the new i.r.s. commissioner, said the agency needs to focus on better service to taxpayers and

restoring trust. after more than a year of controversy about political targeting. >> i want everyone in the united states who's a taxpayer to understand and be confident that when they deal with the i.r.s., we will deal with them in a straightforward way, no matter their political beliefs, religious organization, whatever church they belong to. >> most of them will impact high-income families and individuals, 39.6% for singles earning $400,000 and married couples at or above $450,000, the capital gains tax rate goes to 20%, but the real eye-opener, two new medicare taxes to pay for the affordable care act. nearly 1% on adjusted gross earns above $250,000 for married couples, along with an almost 4% tax on the investment income. budget and tax policy experts say those medicare taxes are this year's tax preparation

nightmare. >> this is absolutely a tax preparer's -- the paperwork you need to document, the formulas, the qualifying rules, this is really a big new tax system hidden inside health care reform. >> another reason that millionaires in particular may want to make sure that i tax returns are in order, they're more likely to get audit did ied, and pot tick the commissioners says, has not to do with it, with people making more than a million, getting an audit letter is about 10%. it's about 3% for everybody between 200,000 and a million. >> at the same time the i.r.s.'s own data shows that budget cuts have led to everything from bad service on i.r.s. hotlines with 60% of callers waiting 15 minutes or longer, to millions in lost retch due to a shortage of tax collectors in the enforcement division. for nightly business report, i'm hampton pearson in washington.

some of the new tax changes may have snuck up on us, but they'll become crystal clear when you fill out your 2013 return. sharon epperson explains what you need to know to avoid any big surprises this tax season. >> no one likes a surprise at tax time, especially when 48-year-old drew mckinnon is no exception. >> i'm always nervous to try to get everything ton by april 15th. >> he owns a bicycle shop in new jersey suburb. he took it over from his father 15 years ago. he applies a keen business lesson he's learned from running the store to his own financial life -- get in gear before the busy season begins. >> for his business, that means having the right inventory in stock. for his finances, it means making sure his investments are in the right place. >> one of the things that's helped the business out and my personal finances out is rebalancing accounts and finding one of the things my adviser

calls asset allocation. >> setting up a tax-deferred retirement account geared toward small business owners was one of the strategies that his financial adviser suggested, to help him avoid a big tax surprise this april. yet many workers and investors may be blindsided that could have you had in a significant tax hit on that are 2013 returns. >> i think there will be a lot of people surprised. >> g he says there's a 3.8% tax on net investment income. >> if you have a house on the shore and rent it in splt and you get rental income, that will be part of this new net interest income tax. >> this is just one of several changes for 2013, including higher rates on capital gains and dividends for top earners. higher taxes on many of the self-employed, and limits on medical expense deductions. while tax changes could dent your finances, planning ahead can lessen the blow. the only thing worse than having a large tax bill come april 15th

is being surprised about it. so if you're going to owe money it's better to know about it now so you can find way toss gather that cash. >> you can open and makes contributions to certain accounts before the april 15th deadline that can reduce your taxable income on your 2013 return. if you're eligible, you can put up to $5500 into a traditional i.r.a. or $6500 if you're 50 or older. small business owners can contribute up to 25% of their compensation, up to 51 thousand dollars in what's nope as a sep ira, and individuals can deposit up into a health savings account. contributions, earnings and withdrawals are tax-free which used for qualified medical expenses. in each of these cases, the contributions will lower your taxable ichb come dollar for dollar. for "nightly business report" i'm sharon epperson.

