< Full site
Got tax questions? We've got tax answers!
2/1/2013 6:01:00 AM
KINGMAN - Recent changes to tax law brought about by the American Tax Relief Act of 2012 will affect the highest-income earners the most, but nearly 80 percent of those who file a return will see at least a slight increase in 2013.
The Bush era tax cuts have been extended indefinitely for taxpayers making up to $400,000 a year in taxable income, joint filers making up to $450,000 per year and heads of households making up to $425,000 per year.
Taxpayers who earn above those taxable incomes will pay a rate of 39.6 percent, up from 35 percent. The good news for these earners, if there's any to be found, is that thresholds will be indexed to the rate of inflation beginning in 2014.
A double whammy is in store for the nation's highest income earners regarding taxes on long-term capital gains. Those who earn above the thresholds listed above will see those taxes increase from 15 percent to 23.8 percent.
Former Republican presidential nominee Mitt Romney, for example, falls into this category.
And while many tax breaks were extended for middle class income earners, payroll taxes will return to 6.2 percent, meaning most people will see 2 percent less net income on payday.
Independent financial adviser Monica Busch of Busch Investments in Kingman explained in a question and answer session the key elements of the Act, which Congress approved New Year's Day and President Barack Obama signed into law Jan. 2.
The compromise was reached in order to avoid the so-called fiscal cliff.
The Miner: What are the key changes in the American Tax Relief Act?
Busch listed 40 significant changes. Here's an excerpt:
Busch: The top marginal income tax rate is now 39.6 percent. Estate taxes top out at 40 percent with a $5.25 million individual exemption. Upper-income Americans face two healthcare surtaxes in 2013.
(They include a 3.8 percent tax on capital gains for top earners and an additional 0.9 percent in Medicare taxes for tax filers who earn more than $200,000 a year. All workers pay 1.45 percent for Medicare taxes; employers pay an additional 1.45 percent.)
Tax breaks extended or reinstated for 2013:
Short-sale tax relief remains available.
The marriage penalty relief has been permanently extended.
The IRA charitable rollover is back and the Child Tax Credit has been preserved.
Teachers can once again deduct classroom expenses and the Earned Income Credit is higher.
Small business stock gains retain their favorable rules, and more pre-tax salary can be used to pay for commuting costs.
The Miner: What changes should most concern the majority of Mohave County taxpayers?
Busch: The payroll tax holiday is over. Taxes are going up for most Americans - including the middle class.
In 2013, the payroll tax rate returned to its old level and employees will pay 6.2 percent in Social Security taxes rather than the 4.2 percent they paid in 2011-2012.
This year, individual wages up to $113,700 will be subject to the tax, so the maximum payroll taxes that an individual worker could pay in 2013 top out at $7,049.40.
The Miner: What impact will the Patient Protection and Affordable Care Act (commonly known as Obamacare) have on taxpayers this year, particularly as it concerns those who pay taxes on long-term capital gains?
Busch: Dividends will not be taxed as ordinary income. While that is a huge relief for top earners, their dividends and long-term capital gains will still be taxed more in 2013.
Here are the newly adjusted tax rates on both of these forms of investment income: Those in the 10 percent to 15 percent bracket will not be affected.
Those in the 25 percent, 28 percent, 33 percent and 35 percent brackets will pay 15 percent; and those paying 39.6 percent will pay 20 percent (plus a 3.8 percent surtax to help fund the Affordable Care Act).
The Miner: There seems to be a lot of confusion regarding the Earned Income Credit. Can you clarify what changes have been made and which taxpayers will be affected?
Busch: The limit on the Earned Income Credit is higher. Low-wage tax filers may qualify for this break.
Married couples filing jointly with three or more children may qualify for the maximum (credit) for 2013, which is $6,044 (up from $5,891 in 2012).
The Miner: What is the Alternative Minimum Tax exemption and whom will it affect?
Busch: The AMT has been permanently patched. Credit the fiscal cliff deal. The (AMT) has at last been indexed to inflation due to the American Taxpayer Relief Act of 2012.
The fix is retroactive to the beginning of last year, which will spare about 34 million taxpayers from the sting of the AMT as they file 2012 federal returns.
The exemption amounts are: Single filers, $51,900; married filing separately, $40,400; married filing jointly/qualifying widower, $80,800.
Future AMT exemption amounts will be higher, of course.
The Miner: Given the late date of this legislation, how difficult has it been to catch up in time for tax season?
Busch: That is a person-by-person, tax return-by-tax return issue. Some people will be blindsided by changes that have been put into place. Some individuals expecting a refund this year might have to pay additional taxes at filing time.
Note: Busch said readers who want a printed or emailed copy of the tax law changes can contact her assistant, Dee Dee, at (928) 718-1815.
Fundraising begins for new Kingman bandstand
Murder suspect's mental state being reviewed
Bus driver in flood pleads to misdemeanor
Resident rescued from burning Golden Valley home
12 pounds of pot found bundled in back seat, trunk
Aztec Fire Dancers wow Kingman High students
Man shot by Kingman Police officer is indicted
Kingman murder suspect shows restraint during hearing
Kingman Daily Miner Home
< Full site
Copyright © 2014 The Kingman Daily Miner / www.kdminer.com
, All Rights Reserved