Latest Tax News
Even though you don’t have to be a tax expert—there are key
happenings in the “tax world” that you should be aware of—or have on your
radar. Below we will go over a number of
the latest tax changes that may be of benefit—to you—and your family!
If you are an employee—or if you are self-employed you
should be aware of the fact that your take-home pay may have decreased.
The payroll tax reduction that was spurred by a two percentage point cut in your share of the Social Security Tax—has now lapsed.
You are now paying the full 6.2% of the employee portion of your social security withholding—therefore you may have noticed a decrease in your take-home pay on your pay stub.
For those of you who are self-employed and pay social security taxes—you will more than likely have to increase your estimated tax payments—if you want to remain at your same tax level—and avoid penalties.
If you are a high earner you should be aware of increased
Medicare surtax that was a result of the passage of the Affordable Health Care
Act of 2010.
There is now a 0.9% Medicare surtax for those who are single or head of household and earn over $200,000—Married Filing Joint—if you earn over $250,000—and Married Filing Separately—if you earn over $125,000—and it applies to wages as well as self-employment earnings.
The surtax only applies to employees share of the Medicare
Tax—not the employer! However, it is the
employer who will withhold the surtax once your income exceeds $200,000. You (or your tax professional) will then
calculate the actual tax due on your 1040 income tax return.
Also scheduled for 2013 is the 3.8% Medicare surtax on “Net Investment Income”—also a result of the Affordable Care Act.
If you file Single or HOH (Head of Household)
and you have modified adjusted gross income above $200,000—or if you file MFJ
(Married Filing Jointly) and earn over $250,000—$125,000 MFS you will be
subject to the surcharge.
Modified AGI for the purpose of the surtax on "net investment income" is your AGI—plus any tax free foreign earned income.
The surtax applies to the smaller of your net investment
income—or the “excess” of modified AGI (Adjusted Gross Income) over the
applicable dollar threshold.
It is important that you understand that if you have interest, dividends, payment of substitute interest and dividends by brokers, capital gains, annuities, royalties—and passive rental income and you exceed the investment thresholds—the surtax will apply.
Tax-free interest is exempt—as well payouts from retirement plans such as pensions, 401ks, IRA’s, deferred pay plans and others—specifically identified in the tax code—as qualified to be tax-free.
The estate and gift
tax exemption is now $5 million and with adjustments for inflation—is now $5.25
million dollars for singles and $10 million plus for MFJ. The tax rate rises to 40%—up from 35%.
The annual gift tax exclusion for 2013 is now $14,000—up from $13,000—in 2012.
The new tax law passed by congress in January of 2013 also revived
the portability of the estate tax exemption between spouses—meaning one spouse
can carry the exemption along—until their transition.
Also up to $1.7 million of farm or business realty—can receive discount estate tax valuation.
More Estate Taxes now qualify for the installment payment tax break.
If one or more of your businesses are closely held—and make
up more than 35% of an estate—you now may be able to defer as much as $572,000
at 2% interest.
Those of you who now have “Taxable Income” over $400,000 and
are single—$425,000 for HOH—$450,000 MFJ—you will see your highest rate increase
from 35% to 39.6%.
