Who Should File a 2013 Tax Return?

Income Tax Service For Individuals – Do you need to file a federal tax return this year? Perhaps. The amount of your income, filing status, age and other factors determine if you must file.

Even if you don’t have to file a tax return, there are times when you should. Here are five good reasons why you should file a return, even if you’re not required to do so:

1. Tax Withheld or Paid. Did your employer withhold federal income tax from your pay? Did you make estimated tax payments? Did you overpay last year and have it applied to this year’s tax? If you answered “yes” to any of these questions, you could be due a refund. But you have to file a tax return to get it.

2. Earned Income Tax Credit. Did you work and earn less than $51,567 last year? You could receive EITC as a tax refund if you qualify. Families with qualifying children may be eligible for up to $6,044. Use the EITC Assistant tool on IRS.gov to find out if you qualify. If you do, file a tax return and claim it.

3. Additional Child Tax Credit. Do you have at least one child that qualifies for the Child Tax Credit? If you don’t get the full credit amount, you may qualify for the Additional Child Tax Credit. To claim it, you need to file Schedule 8812, Child Tax Credit, with your tax return.

4. American Opportunity Credit. Are you a student or do you support a student? If so, you may be eligible for this credit. Students in their first four years of higher education may qualify for as much as $2,500. Even those who owe no tax may get up to $1,000 of the credit refunded per eligible student. You must file Form 8863, Education Credits, with your tax return to claim this credit.

5. Health Coverage Tax Credit. Did you receive Trade Adjustment Assistance, Reemployment Trade Adjustment Assistance, Alternative Trade Adjustment Assistance or pension benefit payments from the Pension Benefit Guaranty Corporation? If so, you may qualify for the Health Coverage Tax Credit. The HCTC helps make health insurance more affordable for you and your family. This credit pays 72.5 percent of qualified health insurance premiums.

To sum it all up, check to see if you would benefit from filing a federal tax return. You may qualify for a tax refund even if you don’t have to file. And remember, if you do qualify for a refund, you must file a return to claim it.

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Individuals – Tax Credits For 2014

Adoption Credit
In 2014, a non-refundable (only those individuals with tax liability will benefit) credit of up to $13,190 is available for qualified adoption expenses for each eligible child.

Earned Income Tax Credit
For tax year 2014, the maximum earned income tax credit (EITC) for low and moderate income workers and working families rises to $6,143, up from $6,044 in 2013. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Child Tax Credit
For tax year 2014, the child tax credit is $1,000 per child.

Child and Dependent Care Credit
If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses in 2014. For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Individuals – Education
American Opportunity Tax Credit and Lifetime Learning Credits
The American Opportunity Tax Credit (formerly Hope Scholarship Credit) was extended to the end of 2017 by ATRA. The maximum credit is $2,500 per student. The Lifetime Learning Credit remains at $2,000 per return.

Interest on Educational Loans
In 2014 (as in 2013), the $2,500 maximum deduction for interest paid on student loans is no longer limited to interest paid during the first 60 months of repayment. The deduction is phased out for higher-income taxpayers with modified AGI of more than $65,000 ($130,000 joint filers).

Individuals – Retirement
Contribution Limits
The elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan remains unchanged at $17,500. Contribution limits for SIMPLE plans remains unchanged at $12,000. The maximum compensation used to determine contributions increases to $260,000 (up $5,000 from 2013).

Income Phase-out Ranges
The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are covered by an employer-sponsored retirement plan and have modified AGI between $60,000 and $70,000, up from $59,000 and $69,000 in 2013.

For married couples filing jointly, in which the spouse who makes the IRA contribution is covered by an employer-sponsored retirement plan, the phase-out range is $96,000 to $116,000, up from $95,000 to $115,000. For an IRA contributor who is not covered by an employer-sponsored retirement plan and is married to someone who is covered, the deduction is phased out if the couple’s modified AGI is between $181,000 and $191,000, up from $178,000 and $188,000.

The modified AGI phase-out range for taxpayers making contributions to a Roth IRA is $181,000 to $191,000 for married couples filing jointly, up from $178,000 to $188,000 in 2013. For singles and heads of household, the income phase-out range is $114,000 to $129,000, up from $112,000 to $127,000. For a married individual filing a separate return who is covered by a retirement plan, the phase-out range remains $0 to $10,000.

Saver’s Credit
In 2014, the AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $60,000 for married couples filing jointly, up from $59,000 in 2013; $45,000 for heads of household, up from $44,250; and $30,000 for married individuals filing separately and for singles, up from $29,500.

