Market Overview

Tax Law Changes For 2013 Tax Year

With the start of early filing only days away, anyone planning to submit Internal Revenue Service tax returns for the 2013 tax year at the end of this week should be aware of changes in the tax code for this year.

According to the IRS, there are several.

New Top Rate

If you were fortunate enough to make a lot of money last year, you will give more of it to Uncle Sam this year. The legislation, enacted early in 2013 that permanently extended the Bush-era tax cuts also added a top marginal tax rate of 39.6 percent.

The new rate kicks in at $400,000 for single filers, $450,000 for married couples filing jointly, and $425,000 for heads of household.

Deduction/Exemption Changes

Also hitting high-income earners, a phase-out of personal exemptions and deductions that begins at $300,000 for married couples filing jointly, $275,000 for head of household, and $250,000 for singles.

Otherwise, thanks to inflation adjustment, the personal exemption was increased to $3,900 for 2013. Likewise, the standard deduction for single taxpayers is now $6,100. For married couples filing jointly the standard deduction is $12,200. It is $8,950 for heads of household.

The standard rate for business use of a vehicle is now 56 ½ cents per mile. The mileage rate for those obtaining medical care or moving is 24 cents per mile for the 2013 tax year.

Medicare Taxes

Those earning more than $250,000 as married couples or $200,000 as a single person or head of household will pay an additional 0.9 percent in Medicare taxes for 2013.

Capital Gains Tax Increase

Some taxpayers will now pay 20 percent on net capital gains, as opposed to the old rate of 15 percent. This provision of the American Taxpayer Relief Act of 2012, applies to single filers with incomes above $400,000 and married couples filing jointly with incomes of more than $450,000.

Related: Should Corporate Income Tax In The U.S. Be Abolished?

Net Investment Income Tax

Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT) if you have net investment income and your modified adjusted gross income is more than $250,000 for married couples filing jointly or $200,000 for single filers or heads of household. The rate of this tax is 3.8 percent and applies to all or a portion of your net investment income based on rules outlined by the IRS.

Same-sex Married Couples

Beginning with the 2013 tax year, same-sex couples who are legally married will likely have to file under either the “married filing jointly” or “married filing separately” category. This applies even if they live in a state that does not recognize gay marriage.

If they do happen to live in a state that does not recognize gay marriage, they may have to file as singles on their state tax return. This could force them to calculate their federal taxes both ways in order to complete their state tax documents.

Changes to Medical Deductions

The threshold for deducting medical expenses was raised from 7.5 percent to 10 percent. If you are older than 65 the old rate continues to apply until 2017.

Alternative Minimum Tax

The credit for a prior year minimum tax is no longer partly refundable, according to the IRS. This is a fix designed to prevent middle-income taxpayers from being able to take advantage of that rule.

Home Office Deduction

A simple “standard” deduction of five dollars per square foot (up to 300 square feet) of your home office space will make it easier to take that deduction for those who use a portion of their home “regularly and exclusively” for work.

The guidelines for designating an office in the home are strict and casual use of a space – such as the kitchen table – do not count. In addition, the use must be for the “convenience of your employer” and not just because you enjoy working at home.

Check for Changes

For information about any additional changes to the 2013 tax law or any other developments affecting Form 1040 or its instructions, the IRS advises you go to www.irs.gov/form1040.

Posted-In: 2013 tax year alternative minimum tax American Taxpayer Relief Act of 2012 Bush-era Tax Cuts business useTopics Personal Finance General Best of Benzinga

 

Related Articles

Get Benzinga's Newsletters