well, our first guest tonight is here with some advice that may help you with your taxes. he ace tim maher, director of personal financial for the bam network. tim, welcome. good as always to see you. let's start with this new tax on northwest investment income. let's go back over it one more time. who does it affect? what kind of income does it cover? and how does it work? >> if you're making under $250,000 of modified adjusted gross income, you won't have to worry about it this one this year at least, but if it's over $250,000, then there's going to be an additional 3.8% tax on your net investment income. this is passive income, like capital gains, dividends, if you do have a rental property, that could be considered passive income. in some cases there may even be

annuienuityized income that's subjected to this new tax. it really is a seismic shift, even though most people are going to feel it this year. >> if you are lucky enough to earn $250,000 in modified adjusted gross income, but unlucky enough to be subject to this tax, is there any way you can avoid it? >> not much of a way, tyler. i think one of the things you can do, we're looking at these options to actually look at these different benchmarks of $250,000 or $450,000 where the new tax rates apply and look to shift people, if they are right around those limits, we can do our best to possibly limit their income. obviously this is not the type of thing we're typically in the business of doing, but it may be something that benefits our clients if they're getting close to one of those tlesh holds. >> i would think it would also going forward cause people to want to be much more conscious of the tax efficiency of their

investment portfolio, and maybe consider some municipal bonds for the tax-free income that they generate. >> there's no question, if you have taxable accounts and you're southbound subject to this tax, a bond income could be something you would do -- it's also possible, some are suggesting that actively managed investment accounts are less tax efficient than passively managed investment accounts, and i think there's some truth to this as well. before we get to the higher rate, higher top rate on marginal income, is there anything that's new this year that would reduce the value or limit conventional deductions? >> reduce the value or limit the -- this is stacking on top of the net investment income is talking on top of the alternative minimum tax, which is stacked on top of the tax code. so folks are going to be having to effectively prepare their

taxes three different ways if their adjusted gross income is over $250,000. that in and of itself does have an impact. >> so really what you're talking about here is on capital gains, for example, which used to have the favored treatment, still do, i guess, with 15%, your total rate on capital gains now could be as high at, what, 23.8% when you add in those higher levies? >> absolutely, but in this case we're tacking on -- so if you're at 250,000, the net investment income comes into the play of 3.8. if you're over 450,000, your capital gains rate goes from 15% to 20%, all the way up to 23.8%, which is a pretty massive shift. if you are blessed you have to income. >> thank you for clarifies that.

there's plenty to get confused about, tim. so that last thought is you just went to it. if you were a married couple with an adjustmented gross income of greater than 450,000, good for you. intoed for you is your marginal rate goes up to what? >> 39.6%. your marginal rate goes up to 39.6, and your capital gains rate for all intents and purposes is going up to 15% to 23.8%. i do realize this is a good problem to have, but it's a significant problem nonetheless. it's also going to increase the costs of people's tax preparation, because accountants will have to put a lot more time into these new taxes. >> tim, thanks very much. happy tax filing season to you. >> thank you very much. >> tim maher director of personal finance for the bam alliance. this year's new health care laws means changes are on the ways for your taxes next year. our next guest says you better takes action now to avoid a big surprise later.

since the housing crisis, mortgage debt forgiveness has been equally as big. that has helped millions of borrowers avoid foreclosure. now that help may be in jeopardy if congress doesn't step in and some people may be hit about a big tax bill. >> since 2007, 2.8 million

foreclosures averted, because banks let borrows sell their homes for less than that i owed. millions more saw the amount of -- and state attorneys general. all that debt wiped away tax free. >> normally you would have to pay taxes on that amount that's forgiven. it's considered income. it's taxable. >> in 2007, congress passed the mortgage debt tax relief act. it expired six weeks ago. while there are bills in congress to extend it, they're not moving. the client did not qualify on their income alone. >> real estate agent markie lemon is watching washington from chicago, where she counsels other realtors on alternatives, alternatives which are suddenly shrinking. >> all it's going to do is prolong recovery. we know these peopleant afford the houses. they have to prove financial hardship. if they don't have the money to keep a roof over their head, how will they be able to pay the

