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2013 Overview of Changing Law


·        Sunset of Reduced Individual Income Tax Rates

·        Payroll Tax Holiday  Sunset

·        Capital Gains

·        Dividends Tax Rates

·        Cancelled Debt Income Exclusion Sunset

·        Expiration of Marriage Penalty Relief

·        Personal Exemption Phase-Out

·        Earned Income Credit

·        Child Tax Credit

·        Child and Dependent Care Credit

·        The American Opportunity Tax Credit

·        Coverdell Education Savings Accounts

·        $1 Million Estate Tax Exclusion with 55 percent Top Tax Rate

·        Other Provisions Sunsetting After 2012

 

Sunset of Reduced Individual Income Tax Rates

As of 2013—unless Congress Acts—The 2010 Tax Relief Act is scheduled to sunset and individual marginal tax rates will revert back to 15, 28, 31, 36 and 39.6 percent  instead of the current 10, 15, 25, 28, 33 and 35 percent. The lowest 10 percent bracket will be eliminated.

 

Payroll Tax Holiday Sunset

The two percent employee-side payroll tax cut, as enacted under the Middle Class Tax Relief and Job Creation Act of 2012, is scheduled to expire after 2012, affecting all workers in 2013 up to $113,700 of their earned income (the projected Social Security wage base for 2013).

 

Capital Gains

After 2012, the maximum tax rate on net capital gain of non-corporate taxpayers will revert to 20 percent (10 percent for taxpayers in the 15 percent bracket).

 

Currently under the 2010 Tax Relief Act, there is no special capital gain treatment for property held longer than five years.  After 2012 the lower capital gain rates for five-year gain of individuals, estates and trusts are scheduled to be revived.  Generally, long-term gain on the sale or exchange of property held for more than five years will be taxed 18 percent (8 percent for taxpayers in the 15 percent bracket). 

 

Dividends Tax Rates

Under the 2010 Tax Relief Act, qualified dividends are taxed at 15 percent (zero percent for those in the 10 or 15 percent income tax brackets).  Absent Extension of the 2010 Tax Relief Act, qualified dividends will be taxed at the applicable ordinary income tax rates (with a maximum of 39.6 percent).

 

 

 

Cancelled Debt Income Exclusion Sunset

The Mortgage Forgiveness Debt Relief Act and Debt Cancellation allows for the exclusion of income from cancelled debt that was secured by a principal residence. Exclusion amounts are $2 million for married couples filing a joint return and $1 million for married filing separately.  This exclusion expires at the end of 2012. 

 

Expiration of Marriage Penalty Relief

The deduction for married couples will be 167 percent of the deduction for single individuals rather than 200 percent, unless extended.  Married couples should be prepared to increase their withholding or make larger estimated tax payments starting in 2013 to avoid major impact from the sunset of the increase 15 percent rate bracket and standard deduction for married couples.

 

Personal Exemption Phase-out

The 2010 Tax Relief Act repealed phase-out of personal exemptions deduction through 2011.  Unless renewed, the phase-out will be revived and the total amount of exemptions that may be claimed by a taxpayer is reduced by two percent for each $2,500 by which a taxpayer’s adjusted gross income exceeds the applicable threshold.  Had the phase-out remained in effect for 2012, the thresholds would have been $173,650 for single taxpayers and $260,500 for married couples filing a joint return.

 

Earned Income Credit

If the modifications of the 2010 Tax Relief Act sunset after 2012, the Earned Income Credit (EIC) will be calculated with regard to modified adjusted gross income rather than adjusted gross income.  Additionally, EIC will be reduced by the amount of alternative minimum tax (AMT) liability.

 

Child Tax Credit

The child tax credit will revert back to $500 per qualifying child instead of $1,000 per child.  The credit will be reduced by $50 per $1,000 of modified adjusted gross income over threshold amounts.  The amounts are $55,000 for married individuals filing separately, $110,000 for joint filers, and $75,000 for other filers.

