January 7, 2013

We welcome all of you to 2013 – we are writing this supplement to our previous newsletter to provide you with a summary of some of the most important changes that were just finalized by Congress on January 1st.

2% PAYROLL TAX INCREASE – the 2% payroll tax reduction in the FICA rate (4.2% in 2010) was “NOT RENEWED”.  The rate is 6.2% for your 2013 payrolls.

0.9% MEDICARE SURTAX ON EARNED INCOME and the 3.8% MEDICARE ON INVESTMENT INCOME kick in this year for singles with earnings over $200,000 (single) and $250,000 (married) and for the investment income tax for singles with MAGI over $200,000 and married couples with MAGI over $250,000.

ESTATE TAX – the federal estate and gift tax exemption increased to $5,250,000 for 2013 and the annual gift tax exclusion jumped to $14,000 per donee for 2013.  Congress also revived the portability of the estate tax exemption.

INCOME TAX RATES – The expiration of the Bush income tax cuts were eliminated but tax rates have increased for those with “Taxable Income” over $400,000 for singles and $450,000 for married couples.

CAPITAL GAIN RATES/DIVIDENDS – The top rate for capital gains and dividends remain at 0% for those in the 10% and 15% tax brackets and 15% for others with taxable income (TI) under $400,000 single and $450,000 married.  Rates rose to 20% if TI exceeds those figures.

SOCIAL SECURITY CHANGES – The wage base for 2013 rose to $113,700.  Social security benefit recipients received a 1.7% raise for 2013.  Individuals between the ages of 62 and 66 may earn $15,120 before losing any social security benefits.

MEDICARE PART B – The premiums increased to $104.90 per month in 2013. The premium is much higher if 2011 AGI exceeded $170,000 for a married couple.

MEDICAL EXPENSES – The threshold for deducting medical expenses in 2013 is now 10% for those under 65 years of age.  It remains at 7.5% for those with at least one filer over 65 years of age.

HEALTH SAVINGS ACCOUNTS (HSA) – The deductible contributions to HSA’s are $6,450 for a family in 2013 and $3,250 for an individual.

RETIREMENT PLAN CONTRIBUTIONS FOR 2013 – 401(k) – $17,500 ($23,000 – if over age 50), Simple IRA – $12,000 ($14,500 for over age 50), Traditional IRA – $5,500 ($6,500 if over age 50).

STANDARD MILEAGE RATES – 56.5 cents per mile for 2013

BONUS DEPRECIATION RULES – 50% Bonus Depreciation is back for “new” assets purchased in 2013.

SECTION 179 EXPENSING – Up to $500,000 of business assets can be expensed in 2013 – this was also RETROACTIVELY reinstated for 2012.

REVIVED TAX BREAKS – The following tax breaks were revived for both 2012 (retroactively) and 2013:

  • The income tax exclusion for forgiven home mortgage debts.
  • The state sales tax deduction.
  • The teacher’s classroom supplies deduction.
  • The American Opportunity Tax Credit for college tuition.
  • The direct transfer of IRA distributions to charity – payouts received by IRA owners over 70.5 years in age in December 2012 and January 2013 can qualify for 2012 if transferred before February 1, 2013.

MORE TO COME – It is very likely that many more changes will come out as this year goes on – we will keep you posted – please contact us with any questions that you may have on these changes.  Please make your appointments now for tax season – we look forward to seeing you.

Yours very truly,

All of us at Boal and Associates

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