If you are married
and have taxable income of:
$17,850 or less... your tax is 10% of your taxable income
Over $17,850 but no more than $72,500 your tax is $1,785 + 15% of excess over $17,850
Over $72,500 but no more than $146,400 your tax is $9,982.50 + 25% of excess over $72,500
Over $146,400 but no more than $223,050 your tax is $28,457.50 + 28% of excess over $146,400
Over $223,050 but no more than $398,350 your tax is $49,919.50 + 33% of excess over $223,050
Over $398,350 but no more than $450,000 your tax is $107,768.50 + 35% of excess over $398,350
your tax is $125,846 + 39.6% of excess over $450,000
If you are HOH and have taxable income of:
$12,750 or less... your tax is 10% of your taxable income
Over $12,750 but no more than $48,600 your tax is $1,275 + 15% of excess over $12,750
Over $48,600 but no more than $125,450 your tax is $6,652.50 + 25% of excess over $48,600
Over $125,450 but no more than $203,150 your tax is $25,865.50 + 28% of excess over $125,450
Over $203,150 but no more than $398,350 your tax is $47,621 + 33% of excess over $203,150
Over $398,350 but no more than $425,000 your tax is $112,037 + 35% of excess over $398,350
Over $425,000….. your tax is $121,364.50 + 39.6% of excess over $425,000
If you are Single and
have taxable income of:
$8,925 or less… your tax is 10% of your taxable income
Over $8,925 but no more than $36,250 your tax is $892.50 + 15% of excess over $8,925
Over $36,250 but no more than $87,850 your tax is $4,991.25 + 25% of excess over $36,250
Over $87,850 but no more than $183,250 your tax is $17,891.25 + 28% of excess over $87,850
Over $183,250 but no more than $398,350 your tax is $44,603.25 + 33% of excess over $183,250
Over $398,350 but no more than $400,000 your tax is $115,586.25 + 35% of excess over $398,350
Over $400,000….. your tax is $116,163.75 + 39.6% of excess over $400,000
As you can see above—most tax rates remain the same unless your taxable income is over $400,000. Taxpayer's in the 10% and 15% tax bracket still pay a 0% rate on long-term capital gains.
The 2013 standard
deductions increase some:
If you file as MFJ your standard deduction is $12,200
If one spouse is over age 65 your standard deduction would be $13,500. If both you and your spouse are over age 65 your standard deduction would be $14,600
If you file as HOH your standard deduction is $8,950—plus $1,500 more if you are age 65 or older
If you file as Single your standard deduction is $6,100 and $7,600 if you were age 65 or older
receive $1,200 more ($1,500 if unmarried and not a surviving
Deductions for High-Earners have been reduced
If you file as MFJ your write-off would be slashed by 3% of the excess over $300,000
If you file as HOH your write-off would be slashed by 3% of the excess over $275,000
If you file as Single your write-off would be slashed by 3% of the excess over $250,000
Keep in mind the total reduction can’t exceed 80% of itemizations. Medical, investment interest, casualty losses and gambling (to the extent of winnings) are exempt from this cutback.
Personal Exemptions Increase to $3,900—but the write off is phased out for high income earners by 2% for each $2,500 of AGI over the same thresholds for the itemized deduction phaseout!
The top rate on dividends and capital gains increase to 20% for high income earners:
If you are Married and you have Taxable Income over $450,000 you will be taxed at 20% on the excess over the $450,000.
If you are Single and you have Taxable
Income over $400,000 you will be taxed at 20% on the excess over the $400,000.
And when you include the medical surtax your rate could go up to 23.8%. If you are not a high income earner the 15% rate applies—and you would not have—a surtax. If you are in the 10% or 15% tax bracket you still can qualify for the special 0% rate.
ALTERNATIVE MINIMUM TAX
The AMT exemptions are increasing for 2013 (and beyond) and future years—and they are now indexed for inflation—and they are as follows:
$80,750 MFJ up $2,000 from 2012
$51,900 HOH up $1,300 from 2012
$51,900 Single up $1,300 from 2012
In addition, personal tax credits such as tuition, dependent care credits, etcetera—will continue to offset AMT liability.
The adoption credit was made permanent—and those who have expenses for 2013 can receive a credit up to $12,970.
Social Security wage base rises in 2013 to $113,700—a $3,600 boost from 2012. Tax rates are higher due to the employee social security rate cut not being renewed or extended. If you are an employee—I’m sure you noticed it in your last payroll check that you received. And Medicare now has a .9% surtax on high earners.
If you receive Social Security benefits they go up a paltry 1.7% in 2013—less than half the amount in 2012!