Businesses – Standard Mileage Rates
The rate for business miles driven is 56 cents per mile for 2014, down from 56.5 cents per mile in 2013.

Section 179 Expensing
For 2014 the maximum Section 179 expense deduction for equipment purchases decreases to $25,000 of the first $200,000 of business property placed in service during 2014. The bonus depreciation of 50 percent is gone, as is the accelerated deduction, where businesses can expense the entire cost of qualified real property in the year of purchase.

Transportation Fringe Benefits
If you provide transportation fringe benefits to your employees, in 2014 the maximum monthly limitation for transportation in a commuter highway vehicle as well as any transit pass is $130 down from $245 in 2013. The monthly limitation for qualified parking is $250.

While this checklist outlines important tax changes for 2014, additional changes in tax law are more than likely to arise during the year ahead.

Don’t hesitate to call us if you want to get an early start on tax planning for 2014. We’re here to help! For no obligation free consultation contact us today!
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TAX CHANGES FOR 2014

Federal, State, Local and International Taxes – Welcome 2014! As the New Year rolls around, it’s always a sure bet that there will be changes to the current tax law and 2014 is no different. From health savings accounts to retirement contributions and standard deductions, here’s a checklist of tax changes to help you plan the year ahead.

Filing Season Delayed By 10 Days
Taxpayers should note that the 2014 tax season opens on Jan. 31, 2014.

In most years, the filing season opens on Jan. 21; however, due to the 16-day government shutdown that took place in October 2013, the filing season is delayed by 10 days this year. No returns, paper or electronic, will be processed by the IRS before this date.

The April 15 tax deadline is set by statute and will remain in place, although taxpayers can request an automatic six-month extension to file their tax return. If you think you need an extension, please let us know.

INDIVIDUALS
For 2014, more than 40 tax provisions are affected by inflation adjustments, including personal exemptions, AMT exemption amounts, and foreign earned income exclusion, as well as most retirement contribution limits.

For 2014, the tax rate structure, which ranges from 10 to 39.6 percent, remains the same as in 2013, but tax-bracket thresholds increase for each filing status. Standard deductions and the personal exemption have also been adjusted upward to reflect inflation. For details see the article, “Tax Brackets, Deductions, and Exemptions for 2014,” below.

Alternative Minimum Tax (AMT)
Exemption amounts for the AMT, which was made permanent by the American Taxpayer Relief Act (ATRA) are indexed for inflation and allow the use of nonrefundable personal credits against the AMT. For 2014, the exemption amounts are $52,800 for individuals ($51,900 in 2013) and $82,100 for married couples filing jointly ($80,800 in 2013).

“Kiddie Tax”
For taxable years beginning in 2014, the amount that can be used to reduce the net unearned income reported on the child’s return that is subject to the “kiddie tax,” is $1,000 (same as 2013). The same $1,000 amount is used to determine whether a parent may elect to include a child’s gross income in the parent’s gross income and to calculate the “kiddie tax”. For example, one of the requirements for the parental election is that a child’s gross income for 2014 must be more than $1,000 but less than $10,000.

For 2014, the net unearned income for a child under the age of 19 (or a full-time student under the age of 24) that is not subject to “kiddie tax” is $2,000.

Health Savings Accounts (HSAs)
Contributions to a Health Savings Account (HSA) are used to pay current or future medical expenses of the account owner, his or her spouse, and any qualified dependent. Medical expenses must not be reimbursable by insurance or other sources and do not qualify for the medical expense deduction on a federal income tax return.

A qualified individual must be covered by a High Deductible Health Plan (HDHP) and not be covered by other health insurance with the exception of insurance for accidents, disability, dental care, vision care, or long-term care.

For calendar year 2014, a qualifying HDHP must have a deductible of at least $1,250 for self-only coverage or $2,500 for family coverage (unchanged from 2013) and must limit annual out-of-pocket expenses of the beneficiary to $6,350 for self-only coverage (up $100 from 2013) and $12,700 for family coverage (up $200 from 2013).

