Info You Need To Know
Recent legislation, including the American Taxpayer Relief Act of 2012, made sweeping changes, some that may significantly affect your taxes in 2014, which may affect some of the decisions you make this year. Regardless of how the legislation affects you, planning now is paramount to saving later. As you evaluate your financial and tax situation, Joel Cymrot CPA can help by reviewing your overall financial position and providing you with the expert tax planning advice you need.
Starting in 2014, the Patient Protection and Affordable Care Act of 2010 may require you to purchase or otherwise obtain health insurance coverage. Taxpayers without adequate coverage will be assessed a penalty for each adult and child without coverage.
In the wake of The Supreme Court’s Windsor Decision in validating a portion of the defense of marriage act, The Treasury Department and IRS announced that “same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes.” The ruling with apply to all federal tax provisions where marriage is a factor, for all federal taxes, including income, estate and gift taxes. Tax provisions in which marriage is a factor include filing status, personal and dependency exemptions, the standard deduction, employee benefits, contributions to IRAs, and the earned income tax credit, among others.
New Tax Rates On Ordinary Income And Capital Gains
The ATRA increased the highest income tax rate to 39.6% for individuals starting in 2013. Taxpayers subject to the new 39.6% rate also will see an increase in their dividend income and long-term capital gains tax rate from 15% to 20%. Other taxpayers will continue to be taxed on dividends and long term capital gains at lower rates ranging from 0 to 15%.
New 3.8% Surtax On Net Investment Income
The new 3.8% Medicare Contribution Tax went into effect in 2013 as a result of the passage of the Patient Protection and Affordable Care Act of 2010. The 3.8% tax applies to individuals with net investment income whose modified adjusted gross income exceeds certain threshold amounts ($250,000 for married couples filing joint returns and $200,000 for single taxpayers).
Alternative Minimum Tax
The Alternative Minimum Tax (AMT) was designed to ensure that high-income taxpayers who benefit from certain exemptions, deductions and credits will still pay a minimum amount of tax. Over time, the AMT affected more and more middle-income individuals as well. When the AMT is triggered, the taxpayer pays a higher tax than their normal federal income tax. While the ATRA permanently increased the AMT exemption (keeping more middle-income taxpayers from being subject to the tax) and indexed it for inflation, it did not increase the income levels at which those exemptions phase out. Accordingly, taxpayers may find themselves unexpectedly subject to the AMT in certain situations.
Participating in an employer-sponsored retirement plan such as a 401(k), SIMPLE or SEP is a great way to save for your retirement and may reduce your current taxes. In 2013, you can contribute up to $17,500 into your 401(k) ($23,000 if you are age 50 or older). The ATRA allows all assets in non-Roth retirement accounts to be converted to a Roth IRA or Roth 401(k). Assets and earnings in Roth retirement accounts grow tax-free and are not taxed when they are distributed under IRS-approved circumstances. However, income taxes will be due on the assets rolled over into a Roth from a non-Roth retirement account.
Charitable contributions may provide generous tax benefits for taxpayers. However, the law requires significant documentation in order to claim those benefits, especially in the case of donated property. In addition, the ATRA reinstated the provision allowing taxpayers age 70 ½ and older to make up to $100,000 of tax-free distributions from individual retirement accounts (IRAs) directly to qualified charities. While the charitable contributions are not deductible, the distributions are not included in gross income.