 

Child and Dependent Care Credit

The maximum eligible amounts for child and dependent care credit will be reduced.

 

The American Opportunity Tax Credit

The American Opportunity Tax Credit is set to expire at the end of 2012 with the Hope Credit returning in its place with lower benefits.  The Hope credit is limited to the first two years of post-secondary education. 

 

Coverdell Education Savings Accounts

The maximum contribution amount to a Coverdell Education Savings Account (ESA) is $2,000 but is scheduled to revert to $500 after 2012.

 

$1 Million Estate Tax Exclusion with 55 percent Top Tax Rate

The 2010 Tax Relief Act gave a 35 percent top rate and $5 million applicable exclusion amount for decedents dying after December, 31, 2009 and before January 1, 2013; however, without extension, the maximum federal estate tax rate is scheduled to revert to 55 percent with an applicable exclusion amount of $1 million.

 

Other Provisions Sunsetting After 2012

50 percent bonus depreciation

Enhanced code Sec. 179 expensing

State and local sales tax deduction

Teacher’s classroom expense deduction

Exclusion for charitable contributions of IRA proceeds

Mortgage insurance premium deduction

Energy tax incentives


Top 50 Most Overlooked Tax Deductions

Below is a list of the most common overlooked tax deductions. Not every item will apply to your individual situation. If you have any questions or need further assistance, please contact us now.


1. Interest on student loans

2. 50% of paid self-employment tax

3. Health insurance premium adjustment on Form 1040 for some self-employed persons

4. Early withdrawal of savings penalties

5. Spousal maintenance paid (not including child support)

6. Medical transportation - including tolls, parking, and the standard mileage deduction of

    15 cents per mile for visiting doctors and dentists and picking up medicine

7. Nursing home/assisted living expenses that are primarily for medical care

8. Equipment such as crutches, canes, and orthopedic shoes that are considered medical aids

9. Eye glasses, contact lenses and hearing aids

10. Hospital/Medical fees for services such as nursing, physical therapy, lab tests, and x-rays

11. Equipment for disabled, handicapped or special needs individuals

12. A portion life-care fees paid to retirement home designated for medical care

13. Expenses for alcohol, drug abuse, and certain stop-smoking treatments

14. Special education costs for mentally or physically handicapped individuals

15. Wages for nursing services

16. State income taxes owed from a prior year and paid in the current tax year

17. Last quarter's estimated state and local taxes if paid by December 31

18. Personal property taxes on cars, boats, etc.

19. Taxes paid to a foreign government

20. Mandatory contributions to state disability funds

21. Points paid on mortgage or refinancing loans

22. Property donated to a recognized charity

23. Cash contributions to a recognized charity

24. Mileage incurred in relation to charitable activities at 14 cents per mile

25. Casualty and theft losses in excess of $100 and totaling more than 10% of adjusted

      gross income

26. Education expenses paid to maintain or improve job skills

27. A handicapped individual's work-related expenses

28. Professional journals, magazines, and newspapers that are job-related

29. Cost of safe deposit box used for investments or business

30. Seeing eye dog or guard dog for business

31. Required uniforms and work clothes not suitable for streetwear

32. Union dues

33. Employment agency fees or commissions

34. Home office expenses, if primary place of business

35. Job-seeking expenses within present field of employment

36. New business start-up costs

37. Dues to professional organizations

38. Business gifts up to $25 per customer or client

39. Employment-related moving expenses

40. Business expenses including travel, meals, lodging, and entertainment not reimbursed

      by your employer

41. Cleaning and laundering services while traveling for business

42. Tools bought for use at your job

43. Cellular phones required for business

44. Worthless stock or securities

45. Commission to brokers or agents for sale of property or property management

46. Fees for tax preparation or advice

47. Legal fees to collect taxable alimony

48. Support of a non-dependent student living with you

49. Services of a housekeeper, maid, or cook needed to run your home for the benefit

       f a qualifying dependent while you work

50. Gambling losses to the extent of winning



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