What You Need to Know About Tax Changes for 2013
As the “fiscal cliff” deadline looms, many taxpayers are becoming increasingly nervous about how the tax changes will affect them in the upcoming year. Those who have done a bit of year-end planning may find themselves ahead of the game when April 15th rolls around. While there may be more changes to come, here are some of the changes which have already been put into place for 2013:
- Increased limitation on 401(k) maximum amount from $17,000 -$17,500. Those over 50 are still eligible for the $5,500 “catch up provision” which could make the total pre-tax deferral amount as much as $23,000.
- The gift tax will increase to $14,000 per person in 2013 or $28,000 for a married couple.
- Flexible spending accounts in the workplace which had a $5,000 yearly cap will move down to $2,500 meaning you should consult a tax professional to determine the amount you choose to set aside in your FSA plan.
- In 2013 you will be allowed up to $1,000 of tax free earnings through something known as the “kiddie tax.” Parents should consider such plans as the 529 plan, Uniform Gifts to Minors Act and Uniform Transfer to Minors Act
Depending on the outcome of the fiscal cliff talks, payroll taxes could go up, income tax rates could go up, dividend and capital gains taxes could increase and the child tax credit could be slashed in half. Lawmakers have also kicked around the idea of limiting the current deduction homeowners are allowed to take for mortgage interest—a move which could seriously impacts homeowners, particularly those with larger mortgages.
How You Can Prepare for the Changes
As always, you must keep meticulous records if you plan on itemizing deductions, and you still have until December 31st to make donations and claim them in 2013. For donations under $250, keep an accurate banking record however for donations above $250 it is necessary that you obtain a correctly worded acknowledgement letter regarding the donation. If you have mountains of medical bills and are expecting more, try to get any necessary appointments in before the end of 2012. The law currently mandates that 7.5% of wage earners’ adjusted gross income must be spent on medical and dental costs prior to itemizing them however that figure will rise to 10% in 2013.
As of January 1, 2013, workers who earn more than $200,000 will experience more deductions from their paycheck, and the Medicare tax on wages increases from 1.45 to 2.35 percent. The Educator Expense deduction in the amount of $250, given to teachers who purchased classroom items which were non-reimbursable through their school was allowed to expire along with the deduction for tuition, books and other related college expenses. If you are uncertain about how any of the tax changes which have already taken place or may occur will affect your finances it is important that you speak to a tax professional as well as a tax attorney who can help you determine the best course of action, particularly if you already owe back taxes to the IRS.