Have you determined what tax planning opportunities are available for you to put in place? Are you familiar with the tax changes, Medicare Surtax, and Net Investment Income updates? If not, here’s your chance to review some of them.
Provisions and Tax Changes that were set to expire on December 31, 2012
Changes that have been extended:
- The Two Marriage Penalty Elimination Breaks standard deduction was no longer going to be 2 times the single, and the ceiling for 15% tax bracket lowered, has been extended and made permanent.
- The tax free treatment of charitable distributions from IRA’s has been extended through 2013.
Changes that have NOT been extended:
- FSA or Flexible Spending Accounts that must not exceed $2500, which is down from $5000. No more reimbursements for over-the-counter medications.
- Tax Rate for Qualified Dividends going from 15% to taxpayer’s ordinary income tax rate, to as high as 39.6%. 15% rate for individuals with incomes below $400,000 for singles and $450,000 for married filing jointly, those individuals will see a 20% plus the 3.8% Medicare tax, if applicable.
- Medical Deductions for individuals younger than 65 years old, increased to 10% AGI limitation on medical deductions.
Medicare Surtax
New 3.8% surtax will apply to the lesser of the net investment income, or the excess modified gross income over the thresholds of $250,000 for the joint filer and $200,000 for the single filer.
Additional .9% Medicare tax, beginning January 1, 2013, will be applied to “earned income”on joint taxpayers with modified adjusted gross income above $250,000 and singles $200,000. If you’re self-employed, you can saves taxes on the increased tax rates along with the additional .9% Medicare tax by spreading income and expenses over years.
Net Investment Income (NII)
- Distributions from non-qualified annuities.
- Income from business of trading in financial instruments, like stock and bond sales.
- Income from passive activities.
- Income from rental real estate, unless you materially participate.
- Interest and dividends, NOT tax-free interest (muni bonds).
- Rent and royalties.
NOT considered as Net Investment Income
- Distributions for IRA’s (Roth or Traditional).
- Income for qualified annuities.
- Income for tax-exempt bonds (muni bonds).
- Income for qualified annuities.
- Self-employment income.
- Taxable portion of Social Security.
- The tax-free portion of any gain on the sale of your principal residence.
- Wages.
Your NII affects the surtax. If you are a single filer with NII of $75,000 and modified adjusted income of $190,000 in 2013, no surtax is due because your modified adjusted income is below the $200,000 threshold. If you are a joint filer with NII of $75,000 and modified adjusted income of $300,000 in 2013, the surtax is due on the $50,000 excess income above the $250,000 threshold, thus an additional $1,900 tax will be due. If you are a joint filer with NII of $75,000 and modified adjusted income of $500,000 in 2013, the surtax is due on the $75,000 NII, thus an additional $2,850 tax will be due.
Planning with your tax advisor can help you have a plan in place, if you think your income will be over the threshold amounts. Interested in learning more about tax planning. Download my FREE eBook: 2013 & Beyond Tax Planning.
Have questions about your taxes or need help with tax planning? Contact me online or call my Naples Office (239) 384-9688 or my Fort Myers Office (239) 768-5008. “LIKE” me on Facebook, and follow me on LinkedIn and Twitter.
-Mark
This information is based on facts, assumptions and representations as stated and authorities that are subject to change. We will not update this information for subsequent legislative or administrative changes of future judicial interpretations.
LEGAL NOTICE AND DISCLAIMER: The information within this blog is for informational and educational purposes only and is not tax advice and should not be used as such. The facts of each individual situation can have significantly different outcomes when applying tax law. The hiring of a CPA is an important decision not to be based solely on advertisements.
