Sticker Shock Awaits Many Taxpayers on Preparing Their 2013 Tax Returns

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By Nathan Leibowitz, CPA

Nathan Leibowitz, CPA.

Nathan Leibowitz, CPA.

This article is intended as a brief overview of some of the new issues that certain taxpayers will encounter in the upcoming filing season.

Beginning for tax year 2013, new rules impose significantly higher taxes on “higher earners.” The importance of tax awareness and tax planning becomes even more important for those individuals.

Under the Affordable Care Act passed in March 2010, and the American Taxpayer Relief Act of 2012, passed in January 2013, higher tax rates will apply to ordinary income, capital gains, and dividends, while limitations are placed on the use of personal exemptions and itemized deductions.

The following changes apply for certain “higher earning” persons in 2013 when their income goes over certain thresholds:

Increased payroll taxes for employees, and self-employed taxpayers. An additional 0.9% Medicare Tax is imposed on wages and self-employment income that are in excess of certain thresholds: $250k for marrieds; $125k for married filing separate; and $200k for all others.

Net Investment Income Tax (NIIT) of 3.8%. In general, this tax may be imposed on net investment income if modified adjusted gross income is in excess of $250k for marrieds; $125k for married filing separate; $200k for all others. Investment income generally will include the following:

  • Interest, dividends, annuities, royalties, and rents (with certain exceptions).
  • Capital gains from sale of stocks, bonds, and other securities.
  • Income from trade or business that is a “passive activity” including interests held in pass through entities.

A new marginal tax rate of 39.6% applies for taxable income above $450k for joint filers; $425k for heads of household; $400k for single filers; and $225k for married filing separate.

Capital gains and dividend rates rise for higher-income taxpayers. The top rate for capital gains and dividends rises to 20% for taxpayers in the top 39.6% bracket. Those in the 10% and 15% brackets, the capital gains tax is zero. Those in the 25% to 35% brackets, the rate is 15%.

Personal exemptions are limited. Personal exemptions phaseout for taxpayers above certain income levels based on adjusted gross income (AGI):

  • Single $250,000
  • Married Filing Jointly, Surviving Spouse $300,000
  • Married Filing Separately $150,000
  • Head of Household $275,000

Itemized deductions are limited. The phaseout range begins at the following levels:

  • Single $250,000
  • Married Filing Jointly, Surviving Spouse $300,000
  • Married Filing Separately $150,000
  • Head of Household $275,000

No one likes paying taxes, and I hope this brief review will at least minimize the surprises that are in store for some.

Disclaimer – this is not tax advice. It is only a brief summary of some of the issues that some folks will encounter when they file their 2013 tax returns.

Nathan Leibowitz, CPA’s office is located at 12711 Ventura Blvd., Ste. 390 in Studio City. For more information, call (818) 508-4453 or visit cpastudiocity.com.

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