financial peace of mind
2013 Tax Changes Mean Paying Attention Early
As previouslt posted a number of federal tax law changes kicked in with the New Year that will catch people by surprise if they’re not paying attention. 2013 is clearly a year where people and small businesses need to do the
ir tax planning early and often, or they will see lots of avoidable tax dollars eaten away by the end of the year.
Harder Payroll Hits
Taxpayers at all levels of income who receive a paycheck will feel a bite from day one of 2013. The temporary tax withholdin
g relief that everyone enjoyed in 2012 expired without any replacement in the federal tax law. As a result, everyone’s tax withholding requirements increased by 2 percent. Granted, if they don’t owe the taxes by the end of the year, it will be returned in a tax return. But the entire year the government will get a giant interest-free loan at millions taxpayers’ expense. For a family earning $50,000 the change means a loss of $1,000 in net cash flow in the year.
Top Taxpayers Pay More
If a taxpayer is unfortunate enough (or fortunate to be there!) to be in the top tax bracket, it’s starting to feel a lot more like living in Europe without the healthcare. The top marginal tax rate has been adjusted by new federal law in 2013 to 39.6 percent from a previous 35 percent, all the more reason to lower one’s taxable income. This requirement kicks in for all married incomes totaling more than $450,000. Single taxpayers feel the pinch at $400,000.
Bye-Bye Exemptions
While many individual tax exemptions stay in place, those earning more than $300,000 as a married couple or $250,000 as individuals won’t be able to use them anymore. New tax laws phase out eligibility for high earners for various exemptions. The same applies to various itemized tax deductions as well. Both combined mean a much harder tax hit for higher income earners, regardless of how they earn their money.
Capital Gains Grab
Many parties enjoy significant earnings from capitals gains rather than traditional payroll earnings or contracting. Now, what used to be a loss of 15 percent of passive investment income via capital gains taxes will increase to 20 percent in 2013. This means those investors who took a marginal profit on stocks, for example, could see their profits wiped out entirely as overall costs increase and eat up the difference.
Don’t Get Too Sick
Many who don’t have the best health have enjoyed a tax deduction on medical expenses after a certain threshold is reached. 2013 will reduce what medical expenses can be recovered again as a tax deduction. This is after over-the-counter medicines were eliminated as viable expenses for tax deductions a few years earlier.
Small Businesses see Limitations
A number of limitations kick in with the New Year that impact small businesses. The special item of expense 179 deduction has been restricted to no longer allow software. Many small businesses have frequently used the expense writeoff as a way to get valuable software tools all at once instead of depreciated over a five years. Now, the tax law changes will stop that advantage, increasing the tax bite on a small business’ annual profit.
Where a small business adds to an individual’s income via a Schedule C attachment to a personal income tax return, the above income phase-outs will apply, especially when the tax return total an adjusted gross income over $250,000. That in turn will negatively impact small business entrepreneurs and how much money they want to take profit on and reinvest on new ventures.
In Summary
There’s no question that the above changes and more make 2013 a pivotal tax year versus the last two decades. However, help is available. For those who need to make sense of all the changes and need tax help in the Martlon, Mount Laurel, or South New Jersey area, Greenberg C.P.A. is available to help both individuals and small businesses.