Tax Update

There were several changes to the tax rules and provisions in 2013. The American Taxpayer Relief Act (ATRA), passed in January of 2013, extended many of the tax rates and provisions that were in effect previously. It did include some changes:  notably, the creation of a 39.6% tax bracket for high income taxpayers. This bracket applies to income in excess of $450,000 for joint returns, $425,000 for head of house hold, and $400,000 for individual taxpayers.  Although the 15% capital gains rate was maintained, a 20% capital gains bracket was created for taxpayers at the same high income levels.

The Affordable Care Act (ACA) provided for an additional Medicare tax of .9% for incomes in excess of $200,000 for individuals or $250,000 for joint return filers.

The ACA also created a Medicare tax of 3.8% on net investment income for taxpayers at those income levels.  This act also raised the threshold for deducting medical expenses from 7.5% of AGI to 10% for taxpayers except those over 65. ACA also capped flexible savings accounts at $2,500.

When the Supreme Court ruled that the Defense of Marriage Act (DOMA) was unconstitutional, the IRS ruled that same sex couples who are legally married will be treated as married for federal tax purposes. This is mandatory going forward and prior open returns can be amended.

As a reminder, the annual gift exclusion amount is $14,000. The business mileage reimbursement rate is 56.5 cents per mile.  The contribution limit for Individual Retirement Accounts (IRA) is $5,500 or $6,500 for taxpayers over 50.  This limit applies to traditional and Roth IRA accounts; contributions can be made to either or both, only up to the limit. Contributions may be made until April 15th, but please allow time for processing.

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