Medical Savings Accounts (MSAs)
There are two types of Medical Savings Accounts (MSAs): the Archer MSA created to help self-employed individuals and employees of certain small employers, and the Medicare Advantage MSA, which is also an Archer MSA, and is designated by Medicare to be used solely to pay the qualified medical expenses of the account holder. To be eligible for a Medicare Advantage MSA, you must be enrolled in Medicare. Both MSAs require that you are enrolled in a high deductible health plan (HDHP).
Self-only coverage. For taxable years beginning in 2014, the term “high deductible health plan” means, for self-only coverage, a health plan that has an annual deductible that is not less than $2,200 (up $50 from 2013) and not more than $3,250 (up $50 from 2013), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $4,350 (up $50 from 2013).
Family coverage. For taxable years beginning in 2014, the term “high deductible health plan” means, for family coverage, a health plan that has an annual deductible that is not less than $4,350 (up $50 from 2013) and not more than $6,550 (up $100 from 2013), and under which the annual out-of-pocket expenses required to be paid (other than for premiums) for covered benefits do not exceed $8,000 (up $150 from 2013).

AGI Limit for Deductible Medical Expenses
In 2014, the deduction threshold for deductible medical expenses remains at 10 percent (same as 2013, but up from 7.5 percent in 2012) of adjusted gross income (AGI); however, if either you or your spouse were age 65 or older as of December 31, 2013, the new 10 percent of AGI threshold will not take effect until 2017. In other words, the 7.5 percent threshold continues to apply for tax years 2013 to 2016 for these individuals. In addition, if you or your spouse turns age 65 in 2014, 2015, or 2016, the 7.5 percent of AGI threshold applies for that year through 2016 as well. Starting in 2017, the 10 percent of AGI threshold applies to everyone.

Eligible Long-Term Care Premiums
Premiums for long-term care are treated the same as health care premiums and are deductible on your taxes subject to certain limitations. For individuals age 40 or younger at the end of 2014, the limitation is $370. Persons more than 40 but not more than 50 can deduct $700. Those more than 50 but not more than 60 can deduct $1,400, while individuals more than 60 but not more than 70 can deduct $3,720. The maximum deduction $4,660 and applies to anyone more than 70 years of age.

Medicare Taxes
The additional 0.9 percent Medicare tax on wages above $200,000 for individuals ($250,000 married filing jointly), which became effective last year, in 2013, remains in effect for 2014, as does the Medicare tax of 3.8 percent on investment (unearned) income for single taxpayers with modified adjusted gross income (AGI) more than $200,000 ($250,00 joint filers). Investment income includes dividends, interest, rents, royalties, gains from the disposition of property, and certain passive activity income. Estates, trusts and self-employed individuals are all liable for the new tax.

Foreign Earned Income Exclusion
For 2014, the foreign earned income exclusion amount is $99,200, up from $97,600 in 2013.

Long-Term Capital Gains and Dividends
In 2014 tax rates on capital gains and dividends remain the same as 2013 rates; however threshold amounts are indexed for inflation. As such, for taxpayers in the lower tax brackets (10 and 15 percent), the rate remains 0 percent. For taxpayers in the four middle tax brackets, 25, 28, 33, and 35 percent, the rate is 15 percent. For an individual taxpayer in the highest tax bracket, 39.6 percent, whose income is at or above $406,750 ($457,600 married filing jointly), the rate for both capital gains and dividends is capped at 20 percent.

Pease and PEP (Personal Exemption Phaseout)
Both Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) have been permanently extended (and indexed to inflation) for taxable years beginning after December 31, 2012, and in 2014, affect taxpayers with income at or below $254,200 for single filers and $305,050 for married filing jointly.

Estate and Gift Taxes
For an estate of any decedent during calendar year 2014, the basic exclusion amount is $5,340,000, indexed for inflation (up from $5,250,000 2013). The maximum tax rate remains at 40 percent. The annual exclusion for gifts also remains at $14,000.

Don’t hesitate to call us if you want to get an early start on tax planning for 2014. We’re here to help! For no obligation free consultation contact us today!
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How do I know if a worker is an Independent Contractor or an Employee?

Income Tax Service For Small Businesses – The IRS distinguishes between an independent contractor and an employee. Basically, an independent contractor is an independent business person who runs his or her own business but who does work for another business. An employee is hired by a company to perform specific work at the direction of the employer.

The distinction between employees and independent contractors is important, because an employer must deduct Social Security/Medicare taxes from employees and must pay an equivalent amount to the Social Security Administration. If an individual is working as an independent contractor, the “employer” does not make Social Security/Medicare deductions, and the independent contractor must pay his or her own “self-employment taxes” along with income tax on earnings.