i.r.s.? >> reporter: that's a question tony is asking. after three years of negotiation, his bank finally approved a short sale for $125,000 less than he owes, but it was a few weeks too late for the tax break. he could now owe the i.r.s. as much as $30,000, which he does not have. >> now with this act not being extended as 6 yet, i'm really nervous now. i'm staying up late at night trying to -- i just can't sleep at night. it's causing a lot of stress. >> while the foreclosures crisis has eased dramatic, there's still 3.24 million delinquent loans, plus 1.2 million in the foreclosure process, add it up, 4.48 million loans that could be help by either a short sale or principal reduction. while there's brought

support for the tax relief, the bigger push to overhaul the entire tax code could leave smaller bills like this one in its wake. if so, short sales would no longer be an option forren borrowers, and foreclosures that had been on the decline could yet rise again. i'm diana olick in washington. now that the health care reform law is law, just how will the affordable care act affect your taxes next year? hear to help us get a head start is brian hale. he's with jackson hewitt. mr. hale, welcome. good to see you. before we get to some of the gnarly wrinkles, would you clarify a major change that has been in place for years and years and years? that is that people were able to deduct health care expenses. ones they competed 7.5% of their adjusted gross income. has that changed?

>> it is if you're under 65. going forward you'll only be able to deduct those expenses if they exceed 10% -- however if you're 65 or older, you're subject to the old rules. if you're over 7.5% of your income. >> so i guess you would want to for lack of a better word so if you could, so that you would exceed that 10% threshold, right? >> exactly right. one of the things we have had to keep in mind here. including use the health care savings accounts, other things. this has become a much more complicates area. it's hard to give good advice without knowing specific conditions, but clustering those expenditures to the extent of the -- you raised it, so i asked the question, who can take advantage of those health savings accounts?

>> typically you have to have a high deductible health plan either in the individual market or that your employer offers. you can set up a health savings account underneath that to help pay the cost sharing. the deductibles, the coinsurance you might incur, but it's reserved for people who have the high deductibles. >> without bogging down here k. that money be carried over one year to the next? >> absolutely. that's one of the great benefit of the health savings account is you could do port it across years and even employers. so if you have an hmm sa, you can maintain that hsa, even if you leave that employer and change insurances. not a problem at all. >> wilt really tricky areas, brian, it seems to me with the affordable care act are the tax subsidies that will flow to people who have incomes of, what is it, 400% or less of the federal positive level?

and how, then, you judge what your income is and what those subsidies are and whether you end up having to pay that money back if for some reason you go over that threshold? >> that's exactly right. let's put concrete numbers to though. 400% is equal to about $94,200. so we're talking about someone whose income is twice the median household number. again that's just for a household of four. the way i would describe the health premium tax credit is really with four aject tiffs. number one, they're quite large, with a family of five with about $75,000, they can qualify for a credit of about $5600. that pays more than half of the premium for the individual insurance they buy through the new marketplaces. it's quite a generous tax credit. the other part about the tax credit is that it's advance paid, so that the federal government will pay that to the

insurance company all throughout the year so the person doesn't have to put out the cash for the premium and reconcile at the end of the year. quite the contrary, the federal government will help subs dies the premiums all throughout. here's the funny thing about the credits, they're fin icky. you only get the credits if you buy the health insurance through the new marketplace the it has to be a qualified health plan. so when we look at they very large tax credits, we also have to take into account they're pretty fin icky. you have to mention too you have to repay them if you misestimate user incomes. those are based on your estimated income for the year. if you estimate your income today and your inkrm is higher or lower, well, when you settle up when you file your taxes next year, you'll either get a larger refund back, because the credit you get is refundable, or you may have to pay some into the federal government, because they may have overpaid in terms of

the advance payments. >> man, brine, you explained it incredibly clearly, about you if you don't estimate right, you could be stuck. we have to leave it there. brian hale, senior vice president for health policy with jackson hewitt tax service. thank you. >> thank you. and coming up, would you tax season is open season for those who want to steal your refund and identity. that's next. tax season is also high season for crooks who want to

