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Tax Changes to Expect in 2013

November 12, 2012 By

Whenever a year draws to a close, taxpayers normally anticipate changes in the tax code and how they are affected by such changes. The 2013 gift and estate taxes are projected to slip back to their earlier levels before 2010. Experts have been doing a tremendous job preparing the taxpayers for these changes that cut across all major tax sectors. Income tax is estimated to shoot by up to 5% from the current 10%, to 15% by the end of the year.
Taxpayers who will earn between $58,900 and $70,700 in 2012 may see their tax bracket increase from 15% to 28% because of the rise in marginal rates and a decrease in the income level for the married taxpayers within this bracket. Single taxpayers earning over $85,650 and married ones with income of more than $142,700 should expect the tax rates to shoot by at least 3% and the highest rate moving from 35% to 39.6%. These are estimations shared by Davis Brown.
According to McKenna Long and Aldridge, capital gains are set to increase by more than 50%, while the tax rate dividends are likely to double in most cases come January 2013. Taxpayers contemplating property sales, M&A transactions, among others must bear this in mind. Other changes are expected in the Medicare tax, this is according to Morgan Lewis. Currently, 2.9% of the wages are subjected to Medicare tax, employers and individuals pay 1.45% each towards the same. However, taxpayers with income exceeding the threshold amount will be required to pay an extra 0.9% Medicare tax on income exceeding the threshold. The highest Medicare tax rate for individuals will be about 2.35% (1.45%+0.9%) for wages exceeding the threshold (employers will be exempted this increase).
According to ExpertHR, the Social Security 2% tax cut will finally expire in December 31, 2012. This will mean that the current rate of 4.2% will shoot to 6.2% if the federal legislation fails to extend it. Another significant change in taxes is expected in the itemized deductions for higher-income taxpayers that are set to be phased out. According to Loeb & Loeb, the value of taxpayer’s itemized deductions equals to 3% of their AGI of more than $100,000 will be discontinued but not in more than 80% of the cumulative itemized deductions.
There are many tax changes that are likely to be introduced in the New Year. Taxpayers are therefore, advised to be prepared for these changes to avoid any inconveniences.

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A Guide through the Latest Tax Changes

May 14, 2012 By

If you have filed for an extension, you have more time to learn about the tax updates for the 2011 year. Here is a list of what is new for the 2011 tax regulations:

  1. Schedule M and Making Work Pay Credit are no longer there – These were available in 2009 and 2010 but are not available in 2011 since there is no Schedule M to file and no additional credit for the year.
  2. Payroll tax cut for employees – employees who receive form W-2 enjoyed a tax break of 2% on FICA contributions during the year. Contributions from Social Security taxes were 4.2% instead of 6.2%. Medicare contributions did not change. Presently, there is no need to fill forms, or schedules, since the break is automatic and will not affect your 2011 federal income tax return since it is tied to Social Security payroll taxes. Taxpayers who did not pay Social Security system during the year will not receive any benefit.
  3. Payroll tax cut equivalent for self-employed taxpayers – for the self-employed, you will receive the benefit of the payroll tax cut when you file your federal income tax return in the form of an adjustment to your self-employment (SE) tax due. The SE tax rate reduces from 12.4% to 10.4%.
  4. Federal 1099-K – this is the new form called Merchant Card and Third Party Network Payments making a debut in 2011. This is for taxpayers who have a credit card merchant account, PayPal account or similar account and otherwise meet the criteria.
  5. Visible Health Care benefits on form W-2 – Companies with more than 20 employees must indicate the value of health care benefits they pay on the behalf of employees on the form W-2 in 2012. Do not panic if this amount shows on Box 12, using code DD. It has no effect on your taxable income.
  6. Unchanged deductions – The Standard Deduction rates for 2012 have not changed from 2011. The rates are $5,800 for single taxpayers or those married but filing separately, $11,600 for married taxpayers, and $8,500 for taxpayers filing as head of a household. The additional standard rates allowed for senior citizens and taxpayers who are blind are $1,150 for married taxpayers filing jointly and $1,450 for single taxpayers.
  7. Small change in Personal exemptions – This has increased from $3,650 to $3,700 in 2011.
  8. Brokers report cost basis for certain stocks on 1099-B – The form 1099-B has new boxes indicating when you bought a stock, cost or basis, long-term or short-term gain or loss, or if the sale was a wash sale.
  9. Alternative Minimum Tax – There is no reform for AMT. It is unadjusted for inflation
  10. Report of Foreign Bank and Financial Accounts (FBAR) – IRS has made FBAR reporting a compliance issue. You need to check the applicable box on Schedule B when you send in your return.

This is a brief summary of the changes worth noting in the 2011 tax year. For more information, it would be advisable to approach a tax professional.

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