Income Tax Changes You Need to Know in 2013

Income tax filing begins Wednesday Jan. 30. A new year means immediate attention on income taxes which are due in just two-and-a-half months.

A new year means immediate attention on income taxes which are due in just two-and-a-half months.

We’re back with our first article of 2013.

Are you missing 2013 IRS tax instruction?

Don’t worry – just about everyone is missing them.

The debate over the Fiscal Cliff which wasn’t resolved until after the first of the year has delayed the IRS from sending them because of the many changes Congress made to the tax code. Printing them this year is taking more time than usual.

As a result, the IRS will begin accepting completed tax returns Thursday, January 30.

Because filing your return is later than usual, your refund – if you are getting one – will be later too. Some tax experts are saying the first returns will be made in mid-February

What are the changes for your taxes this year?

3.8% Surtax on Investment Income: This new tax will be applied to your investment income if your adjusted gross income is more than $250,000 for married taxpayers filing jointly and $200,000 for single taxpayers. Investment income includes but is not limited to, interest, dividends, rents,royalties and gain on from the sale of a second home. The surtax also applies to trusts and estates if the income is more than $12,000 and is not paid out to beneficiaries.

Medical Device Manufacturing Tax: This tax of 2.3% will be applied to the gross sales of medical device makers, think companies that manufacture pacemakers, vital sign monitoring equipment, etc. There is a small exception for eyeglasses, contact lenses, hearing aids and devices deemed to be purchased by the public at retail for individual use. This tax may only be levied on manufacturers, but is sure to passed along to the consumer.

Medicare Payroll Tax Increase: The Medicare tax will increase .9 percent from 1.45 percent to 2.35 percent on wages above $250,000 for married taxpayers filing jointly and above $200,000 for single taxpayers. There is no cap on this tax, so it applies to whatever amount you earn above the triggering income.

High Medical Bills Tax: You have always been able to deduct medical bills that exceeded 7.5% of your adjustedgross income on your Form 1040. As of January 1, the threshold will increase from 7.5% to 10%, increasing the amount you will pay in taxes.

Flexible Spending Account Cap: Flexible Spending Accounts are accounts that millions use to pay for medical expenses pre-tax. You could also contribute to these accounts without limitations, but effective January 1, they will have a $2,500 annual cap.

Social Security: 2013 Social Security Wage Base has increased to $113,700, an increase of $3,600 from the 2012 wage base of $110,100. As in prior years, there is no limit to the wages subject to the Medicare tax; therefore all covered wages are still subject to the 1.45% tax.

Medicare: In 2013 taxable Medicare wages paid in excess of $200,000 are subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax.

Expired Payroll Tax Cut resulting in 2% more in employee social security tax withholding.

As of December 31, 2012, the Payroll Tax Cut expired. This cut reduced payroll taxes by 2%. The 2012 FICA tax rate was 4.2% for employees and 6.2% for employers under the Middle Class Tax Relief and Job Creation Act of 2012.

The employee rate will withhold based on 6.2% with paychecks beginning in January 2013.

The 2013 FICA tax rate, which is the combined Social Security tax rate of 6.2% and the Medicare tax rate of 1.45%, will be 7.65% for 2013 up to the social security wage base.

The maximum social security tax employees and employers will each pay in 2013 is $7,049.40. This will be an increase of $2,425.20 for employees and $223.20 for employers. The employer rate remains 6.2 percent.

The Medicare rate, also matched by the employer, is unchanged at 1.45 percent and applies to all wages.

We’ll have more updates and tips about how we can help you create a financial plan that addresses the best tax strategy for you and your family.

The views expressed are by Sheldon Harber and should not be considered legal or tax advice. Please see a qualified attorney or accountant for answers to specific questions.

Investors should carefully consider the investment objectives, risks, fees and expenses before investing. For this and other important information please obtain the investment company fund prospectus and disclosure documents from your Rep/Advisor. Read this information carefully before investing. Diversification and asset allocation strategies do not assure profit or protect against loss.

You’re best served by an experienced financial and tax professional. Asset Strategies, Inc. has been serving clients for over 60 years. Visit us at our website, www.assetstrategiesinc.com, call us at 314-432-0288 or email me at Sheldon@assetstrategiesinc.com.

We also provide services in Chicago. Call Paul Wedeen at 630-556-4672 or email him at Paul@assetstrategiesinc.com.

Securities offered through a non-affiliated company, Cambridge Investment Research, Inc., a registered Broker/Dealer, Member FINRA/SIPC. Investment Advisory Services offered through Cambridge Investment Research Advisors, Inc. a registered Investment Advisor

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