2013 has been a big year for taxes. Earlier in the year, Congress passed legislation averting the so-called "fiscal cliff," and many of the "Obamacare" changes have taken effect, or are about to. While few of us who watched the process would consider it Washington's finest hour, we now have answers to many of the questions that have made proactive planning so difficult over the past few years. And now, as the end of the year draws close, it's time to pull out the Magic Eight Ball and start to plan.
Here are the highlights:
First, the Bush tax cuts are permanently extended for income up to $400,000 ($450,000 for joint filers). Ordinary income above those thresholds is taxed at 39.6%, while qualified corporate dividends and long-term capital gains above those thresholds are taxed at 20%.
Next, the 2% payroll tax "holiday" of 2011-2012 is over. This can mean over $2,000 in additional tax for those earning over $100,000 per year.
Third, the Alternative Minimum Tax has finally been indexed for inflation. This means Congress will no longer have to "patch" it every year to avoid entangling millions more taxpayers in its web.
Finally, the Medicare tax provisions of the Affordable Care Act, or "Obamacare," have taken effect. This means an extra 0.9% tax on earned income above $250,000 and a 3.8% tax on investment income for taxpayers earning more than $200,000 ($250,000 for joint filers).
President Obama has called for trimming several more tax breaks, possibly including some sacred cows like mortgage interest. However, after the recent government shutdown, there appears to be little appetite on Capitol Hill for further changes to the code. So here are some specific strategies for minimizing your tax under the new rules. For more information, call us at 855-993-3339.
Itemized Deductions Going Down
The "fiscal cliff" bill has re-imposed the phaseout of itemized deductions and personal exemptions that went away in 2010. If your income tops $250,000 (singles), $275,000 (heads of household), or $300,000 (joint filers), you'll lose three dollars of itemized deductions for every hundred dollars of income above the threshold. You'll also lose two dollars of personal exemptions for every $2,500 of income above the threshold.
Tax Strategies for Healthcare Costs
Paying for medical care becomes harder every year. The recent healthcare reform act will extend coverage to more of us, but actually makes it harder to deduct unreimbursed expenses. (Formerly, you could deduct medical expenses exceeding 7.5% of your Adjusted Gross Income. Under the new law, that floor rises to 10% unless you're over age 65.) It also limits contributions to employer-sponsored flexible spending plans to $2,500/year.
If you're free to select your own coverage, consider choosing a "high-deductible health plan" and opening a Health Savings Account. These arrangements bring down premium costs and use pre-tax dollars for out-of-pocket costs, bypassing the floor on AGI. If you're self-employed, consider establishing a Medical Expense Reimbursement Plan, or MERP. These plans let you pay family medical expenses with pre-tax business dollars. They may even help you avoid self-employment tax.
Audit Odds Still Low
IRS audit odds are increasing, from 1 in 200 returns for 2000 to roughly 1 in 100 for 2012. But your chance of getting audited is still minimal. Don't take low audit rates as an invitation to cheat! But don't let fear of an audit stop you from taking every deduction you're entitled to.
Fund Your SIMPLE IRA
You can defer up to $12,000 of your salary to your SIMPLE IRA this year, plus $2,500 more if you're over age 50. Maximizing your SIMPLE IRA contribution can help assure your retirement security as well as cut this year's tax.
Fund Your 401k Plan
You can defer up to $17,500 of your salary to your 401k this year, plus $5,500 more if you're over age 50. Maximizing your 401k contribution can help assure your retirement security as well as cut this year's tax. Alternatively, if your plan allows it, choosing a "Roth" deferral can provide tax-free income in retirement.
Bill Zumwalt
Helping REALTORS with Tax Solutions and Solving Tax Problems for REALTORS
REALTOR Tax Preparation, REALTOR Tax Accountant, Tax Preparation Tulsa, OK
Accountant Tulsa, OK, CPA Tulsa, OK, Tax Prep Tulsa, OK, Tax Savings Tulsa, OK, Tax Accountant Tulsa, OK
The Tax Coach for REALTORS
William T Zumwalt CPA,CTC, PLLC
5416 South Yale Ave
Suite 120
Tulsa, OK 74135
918-583-1040
855-993-3339
Bill@TeamZumwalt.com
www.TeamZumwalt.com
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