steal your identity and get their hands on your refund. it's one of america's fastest growing crimes, and the criminals keep getting smarter. scott cohn is here with the story. >> hi, tyler. it's growing so fast, because, face it, it's a lot easier and safe forea crook than it is to rob a bank. in theory all it takes is a name and social security number to file a tax return. so if your name and social security number good et into the hands of one of these criminals, look out. in san diego, an international crime ring allegedly used 2,000 stolen identities to claim $20 million in bog us refunds. >> i would say this is one of the most sophisticated operations we have ever seen. >> so sophisticated foot soldiers in the scream rented apartments across south california just to collect the loot. in alabama federal agents busted a u.s. postal carrier, later convicted for his role in another scheme, evidence

including cash and checks was right there in his delivery van. >> this is the world we liver in. >> an identity theft minefield. the irs paid $3.6 billion in potential bog us tax refunds in 2012. more than 1.5 million taxpayers were victims. that's actually an improvement, as the irs governments new measures to detect fraud. the justice department's tax division has made identity theft one of the top priorities, focuses on paid preparers who handle nearly half of all individual returns. that means they have access to half of all taxpayers' identities. in the past year authorities have shut down more than 60 you remembers that were trafficking in stolen information, but as the government gets smarter, so do the crooks. >> we are so far behind the thieves, we never know how they're going to monetize the personal information. >> reporter: or how they'll cover the tracks, like the thieves in alabama that teamed up with a cable tv installer,

stealing people's identifies and internet access. >> we always encourage people to guard their personal information like they would any other valuable. >> that means don't let your social security number get into the hands of anyone you don't trust. easier said than done, though, when thieves are stealing identities from financial institutions, hospitals, even the irs itself. now, the instances of irs employees getting involved in this are thankfully very rare, but it points to the issue in the fine lines there are in trying to rein in this kind of fraud. for example, the justice department, as you heard, is trying to rein rein in these, but a federal apetitions court has just struck that down. there's also the balance between trying to get your information and refund quickly versus keeping your information private. and that's the balance that the irs is trying to strike. >> so is the typical scheme as

simp and nefarious as a crook, perpetrator gets your name, your address, your social security number, and files a return, and then what? do they have the return -- the refund sent to them? >> they have the refund sent to them, put it on a prepaid debit card, makes it even harder to trace and even more nefarious types of scheme, where you heard they're even stealing people's internet address. they need the name and social security number, and theory kale, they collect a refund, you go to collect your refund, but they say -- >> they say we've already paid your refund, and then untangling that must be a real troubling situation. >> on average it's still taking about a year for the irs to untangle it for the taxpayer. it's a nightmare, particularly for people counting on this money. >> a whole year to do that, my goodness. in the case of a tax preparer who is crooked. are they doing the same thing?

they'll fill out a tax return in your name and have that money deposited to a card, as you say? or the check sent to their address? >> there are all kinds of variations of that, but yeah. they have access to all of that, so they can have checks sent, skim from refunds. there have been instances like that. it's a very big problem. >> it seems like this is something you wouldn't know what was -- i was going to ask if there were any telltale, and you find out about it after you've been victimized. >> a lot of people don't think to call the irs. report it to the irs, they will give you a special p.i.n. code, so when you file your taxes, there is an extra measure of protection. >> that's shocking stuff. thank you very much, scott. finally tonight, our athletes may be going for the gold over in sochi and representing our country, but u.s. olympians is still don't get a free pass from uncle sam. the committee awards cash price,

25 grand for a gold, 15,000 for a silver, and 10,000 for bronze, but the irs considers that taxable income. yes, they do. some lawyers are trying to change that. well, that's it for this special holiday edition of "nightly business report." i'm tyler math i sen. thanks for watching. we'll see you back here tomorrow night. nightly business report has been brought to you by -- >> the street.com is an independent sort. cramer's action alerts plus service is home to the multimillion dollar portfolio. you can learn more at t thestreet.com/nbr. )

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