The IRS is behind in updating software to accommodate last-minute changes made by Congress, but that shouldn’t stop you from preparing your paperwork and returns.
Take the extending time obtained by the “late start” filing date for individuals (January 31st) to determine if you are getting a refund.
If not, it will give you time to gather the funds to pay the taxman.
The tax changes for 2013, which according to President Barack Obama in a recent speech “will not affect 98% of Americans,” follow:
• High-income households making more than $400,000 (single) or $450,000 (married filing joint), see a tax bracket increase to 39.6% from 35%.
Those in the new high tax bracket will also be subject to a capital gains rate of 20%—up from 15% as well as the 3.8% surcharge from the Affordable Care Act.
• Fiscal cliff legislation, the itemized deduction and personal exemption phase-out are reinstated.
The thresholds are $300,000 for married filing joint, $275,000 for head of household, and $250,000 for single.
What does this mean?
Taxpayers that are affected by this will not be allowed to take all their itemized deductions and personal exemptions will be reduced
• The 2% reduction in Social Security tax was not extended, taking that tax back up to 6.2% after a two year holiday.
Employees will see this in their net pay.
The wage ceiling on which Social Security is taxed has been increased to $113,700.
Medicare tax is unlimited, but if the taxpayer earns more than $200,000 an additional 0.9% will be withheld.
• Congress has patched the Alterna-tive Minimum tax and adjusted it for inflation, which will keep taxes lower for the 60 million Ameri-cans that would have been affected.
• The 2013 standard mileage rates for the use of a car (also vans, pickups or panel trucks) is: 56.5 cents per mile for business miles driven, 24 cents per mile driven for medical or moving purposes, 14 cents per mile driven in service of charitable organizations.
The following tax deductions survived the cuts or were extended past 2013:
1. Discharge of qualified principal residence exclusion.
Filers going through a foreclosure or short sale who may have had loan forgiveness should look into this as it will exclude most, if not all, of the forgiven amount from taxable income
2. Educators may continue to deduct $250 in related job expenses as an adjustment to income
3. Mortgage insurance premiums (not homeowners insurance) may be deducted as mortgage interest
4. The deduction for state and local sales taxes may still be taken
5. The $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the enhanced American Opportunity Tax Credit will all be extended through 2017;
6. Tuition costs may be deducted as an adjustment to income.
7. IRA-to-charity exclusion from taxable income remains including a special provision that allows transfers made in January 2013 to be treated as made in 2012.
Information on these changes and answers too many questions are on the IRS’s website http://www.irs.gov.
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Questions for Deborah Ritz can be e-mailed to The Weekly Adirondack at WeeklyADK@yahoo.com