This year’s tax changes: What you need to knowPublished:
What a difference a year makes.
NEW YORK (MainStreet) — What a difference a year makes.
Not that 2012 was easy-peasy for tax filers. In fact, the entire U.S. tax code filled 7,500 pages last year. Compare that with a standard version of the King James Bible, which clocks in at around 1,900 pages.
But with changes and new laws stemming from the fiscal cliff deal reached Jan. 1, Americans have some homework to cover before filing their taxes this year.
READ: Direct deposit is the way to go when getting your tax refund
What are the biggest changes?
We reached out to tax professionals across the country for a look-see. Here’s what we found:
Steve Looney, CPA at Florida business law firm Dean Mead
Looney says the 2013 increases on individual income tax rates puts the maximum marginal individual tax rate to 39.6 percent (from 35 percent) for individuals having taxable income over $400,000 or for married couples filing joint returns having taxable income over $450,000.
He also warns of new so-called “stealth” taxes. “That’s the effective tax rate for certain higher-income taxpayers (individual gross income of $250,000 or joint $300,000), where rates will also be gradually increased.
Larry Ploucha, a tax attorney at Fowler White Boggs in Fort Lauderdale, Fla.
“We’re seeing various provisions regarding discounts, intra-family installment loans and other gift techniques that have been targeted by the administration,” he says.
INFOGRAPHIC: Dramatic rise in e-filing taxes
“We know the annual gift exclusion amount went from $13,000 to $14,000 in 2013. These are gifts that can be made annually to any number of donees without gift tax consequences,” he adds.
Ploucha adds that the long-term capital gains maximum rate increased to 20 percent from 15 percent, but only for taxpayers with more than $450,000 (couples) or $400,000 (singles) in taxable income. He adds that qualified dividends, taxed at 15 percent in 2012, will now be subject to the maximum income tax and Medicare tax rates of 39.6 percent and 3.8 percent (total 43.4 percent).
Shomari Hearn, a certified financial planner at the Palisades Hudson Financial Group in Scarsdale, N.Y.
“You can reduce future taxes with good planning and decisive action,” Hearn says.
“The new 0.9 percent increase in Medicare payroll taxes applies to employees and self-employed individuals earning more than $200,000 and married couples earning more than $250,000 a year. Only earned income above the threshold is subject to the extra tax.”
Hearn says there is also a 3.8 percent unearned income tax on net investment income above those levels based on modified adjusted gross income. “That tax will be based on the lesser of net investment income or MAGI. For instance, a married couple with $300,000 of MAGI, including $50,000 of investment income, would pay the 3.8% ($1,900) on $50,000 — and wouldn’t pay any of the 0.9 percent tax.”
READ: Can your dog also fetch you a tax deduction?
Hearn says to take these steps:
- Maximize your contributions to your retirement plan(s).
- Contributions to employer-sponsored plans reduce taxable income and can help cut the net investment income tax. For instance, a couple making $275,000 who contributes $34,000 combined to their 401(k)s reduces their taxable income to $241,000, below the threshold. Contributions to Simplified Employee Pension, Simple IRA and other qualified plans are also subtracted from your taxable income.
- On the flip side, consider selling losers and taking investment losses in 2013. Losses offset capital gains triggered during the year, plus up to $3,000 in ordinary income if your losses exceed gains. “Taking losses next year will help you reduce your liability for the new taxes,” Hearn says