The basic Medicare
Part B premium increases to $104.90 per month in 2013—and even higher along
with Part D for high income owners (those who have AGI that exceed $170,000 for
MFJ or 85,000 if you are Single.
Modified AGI for this purpose includes your AGI—plus any tax exempt interest, EE bond interest that is used for education—and excluded foreign earned income. The total surcharges on upper incomers can be as large as $297.40 a month.
The threshold for
deducting medical expenses jumps to “10% of AGI” for Singles under age 65. The same goes for those who file MFJ.
Annual ceilings on
deductible contributions to Health savings Accounts (HSA’s) inch up in
2013. The maximums are $6,450 for
account owners with medical coverage and $3,250 for single coverage. HSA owners born before 1959 can contribute an
The limitations on
out of pocket expenses such as deductibles and co-payments increase to $12,500
for those with family coverage and $6,250 for single coverage. Minimum policy deductibles increase to $2,500
for families and $1,250 for individuals.
health FSA’s are now capped at $2,500 and the limit on deducting LTC premiums
are a bit higher.
Taxpayers who are age 71 or older can write off as much as $4,550 per person. Filers age 61-70—$3,640. And people 51-60 can deduct up to $1,360. Those age 41-50 can take $680—age 40 and younger—$360.
Also the limit for tax free payouts under such policies increases to $320 a day.
The maximum 401(k), 403(b) and 457 contribution is $17,500 this year, a $500 increase from 2012. If you were born before 1964 you can put in as much as $23,000.
The upper limit on
SIMPLE’s will rise to $12,000—and if you are age 50 or over you can contribute
an additional $2,500.
The 2013 contribution
limits for IRA’s and ROTH IRA’s will increase $500 from 2012 to $5,500—and an
additional $1,000 for those born in 1963—or earlier!
The income ceilings
have also increased—phase-outs for ROTH’s begin at $178,000 to $188,000 for
couples—and $112,000 to $127,000 for singles.
The income ceilings
have also increased—phase-outs for Traditional IRA’s begin at $95,000 to $11,5000
for couples—and $59,000 to $69,000 for those who file single.
If only one spouse is covered by a plan phase-outs begin at $178,000 to $188,000 for couples for the uncovered spouse.
The standard mileage
allowance for business driving is 56.5 cents per mile—up one cent from
2012. The allowance rises to 24 cents a
mile for travel for medical purposes and job-related moves in 2013.
However, the rate for charitable giving remain at 14 cents a mile in 2013.
Home-based businesses and some home-based workers can now use a simplified method for calculating the "business use of home" deduction which is capped at $1,500, but will reduce the paperwork and record-keeping--if you were to choose that option. Your home office must still be used regularly and exclusively or business—in order to qualify.
The Work Opportunity
Work Credit, the R&D tax credit, 15 year depreciation for restaurant
renovations and leasehold improvements remain in effect for 2013.
depreciation stays in effect for assets placed in use in 2013.
And 500,000 of bonus
assets can be 529 expensed—the same as in 2012.
The accumulated tax and personal holding company tax rise to 20%.
abroad have a larger income exclusion—the exclusion is now $97,600.
The monthly limit on
tax free parking—and exclusion for mass transit passes increases to $245 for
The income tax
exclusion for home mortgage debt along with the election to write off state and
local sales taxes in lieu of state income taxes was revived for 2012 and
2013. Deduction for teachers class
supplies, Mortgage Insurance and college tuition were all extended until the
end of 2013.
The American Opportunity Tax Credit (extended through 2017), and the tax exclusion for those age 70.5 and older being allowed to directly transfer up to $100,000 tax free from IRA’s to charity continue in 2013 as well.
The $2,000 annual contribution to a tax-exempt Coverdell Education Account has been "made permanent" if you have children in elementary, secondary, or post-secondary schools.
Look for more major
tax changes to occur in 2013 that may affect you. We will try to keep this page as up to date
as possible—despite our busy schedule!