Don’t look now, but April 15th, the deadline for filing tax returns, is fast approaching. That means it’s time to start preparing to file state and federal returns, not only by assembling relevant documentation and gathering information on provisions that could impact 2013 tax status, but also by gaining insight into new developments that could affect personal and business tax returns in 2014 and beyond.
What’s new for the 2013 tax year? What’s looming for 2014? The better-informed you are, the better chance you’ll have — with the help of a tax adviser and/or financial planner — maximize your returns while minimizing the stress and unpleasant financial surprises that often accompany the tax filing season. Here’s a look at some of the developments for personal and business filers to keep in mind for this year and next:
No, the filing deadline hasn’t been pushed back. While last fall’s government shutdown has delayed the opening of the IRS’s filing season for 2013 returns to Jan. 31, the April 15, 2014, filing deadline remains intact. However, the IRS has indicated it will not process any tax returns before Jan. 31, so there’s no advantage to filing on paper before the opening date.
For a faster refund, file electronically. “Taxpayers will receive their tax refunds much faster by using e-file or Free File with the direct deposit option,” the IRS said.
Get up to speed on new federal tax provisions that take hold in the 2013 tax year, because at least one or two may affect you. Among the new IRS tax code provisions to keep in mind when filing your 2013 taxes:
- An additional Medicare tax of 0.9% applies to earned income subject to Medicare tax, including railroad retirement (RRTA) compensation and self-employment income exceeding $125,000 (married filing separately), $250,000 (married filing jointly), and $200,000 (any other filing status).
- A new Net Investment Income Tax (NIIT) of 3.8% now applies to the smaller of (a) net investment income or (b) the excess of modified adjusted gross income exceeding $125,000 (married filing separately), $250,000 (married and filing jointly), and $200,000 (any other filing status).
- The highest tax rate, for individuals with income of $400,000 or more and married couples with income of $450,000 or more, increases to 39.6% from 35%, according to June Schroeder, CFP®, with Liberty Financial Services in Elm Grove, WI.
- The capital gains and qualified dividend tax rate increases from 15% to 20% for taxpayers making more than $200,000 (individuals) or $250,000 (couples).
- New rules will limit the tax deductibility of contributions to individual retirement accounts (IRAs) for some higher-earning people, according to Schroeder, who suggests talking with a tax adviser and/or financial planner for guidance, given the complexities of the issue.
- The personal exemption amount increases to $3,900 for taxpayers whose adjusted gross income is less than $150,000 (married filing separately), $250,000 (single), $275,000 (head of household), and $300,000 (any other filing status).
- New limits on the deductibility of itemized deductions apply if your adjusted gross income is more than $150,000 if married filing separately, $250,000 (single), $275,000 (head of household), and $300,000 (any other filing status).
- People with a same-sex spouse in most cases must use the married filing jointly or married filing separately filing status, even if they live in a state (or foreign country) that does not recognize same-sex marriage.
- There’s a new simplified method for calculating the home office deduction.
- Employees now can carry unused money in a health insurance Flexible Spending Account into the following year.
Besides covering general tax filing rules, Publication 17, Your Federal Income Tax, details these and other changes that apply in the 2013 tax year. It’s available via the IRS website at www.irs.gov/uac/Publication-17,-Your-Federal-Income-Tax-1.
More major changes are looming in 2014, according to Schroeder. For example, business owners face a sharp reduction in the Section 179 depreciation deduction for office equipment purchases/leases and the like, from $500,000 to $25,000.
Federal lawmakers also are likely to address other major unresolved tax policy questions sometime this year, including Social Security taxation, the tax deduction for state and local sales taxes, the above-the-line deduction for tuition and fees, and more, she said. So stay tuned.
This column is provided by the Financial Planning Association® (FPA®), the leadership and advocacy organization connecting those who provide, support and benefit from professional financial planning.
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