On January 2, 2013, President Obama signed into law the American Taxpayer Relief Act of 2012, allowing the United States to avert the so-called “fiscal cliff,” which would have triggered automatic tax increases and spending cuts. Among its provisions, the new law extends credits for the lower and middle class, raises taxes on top earners and ends a payroll tax cut.
Our 2013 Tax Pocket Guide provides a concise chart of the most common tax rates for individuals and businesses. This guide can help you estimate your 2013 taxes. In addition, we can help you create a strategy to minimize taxes for the coming year, as well develop a long-term tax strategy to benefit your retirement, family and heirs.
JamisonMoneyFarmer CPAs are always here to answer your tax questions, provide tax planning advice and keep you informed of any new legislation that may impact your personal or business situation. Please contact us at 205-345-8440 or email@example.com if we can be of assistance.
Access the 2013 Tax Pocket Guide here.
As if it is not enough to have to face the grief of losing a loved one, there are so many other administrative tasks set in motion by someones death that must be taken care of. From collecting the information needed to document the contents of the decedent’s estate, all the way through to distribution of the assets to the heirs, this process can be a long one. Quite often, the path seems too difficult to traverse. We hope that you can use this handy guide as a road map in navigating through the administration of the estate, and we are here to provide any assistance we can.
January – Get Organized for Tax Time
1) Set up a file (or box) for your 2012 taxes. Put a label on it and drop in your Form W-2 and 1099s as they come in the mail.
2) Open the envelope with your JMF organizer. Please use the organizer as a guide to make sure you have everything that you had last year. The JMF organizer is much shorter this year and it is easy to use. Using the organizer will help us help you save taxes. Please put the organizer in your 2012 tax file to give to JMF.
3) If you think you will be getting a refund and you would like your refund direct deposited be sure to note in your organizer if the bank account is the same as last year. If your bank account has changed or we do not have it on file include a void check or check photocopy for the account you would like the refund deposited.
4) Sign the Foreign Financial Asset statement that we sent to you in the mail and put it in your 2012 file.
5) Locate those charitable donation receipts for amounts of $250 or more and put them in that 2012 file.
6) Take a look in your checkbook to see if you paid any estimates we set up for you last year & make a note of how much & when you paid them.
7) Put March 25, 2013 on your calendar. Please mail or bring your tax documents to your JMF accountant before that date or let us know if you prefer to get an extension.
8) Now is a good time to also start a file for 2013 (you can put those charitable donation receipts in there all year long).
“Any one may so arrange his affairs that his taxes shall be as low as possible; he is not bound to choose that pattern which will best pay the Treasury; there is not even a patriotic duty to increase one’s taxes.” Judge Learned Hand – 1934
Are you still wondering how the new tax changes may affect you and your tax bill?
We have linked our Federal Tax Watch alert which summarizes the provisions primarily affecting individuals, the provisions primarily affecting businesses, the new Healthcare taxes taking effect in 2013, and tax planning considerations.
Also, if you are interested in more reading on the Fiscal Cliff legislation, you might check out these prior articles:
One of the many worries for doctors related to the new Health Care Act and the Fiscal Cliff was directly related to an almost 30% cut in premiums paid for Medicare services. The bill that passed will block, at least for the next year, a scheduled 27% cut in reimbursements for Medicare physicians.
The “Doc Fix”, as it is being called, shifts some of the amounts back to hospitals, which obviously are not happy about that.
The reduction for doctors comes from a payment formula created in a 1997 deficit reduction law. For the first few years, doctors received modest pay increases. But in 2002, doctors reacted with fury when they came in for a 4.8 percent pay cut under that plan. Every year since, Congress has staved off the scheduled cuts.
In case you missed it, the US Senate passed the American Taxpayer Relief Act of 2012 by a margin of 89-8, and the House approved the bill by a vote of 257–167 late yesterday evening (January 1st). It now goes to the White House for President Obama’s signature.
This was the Bill that averted to Fiscal Cliff, although depending upon your perspective, it’s conceivable that you view the bill as just kicking the can down the road, or that we went over the cliff only to be given a parachute. The Fiscal Cliff was always about a combination of 1) expiring tax cuts and 2) across-the-board government spending cuts scheduled to become effective Dec. 31, 2012.
For CPAs like us, our focus is on the tax consequences of the deal although the spending cuts will certainly have an impact on everyone. Edward Karl, vice president–Tax for the AICPA (American Institute of Certified Public Accountants) was certainly happy that a deal was reached.