To help distinguish between employees and independent contractors, the IRS has set up three general criteria:
• Behavioral Control – If an employer trains and directs work, including hours of work, what tools or equipment to be used, specific tasks to be performed and how the work is to be done; the worker is likely an employee. If the worker can set his or her own hours and works with little or no direction or training, he or she is probably an independent contractor.
• Financial Control – This factor includes how the worker is paid, whether the worker may work for others at the same time, and whether the worker can incur a profit or loss. A worker, who is paid a salary, is restricted from working for others, and who does not participate in company profits or losses, is probably an employee.
• Type of Relationship – The presence of a specific contract may indicate an independent contractor, but this factor alone is not controlling. If the worker is entitled to benefits, this would indicate an employment relationship. Another factor would be the type of work the person does; if it is directly related to the company’s core work, he or she is probably an employee. For example, a maintenance worker would not be doing ‘company’ work if he or she were working for a bank.

It is important to note that the IRS assumes that a worker is an employee. It is sometimes difficult to determine the status of a worker. If you are unsure whether to classify a worker as an independent contractor or employee, you can file a Form SS-8 to request a determination.
See the IRS website for more details on this subject.

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What Factors Does the IRS Look at in Determining Independent Contractor Status?

Income Tax Service For Small Businesses – In the past, a “20 Factor Test” was used to evaluate workers to determine whether they were independent contractors or employees. These factors have been compressed into three general categories: Behavioral Control, Financial Control, and Relationship of the Parties. As you look at the factors below, you should be aware that the IRS does not look specifically at any one factor, but one factor can be enough to cause the IRS to determine that a worker is an employee. There is no “magic number” of factors which determines status. It is also important to remember that the IRS presumes.

To give you more guidance on the issues relating to independent contractors vs. employees, here is a discussion of these factors:
1. Actual instruction or direction of worker – A worker who is required to comply with instructions about when, where and how to work is ordinarily an employee. The instructions may be in the form of manuals or written procedures that show how the desired result is to be accomplished.
2. Training – Training of a worker by an experienced employee working with him by correspondence, by required attendance at meetings and by other methods is a factor indicating control by the employer over the particular method of performance.
3. Integration of Services – Integration of the person’s services in the business operations generally shows that he or she is subject to direction and control.
4. Personal Nature of Services – If the services must be rendered personally, it indicates an interest in the methods, as well as the results. Lack of control may be indicated when the person has the right to hire a substitute with the permission or knowledge of the employer.
5. Similar workers – Hiring, supervising, and payments to assistants on the same job as the worker generally show employer control over the job.
6. Continuing Relationship – The existence of a continuing relationship between an individual and the person for whom he or she performs services tends to indicate an employer-employee relationship.
7. Hours of work – The establishment of set hours of work by the employer bars the worker from being master of his own time, which is the right of the independent contractor.
8. Full-time Work – Full-time work required for the business indicates control by the employer since it restricts the worker from doing other gainful work.
9. Work on Premises – If the worker is required to do the work on the employer’s premises, employer control is implied, especially where the work is of such a nature that it could be done elsewhere.
10. Order of Performance – If the order of the performance of services is, or may be, set by the employer, control by the employer may be indicated.
11. Submitting Reports – The submission of regular oral or written reports indicates control since the worker must account for his or her actions.
12. Method of Payment – If the manner of payment is by the hour, week or month, an employer-employee relationship probably exists; whereas, payment on a commission or job basis is customary where the worker is an independent contractor.
13. Payment of Expenses – Payment of the worker’s business expenses by the employer indicates control of the worker.
14. Tools and Materials – The furnishing of tools, materials, etc., by the employer indicates control over the worker.
15. Investment – A significant investment by the worker in facilities used in performing services for another tends to show an independent status.
16. Profit or Loss – The possibility of a profit or loss for the worker as a result of services rendered generally shows independent contractor status.
17. Exclusivity of Work – Work for a number of persons at the same time often indicates independent contractor status because the worker is usually free, in such cases, from control by any of the firms.
18. Available to General Public – The availability of services to the general public usually indicates independent contractor status.
19. Right of Discharge – The right of discharge is that of an employer. An independent contractor, on the other hand, cannot be “fired” without incurring liability if he or she is producing a result that measures up to his contract specifications.
20. Right to Quit – The right to quit at any time without incurring liability indicates an employer-employee relationship.

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2013 TAX CHANGES FOR BUSINESSES

Income Tax Service For Small Businesses – Whether you file as a corporation or sole proprietor here’s what business owners need to know about tax changes in 2013.

