The rules for filing taxes can change from year to year so, taxpayers have to keep up. Here’s a look at rules and some tips for preparing your 2013 return from Robert S. Fineman, a certified public accountant from Norwood.
Income tax rates for 2013
Federal rates range from 10 percent to 35 percent unless taxable income exceeds $400,000 for singles or $450,000 for married couples. The rate on income above those amounts is 39.6 percent.
A 0.9 percent Medicare surtax is imposed on wages and self-employment income exceeding $200,000 for singles and $250,000 for married couples. The threshold is $125,000 for married taxpayers who file separately, Fineman said.
There’s also a new 3.8 percent Medicare tax imposed on unearned income, such as investments, for singles with modified adjusted growth income exceeding $200,000, and for couples with adjusted growth income exceeding $250,000.
Alternative minimum tax
Exemption amount for 2013 is $51,900 for singles and $80,800 for married couples.
Same-sex couples are considered married for tax purposes if they are legally married in a jurisdiction that recognized their marriage, regardless of where they currently live.
Estate and gift taxes
Annual tax-free gifts are allowed with a limit of $14,000 per gift. The federal estate tax exemption is set at $5.2 million, with a top tax rate of 40 percent.
These items include state, real estate, and automobile excise taxes that you have already paid, mortgage interest payments, and charitable donations.
But there are limits on benefits from these deductions for single taxpayers who have an adjusted gross income of $250,000 or more, and for married couples with an adjusted gross income of $300,00 or more.
For taxpayers in those income brackets, there are two options for calculating the limits on their itemized deductions. They can take a reduction that is equal to 3 percent of the money they earned beyond the threshold. Or, they can take a reduction that is equal to 80 percent of their itemized deductions.
Does your college student qualify for an exemption?
Even if your child is a full-time student under age 24, claiming the exemption on your return may depend on how much financial support he or she gets from parents.
The expenses to consider include food, clothing, tuition, and educational fees. If your child didn’t have the means to provide more than one-half the cost of those expenses, then you qualify. Failing the support test can deny you the dependency exemption and education-related tax breaks.
It also may make sense for your college student to claim his or her own exemption.
The exemptions begin to phase our for household incomes of $300,000, or $250,000 if you’re single, Fineman said.
“Your child may benefit from the exemption more than you will, by virtue of being able to utilize the full amount and any potential education tax credits,’’ Fineman said.
The full exemption amount is $3,900.
Harvest your losses – or gains
For your 2013 return, the federal tax rate for gains on sales of assets you’ve owned for more than a year can be as high as 20 percent. That rate applies when your taxable income reaches $400,000 as a single filer, or $450,000 when you’re married and filing jointly.
Married couples filing jointly who report up to $72,500 in income are not taxed on capital gains. Same goes for single taxpayers with income up to $36,250.
Here are the remaining rates:
Married couples filing jointly:
15 percent for taxable income between $72,500 and $450,000;
20 percent for taxable income over $450,000.
15 percent for taxable income between $36,250 and $400,000;
20 percent for taxable income over $400,000.
Calculate your investments’ tax efficiency
It’s important to put your money in the right place from a tax point of view, said Fineman.
For investments that are not set aside in retirement accounts, Fineman recommends municipal and government bonds because they are not taxable. If the bonds are issued in your state of residency, they are also exempt from state tax.
Other good choices from a tax point of view are growth stocks, mutual funds, tax-deferred annuities, oil and gas investments, and growth-oriented real estate investment trusts, he said.
When choosing investments for retirement accounts, consider stocks and mutual funds that pay dividends, taxable bonds, real estate investment trusts that are income-oriented, and mutual funds that do a lot of trades, and therefore, could generate a lot of capital gains, Fineman said.
Add up equipment and asset purchases for your business
Businesses can purchase up to $500,000 in new or used equipment and other assets and expense it all, Fineman said. The $500,000 cut off will drop next year.
If you are reporting a loss for the tax year that just ended, you can carry write-offs for equipment and assets forward to 2014.
If asset purchases for your business total $560,000 or more, you can take a bonus appreciation of 50 percent. In this case, only purchases of new equipment qualify.