What Are The 2013 Tax Law Changes?

February 4th, 2014 at 5:48 PM

Tax Rate Changes

Your deductions are worth more in 2013 because of the Fiscal Cliff legislation.  Here are the increases in tax rates for 2013:

1.  Top tax rate increases from 35 to 39.6 percent on taxable income over $400,000 ($450,000 for joint returns).

2.  Increase in self-employment taxes from 13.3% to 15.3%.

3.  Two percent increase in employee portion of payroll taxes.

4.  New 3.8 percent Medicare tax on investment income more than $200,000 if single ($250,000 if filing a joint return).

5.  New 0.9 percent Affordable Care tax on earned income greater than $200,000 if single ($250,000 on a joint return).

6.  Capital gains taxes increase from a maximum of 15 percent to a maximum of 20 percent.

Changes in Exemptions and Itemized Deductions

1.  Your child’s standard deduction increases from $5,950 to $6,100 making it more desirable for the parents to hire his or her under-age-18 child .

2.  Your itemized deductions are phased out at 3 percent when adjusted gross income exceeds $250,000 ($300,000 on a joint return), but such phase out shall not exceed 80 percent of the deductions (a stealth tax increase).

3.  The personal exemption for 2013 is $3,900, but in another stealth tax increase the exemption is phased out:
a.  for single taxpayers beginning at $250,000 and it’s totally wiped out at $373,500.
b.  for joint returns beginning at $300,000 and it’s totally wiped out at $422,500.

Stimulating (increasing) Your Business Deductions

1.  Fifty percent bonus depreciation applies in 2013 to personal property such as vehicles, furniture, and equipment (and select non-personal property).

2.  The luxury auto limits are increased by $8,000 making the 2013 first-year auto depreciation and Section 179 deduction face a combined limit in the $11,100  to $11,300 range.

3.  The Section 179 deduction limit increases from

a.  $139,000 to $500,000 for last year 2012 (in case you forgot that $139,000 was the limit you were otherwise stimulated), and
b.  $25,000 to $500,000 for 2013

4.  Off the shelf software now qualifies for expensing in 2013, as it did in 2012.

5.  Also, as you could in 2012, you can amend your tax return for a 2013 Section 179 deduction during the regular three-year period for amended returns (e.g., in 2016).

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