January is right around the corner, which means that in addition to writing a list of resolutions for the New Year, you should also begin preparing for the 2013 tax-filing season. But before you do, it’s important to get updated on recent changes that will affect your 2013 tax return.
One change to be aware of is the new starting date for the tax-filing season, which the IRS announced last month. Due to the recent federal government shutdown, the IRS won’t be accepting 2013 tax returns until the tentative date of January 28th (an official date will be announced in December). The filing deadline of April 15th will however remain as scheduled.
Here are additional details you should know:
- The Bush-era tax rates of 39.6 percent on incomes over $400,000 are considered permanent. At least, for now, if that makes sense.
- You may have to pay an additional 0.9 percent Medicare tax if your income is above $250,000 per couple or $200,000 for a single filer. Generally speaking, this means that you must pay 1.45 percent Medicare tax on the first $200,000 and 2.35 percent (1.45 percent plus the 0.9 percent) on compensation over the respective limit. Since this rule can get complicated, especially if one spouse earns over the limit and one is under, you can find out more information here.
- You will also have to pay an additional Net Investment Income Tax (NIT) of 3.8 percent on either your net investment income or the excess of your modified adjusted gross income.
- Itemized deductions will be limited again in 2013, even though this was not the case in 2012. The limitations apply to taxpayers if their adjusted gross income (AGI) was above $159,950 or over $79,975 if married and filing separately. Expect the total amount of itemized deductions to be reduced by three percent of the amount by which your AGI exceeds the threshold amounts.
- High net worth individuals in the 39.6 percent tax rate bracket with long-term capital gains and qualified dividends are subject to a new maximum rate of 20 percent.
- If you are married and filing jointly, you can expect the marriage penalty to be extended. The income threshold for the 15 percent rate bracket is set at twice the size of the 15 percent bracket for single filers.
- Same-sex married couples should also take advantage of the federal tax benefits for their 2013 tax returns and consider filing an amended tax return for prior tax years.
- Personal exemptions will be reduced by two percent for each $2,500 of AGI above $300,000 for joint filers and surviving spouses, $275,000 for heads of households, $250,000 for singles, and $150,000 for marrieds filing separately.
- Medical and dental expenses can only be deducted if they go beyond 10 percent of your AGI. However if you’re 65 or older, it’s only 7.5 percent.
While some of these changes are minor, the IRS recently announced a new set of significant changes that will apply to 2014 tax returns, including new tax brackets and rules for standard deductions. While these won’t go into effect until 2015, you can read more about it here.
If you have any questions about filing your 2013 tax return, be sure to discuss them with your financial advisor and/or accountant.