Question for the Money Doctors
Question submitted on Sep 16, 2013.
QuestionShould I be doing anything special to plan this year as it relates to the new tax laws?
Most taxpayers will not be affected by the 2013 tax changes. The biggest change for individuals earning less than $200K ($250K for joint filers) was the return to 6.2% FICA withholding. By now, spending habits have been adjusted, household budgets re-evaluated.
But, for the upper-income earners, there are several modifications that they should be aware of:
- A new tax bracket added for taxpayers earning $400K+ ($450K Joint Filers) = 39.6%
- Capital gains for those in the top tax bracket has increased to 20%
- Taxpayers earning $200K+ ($250K Joint) will pay a 3.8% surtax on net investment income.
- Taxpayers earning $200K+ ($250K Joint) will also be subject to a 0.9% additional Medicare tax.
There are also some new Schedule A Itemized Deduction rules:
- A phase-out of state and local taxes, mortgage interest, and charitable contribution deductions will begin at $250K ($300K Joint).
- Medical expense deductions for taxpayers under age 65 must be greater than 10% of AGI. Taxpayers 65 and over will still be able to deduct expense over 7.5% of AGI.
- The personal exemptions will be phased out as well for higher income earners, starting at $250,000 for single filers and $300,000 for married filing joint.
In preparation for the 2013 filing, it is wise to review your withholding or estimated payments to date. You can avoid an underpayment penalty if you have paid 100% of last year’s tax liability (110% for income & $150,000) or 90% of your estimated tax for the current year. Adjust your payroll withholdings with your employer if necessary.
If you are in a higher bracket, you should plan around these new taxes and lower deductions as there are several techniques that can be utilized to potentially defer or reduce your 2013 tax exposure. There has not been a time in history where tax planning and investment planning have been more intertwined, so consider working with a CPA/PFS credential holder in your planning. Vist http://apps.aicpa.org/credentialsrefweb/PFSCredentialSearchPage.aspx to find a CPA/PFS in your area.
For additional information visit http://www.360financialliteracy.org/