“The AICPA is pleased that Congress has reached an agreement,” said Edward Karl, vice president–Tax for the AICPA. “The uncertainty of the tax law has unnecessarily impeded the long-term tax and cash flow planning for businesses and prevented taxpayers from making informed decisions. The agreement should also allow the IRS and commercial software vendors to revise or issue new tax forms and update software, and allow tax season to begin with minimal delay.”
Rather than recreate the wheel on summarizing all of the tax components, please see the AICPA’s fantastic overview of main tax consequences. Below are the most pertinent highlights:
Here are the act’s main tax features:
Individual tax rates
All the individual marginal tax rates under EGTRRA and JGTRRA are retained (10%, 15%, 25%, 28%, 33%, and 35%). A new top rate of 39.6% is imposed on taxable income over $400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly ($225,000 for each married spouse filing separately).
Phaseout of itemized deductions and personal exemptions
The personal exemptions and itemized deductions phaseout is reinstated at a higher threshold of $250,000 for single taxpayers, $275,000 for heads of household, and $300,000 for married taxpayers filing jointly.
Capital gains and dividends
A 20% rate applies to capital gains and dividends for individuals above the top income tax bracket threshold; the 15% rate is retained for taxpayers in the middle brackets. The zero rate is retained for taxpayers in the 10% and 15% brackets.
Alternative minimum tax
The exemption amount for the AMT on individuals is permanently indexed for inflation. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers. Relief from AMT for nonrefundable credits is retained.
Estate and gift tax
The estate and gift tax exclusion amount is retained at $5 million indexed for inflation ($5.12 million in 2012), but the top tax rate increases from 35% to 40% effective Jan. 1, 2013. The estate tax “portability” election, under which, if an election is made, the surviving spouse’s exemption amount is increased by the deceased spouse’s unused exemption amount, was made permanent by the act.
The IRS’s authority under Sec. 1445(e)(1) to apply a withholding tax to gains on the disposition of U.S. real property interests by partnerships, trusts, or estates that are passed through to partners or beneficiaries that are foreign persons is made permanent, and the amount is increased to 20%.
In addition to the various provisions discussed above, some new taxes also took effect Jan. 1 as a result of 2010’s health care reform legislation.
Additional hospital insurance tax on high-income taxpayers. The employee portion of the hospital insurance tax part of FICA, normally 1.45% of covered wages, is increased by 0.9% on wages that exceed a threshold amount. The additional tax is imposed on the combined wages of both the taxpayer and the taxpayer’s spouse, in the case of a joint return. The threshold amount is $250,000 in the case of a joint return or surviving spouse, $125,000 in the case of a married individual filing a separate return, and $200,000 in any other case.
For self-employed taxpayers, the same additional hospital insurance tax applies to the hospital insurance portion of SECA tax on self-employment income in excess of the threshold amount.
Medicare tax on investment income. Starting Jan. 1, Sec. 1411 imposes a tax on individuals equal to 3.8% of the lesser of the individual’s net investment income for the year or the amount the individual’s modified adjusted gross income (AGI) exceeds a threshold amount. For estates and trusts, the tax equals 3.8% of the lesser of undistributed net investment income or AGI over the dollar amount at which the highest trust and estate tax bracket begins.
For married individuals filing a joint return and surviving spouses, the threshold amount is $250,000; for married taxpayers filing separately, it is $125,000; and for other individuals it is $200,000.
Net investment income means investment income reduced by deductions properly allocable to that income. Investment income includes income from interest, dividends, annuities, royalties, and rents, and net gain from disposition of property, other than such income derived in the ordinary course of a trade or business. However, income from a trade or business that is a passive activity and from a trade or business of trading in financial instruments or commodities is included in investment income.
Medical care itemized deduction threshold. The threshold for the itemized deduction for unreimbursed medical expenses has increased from 7.5% of AGI to 10% of AGI for regular income tax purposes. This is effective for all individuals, except, in the years 2013–2016, if either the taxpayer or the taxpayer’s spouse has turned 65 before the end of the tax year, the increased threshold does not apply and the threshold remains at 7.5% of AGI.
Health flexible spending arrangement. Effective for cafeteria plan years beginning after Dec. 31, 2012, the maximum amount of salary reduction contributions that an employee may elect to have made to a flexible spending arrangement for any plan year is $2,500.
As always, if you have any questions about this or any other matter, please contact us at JMF and we will be happy to assist you.
Prior to the election, JamisonMoneyFarmer CPA Rachel Taylor lead a discussion on the major “fiscal cliff” items like the expiration of particular tax cuts, shifts in alternative minimum tax, increased Medicare taxes, new spending cuts, tax extenders, and the expiration of payroll tax cut.
Below is the Powerpoint deck. If you have any further questions, please feel free to contact Rachel or one of our tax advisers.