Many of our clients have reported that persons representing themselves as the IRS call on the phone and ask for money. In many cases they seem to know a great deal about you when they call.
We are now solidly into 2014, so it’s time to start thinking about your 2013 tax bill. One big question to be answered is whether you will owe the dreaded alternative minimum tax with your 2013 Form 1040. Congress originally cooked up the alternative minimum tax (AMT) to make sure high-income types who take advantage of multiple tax breaks would still owe something to Uncle Sam each year. These days, however, upper-middle-income folks are the most likely AMT victims. Here’s what you need to know.
Think of the AMT as a separate tax system with a family resemblance to the more-familiar “regular” federal income tax system. The difference is the AMT system taxescertain types of income that are tax-free under the regular tax system and disallows some regular tax deductions. Also, the maximum AMT rate is “only” 28%
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As Americans across the country rang in the new year, many were unaware that, at midnight, more than 50 different tax breaks expired. According to the Tax Foundation, among them were credits for everything from building motorsports facilities, producing biofuels, conducting business research and development, and even training a mine rescue team.
Clearly, the U.S. tax system can be very complex. Understanding the basics, especially the different types of taxes you may face, can be a valuable tool in financial planning.
Not all taxes are paid at the same time. Some, for example, are deducted from your paycheck. “Generally, three types of taxes will show up on a worker’s pay stub: federal income taxes, payroll taxes (Social Security and Medicare), and state income taxes,” Andrew Lundeen, manager of federal projects at the Tax Foundation, told 24/7 Wall St.
Although the American Taxpayer Relief Act (enacted in January of this year) added or extended several key tax provisions and rates, dozens of tax provisions are set to expire at the end of 2013 (though most relate to businesses, if you have a pass through entity you could feel the affect). Here is a list of a few of them (along with brief commentary):
The Internal Revenue Service has released the final regulations for the 0.9 percent Additional Medicare Tax that was imposed as part of the Affordable Care Act.
The final regulations that were released last week more or less adhere to the proposed regulations that were released last year for the Additional Hospital Insurance Tax on income above threshold amounts, usually referred to as the Additional Medicare Tax (see Tax Strategy: Proposed Guidance on Medicare Contribution Taxes). The tax took effect on January 1 of this year and applies to wages, compensation, and self-employment income above a threshold amount received in taxable years beginning after Dec. 31, 2012. The threshold amounts are $200,000 for single taxpayers and $250,000 for married filing jointly (or $125,000 for married filing separately) taxpayers.
Right now, the only thing that congress and the executive branch can agree on is to disagree. Based on that, 2012 and 2013 will have a lot of uncertainty. Here are some highlights about the tax law that we know now or expect for 2012 and 2013:
Expiring (as in gone) provisions after December 31, 2012:
The 2% Social Security payroll tax cut – expect net checks in 20132 to decrease as Social Security increases back up to 6.2% of wages up to $113,700 (yes the dollar limit is up too!).
The tuition deduction expired after 2011 (not available for 2012) but the education credit is still available for 2012 and beyond.
Mortgage insurance (PMI) is not deductible in 2012.
The 50% bonus depreciation on business assets expires after 12/31/2012.
The estate tax exemption of $5.12 million will decrease to the $1 million level. The default
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