Written by Attorney Shad Brown
New years mean new beginnings, fresh starts and positive feelings as we start all over again. This year, for some, it also means a higher tax bill. In early 2012 Congress passed the American Taxpayer Relief Act of 2012 (ATRA). Only congress can pass a bill in 2013 and call it the tax act of 2012. For the most part, ATRA permanently extended the Bush-era tax cuts. However, these savings did not extend to the highest income earner. Additionally, the Affordable Care Act also imposed new taxes on high income earners. The following is a summary of these and other tax changes that will affect the amount of tax you will pay when you file your income tax return in the next couple of months. If you have any questions on your taxes, contact Phoenix Tax Attorney, Shad Brown.
Tax Rate Increase: The largest change, for high income earners, is an increase in the top marginal tax rate. The marginal income tax rate for the top bracket was increased from 35% to 39.6%. This new rate will apply on all income earned above $450,000 for married couples filing jointly and $400,000 for single filers. In addition to the higher marginal tax rates, the capital gains rate, the preferential rate at which gains on capital assets are taxed, is increased from 15% to 20%.
New Medicare Taxes: In addition to higher tax brackets, the Affordable Care Act also imposed two new Medicare taxes on taxpayers whose income exceeded certain limits. These new taxes are Effective Jan. 1, 2013. The new taxes include: a 3.8% net investment income tax and 0.9% Additional Medicare tax. Generally, these taxes will apply to taxpayers whose income exceeds $200,000 (single), $250,000 (married filing joint) or $125,000 (married filing separately).
Same Sex Marriages: Married same-sex couples now have the option of electing the filing status of married filing joint. To qualify as a married same-sex couple you must have been married in a state, or country, that recognizes same-sex marriages. You do not need to reside in a state that recognizes your marriage in order to file jointly. If you are a same-sex couple and do not wish to elect to file a joint income tax return, you no longer have the option of filing a return under the single filing status. Instead, you must elect married filing separately status.
Home Office Deduction: In 2013, the IRS announced a new optional method to determine your home office deduction. The new method is meant to be easier and will no longer require the tracking of actual expenses. The maximum deduction allowed under this safe harbor method is $1,500 based on 300 square feet. For most of you, tracking actual expenses will result in a higher deduction