Standard Mileage Rates
The standard mileage rate in 2013 is 56.5 cents per business mile driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

Health Care Tax Credit for Small Businesses
Small business employers who pay at least half the premiums for single health insurance coverage for their employees may be eligible for the Small Business Health Care Tax Credit as long as they employ fewer than the equivalent of 25 full-time workers and average annual wages do not exceed $50,000. The credit can be claimed in tax years 2010 through 2013 and for any two years after that. The maximum credit that can be claimed is an amount equal to 35% of premiums paid by eligible small businesses.

Credit for Hiring Qualified Veterans
The maximum credit that employers can take for hiring qualified veterans in 2013 is $9,600 per worker for employers that operate for-profit businesses, or $6,240 per worker for tax-exempt organizations.

Section 179 Expensing
In 2013 the maximum Section 179 expense deduction for equipment purchases is $500,000 of the first $2,000,000 of certain business property placed in service during the year. The bonus depreciation is 50% for qualified property that exceeds the threshold amount.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
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RETIREMENT – 2013 TAX CHANGES FOR INDIVIDUALS

Contribution Limits
Income Tax Service For Small Businesses – For 2013, the elective deferral (contribution) limit for employees who participate in 401(k), 403(b), most 457 plans, and the federal government’s Thrift Savings Plan is $17,500. For persons age 50 or older in 2013, the limit is $23,000 ($5,500 catch-up contribution). Contribution limits for SIMPLE plans remain at $12,000 for persons under age 50 and $14,500 for persons age 50 or older in 2013. The maximum compensation used to determine contributions increases to $255,000.

Saver’s Credit
In 2013, the AGI limit for the saver’s credit (also known as the retirement savings contributions credit) for low-and moderate-income workers is $59,000 for married couples filing jointly, $44,250 for heads of household, and $29,500 for married individuals filing separately and for singles.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
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2013 TAX CHANGES FOR INDIVIDUALS – TAX CREDITS

ABA Tax Accounting | Income Tax Service for Individuals

Adoption Credit
In 2013 a nonrefundable (i.e. only those with a tax liability will benefit) credit of up to $12,970 is available for qualified adoption expenses for each eligible child.

Child and Dependent Care Credit
The child and dependent care tax credit was permanently extended for taxable years starting in 2013. If you pay someone to take care of your dependent (defined as being under the age of 13 at the end of the tax year or incapable of self-care) in order to work or look for work, you may qualify for a credit of up to $1,050 or 35 percent of $3,000 of eligible expenses.

For two or more qualifying dependents, you can claim up to 35 percent of $6,000 (or $2,100) of eligible expenses. For higher income earners the credit percentage is reduced, but not below 20 percent, regardless of the amount of adjusted gross income.

Child Tax Credit
For tax year 2013, the child tax credit is $1,000. A portion of the credit may be refundable, which means that you can claim the amount you are owed, even if you have no tax liability for the year. The credit is phased out for those with higher incomes.

Earned Income Tax Credit (EITC)
For tax year 2013, the maximum earned income tax credit (EIC) for low and moderate income workers and working families rises to $6,044, up from $5,891 in 2012. The maximum income limit for the EITC rises to $51, 567 (up from $50,270 in 2012) for married filing jointly. The credit varies by family size, filing status and other factors, with the maximum credit going to joint filers with three or more qualifying children.

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
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Three Year-End Tax Tips to Help You Save

Payroll Service for Small Businesses – Although the year is almost over, you still have time to take steps that can lower your 2013 taxes. Now is a good time to prepare for the upcoming tax filing season. Taking these steps can help you save time and tax dollars. They can also help you save for retirement. Here are three year-end tips from the IRS for you to consider:

1. Start a filing system. If you don’t have a filing system for your tax records, you should start one. It can be as simple as saving receipts in a shoebox, or more complex like creating folders or spreadsheets. It’s always a good idea to save tax-related receipts and records. Keeping good records now will save time and help you file a complete and accurate tax return next year.

2. Make Charitable Contributions. If you plan to give to charity, consider donating before the year ends. That way you can claim your contribution as an itemized deduction for 2013. This includes donations you charge to a credit card by Dec. 31, even if you don’t pay the bill until 2014. A gift by check also counts for 2013 as long as you mail it in December. Remember that you must give to a qualified charity to claim a tax deduction.
Make sure to save your receipts. You must have a written record for all donations of money in order to claim a deduction. Special rules apply to several types of property, including clothing or household items, cars and boats. For more about these rules see Publication 526, Charitable Contributions.

