How to Plan Ahead with Upcoming Tax Changes
It is wise to know what the tax changes are when planning for the next tax season. Following are a few of the changes for 2013 that could affect the amount of taxes that you will pay.
New Medicare surcharges will affect everyone, not just those who earn over $450,000 per year. The surcharge will be nine-tenths of 1 percent on earnings over $200,000 if you are single and $250,000 if married and filing jointly.
A 3.8 percent Medicare surcharge will apply to net investment income including rental income and passive business income along with the traditional interest and dividends. Business profits for S corporation owners that are paid out as profit distributions are not subject to the surcharge.
Trusts that have an investment income over $11,950 will be slammed with taxes. Those trusts will owe income tax of $3,090, 39.6 percent of the total amount of investment income over $11,950, plus a 3.8 Medicare surcharge. If the investment income is paid out of the trust and the beneficiary does not earn over the $200,000 single or $250,000 joint filing threshold, it will not be subject to the surcharge.
Medical expenses will be deductible only if unreimbursed costs exceed 10 percent of your adjusted gross income if under 65 years of age. The expenses will be deductible if unreimbursed costs exceed 7.5 percent of your adjusted gross income if you are over 65. Transportation costs for medical related traveling will be deductible if you drive your own car at the rate of 23 cents per mile. For businesses, the deductible is 55 cents per mile and for charity it is 14 cents a mile. Parking and toll fees may also be included as deductions.
Individuals who pay their parents medical expenses directly may be able to claim a medical expenses deduction. That deduction can be taken even if you do not claim your parents as dependents.
Individuals who have a home office, either because they are self-employed or are required to work from home by their employer, may be able to take additional deductions. The home office must be used exclusively for business purposes and it must be used regularly. If you qualify, you will be able to take itemized deductions on Schedule A of $5 per square foot of expenses and 100 percent of the interest on your mortgage, and 100 of real estate taxes.
Social Security tax withholding was reduced by two percent for the past two years. It is now back up to the 6.2 percent on earnings up to $113,700. This change could result in an additional tax of between $2,274 and $4,548, depending on whether you are filing single or married.
Other changes include:
· Elimination of the marriage penalty. This applies only for those that do not itemize their deductions.
· Up to $240 for parking and employer related transit
· State taxes and local sales tax deductions
· $100,000 tax-free transfers to charity from IRA accounts if you are 70.5 or older
ABOUT THE AUTHOR: Todd S. Unger
Todd S. Unger, Exq. offers legal services for IRS tax problems for businesses and individuals nationwide.
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Disclaimer: While every effort has been made to ensure the accuracy of this publication, it is not intended to provide legal advice as individual situations will differ and should be discussed with an expert and/or lawyer. For specific technical or legal advice on the information provided and related topics, please contact the author.