If you are age 70½ or over, the qualified charitable distribution allows you to make tax-free transfers from your IRAs to charity. You can give up to $100,000 per year from your IRA to an eligible charity, and exclude the amount from gross income. You can use the excluded amount to satisfy any required minimum distributions that you must otherwise receive from your IRAs in 2013. This benefit is available even if you do not itemize deductions. This special provision is set to expire at the end of 2013.

3. Contribute to Retirement Accounts. You need to contribute to your 401(k) or similar retirement plan by Dec. 31 to count for 2013. On the other hand, you have until April 15, 2014, to set up a new IRA or add money to an existing IRA and still have it count for 2013.

The Saver’s Credit, also known as the Retirement Savings Contribution Credit, helps low- and moderate-income workers in two ways. It helps people save for retirement and earn a special tax credit. Eligible workers who contribute to IRAs, 401(k)s or similar workplace retirement plans can get a tax credit on their federal tax return. The maximum credit is up to $1,000, $2,000 for married couples. Other deductions and credits may reduce or eliminate the amount you can claim. We are always available to assist you.
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2013 TAX CHANGES FOR INDIVIDUALS

Income Tax Service For Individuals – From personal deductions to tax credits and educational expenses, many of the tax changes affecting individuals were related to the signing of the American Taxpayer Relief Act (ATRA), which modified, made permanent, or extended a number of tax provisions that expired in 2010 and 2011. With that in mind, here’s what individuals and families need to know about tax changes that took effect in 2013.

Personal Exemptions
The personal and dependent exemption for tax year 2013 is $3,900.

Standard Deductions
In 2013 the standard deduction for married couples filing a joint return is $12,200. For singles and married individuals filing separately, it’s $6,100, and for heads of household the deduction is $8,950.

The additional standard deduction for blind people and senior citizens increases in 2013 to $1,200 for married individuals and $1,500 for singles and heads of household.

Income Tax Rates
Beginning in tax year 2013, a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates–10, 15, 25, 28, 33 and 35 percent–remain the same as in prior years.

Due to inflation, tax-bracket thresholds increased for every filing status. For example, the taxable-income threshold separating the 15-percent bracket from the 25-percent bracket is $72,500 for a married couple filing a joint return.

Estate and Gift Taxes
The recent overhaul of estate and gift taxes means that there is an exemption of $5.25 million per individual for estate, gift and generation-skipping taxes, with a top rate of 40%. The annual exclusion for gifts is $14,000.

Alternative Minimum Tax (AMT)
AMT exemption amounts were made permanent and indexed for inflation retroactive to 2012. In addition, non-refundable personal credits can now be used against the AMT. For 2013 exemption amounts are $51,900 for single and head of household filers, $80,800 for married people filing jointly and for qualifying widows or widowers, and $40,400 for married people filing separately.

Marriage Penalty Relief
For 2013, the basic standard deduction for a married couple filing jointly is $12,200.

Pease and PEP (Personal Exemption Phaseout)
Pease (limitations on itemized deductions) and PEP (personal exemption phase-out) limitations were made permanent by ATRA and affect taxpayers with income at or above $250,000 (single filers) and $300,000 for married filing jointly starting with tax year 2013.

Flexible Spending Accounts (FSA)
Flexible Spending Accounts are limited to $2,500 per year starting in 2013 (indexed to inflation) and apply only to salary reduction contributions under a health FSA. The term “taxable year” as it applies to FSAs refers to the plan year of the cafeteria plan, which is typically the period during which salary reduction elections are made.

Specifically, in the case of a plan providing a grace period (which may be up to two months and 15 days), unused salary reduction contributions to the health FSA for plan years beginning in 2012 or later that are carried over into the grace period for that plan year will not count against the $2,500 limit for the subsequent plan year.

Further, the IRS is providing relief for certain salary reduction contributions exceeding the $2,500 limit that are due to a reasonable mistake and not willful neglect and that are corrected by the employer.

Long Term Capital Gains
In 2013 tax rates on capital gains and dividends for taxpayers whose income is at or below $400,000 ($450,000 married filing jointly) remains at 2012 rates. For taxpayers in the lower tax brackets (10% and 15%), the rate remains at 0%, (the same as in 2012). For taxpayers in the middle tax brackets however, the rate increases to 15%. For taxpayers whose income is at or above $400,000 ($450,000 married filing jointly), the rate for both capital gains and dividends is capped at 20% (up from 15% in 2012).

Please contact us if you need help understanding which deductions and tax credits you are entitled to. We are always available to assist you.
ABA Tax Accounting
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