At the beginning of the year, there were a lot of changes to our tax laws. It is always a good idea to keep up with the major changes.
The best news is that for taxpayers with an Adjusted Gross Income (AGI) of less than $300,000, the majority of the “Bush Tax Cuts” were made permanent. In addition, the personal exemption increased from $3,800 to $3,900 per person. The Alternative Minimum Tax (AMT) has also been fixed by adding an annual inflation adjustment so that Congress doesn’t have to mess with this each year.
On the down side, Medical and Dental expenses can only be deducted if they exceed 10% of AGI. This is a revision up from 7.5% in 2012. What the change means to you is that you need to have more Medical/Dental expense before you can start claiming a deduction.
There is a new top tax bracket in the land. If your income exceeds $450,000, your marginal tax bracket went up from 35% to 39.6%. Also, your long term capital gains and dividend tax rate was increased from 15% to 20%. Those taxpayers with AGI above $300,000 are now limited on the amount of itemized deductions that they can claim.
If your Modified Adjusted Gross Income (MAGI) is above $250,000, there are 2 additional taxes that you need to pay. There is an additional 0.9% in Medicare tax applied for all Medicare wages above $250,000. In addition, you also become subject to the Net Investment Income Tax. This tax is an additional 3.8% tax that is applied to your investment income.
All of the incomes listed above are for Married Couples Filing Jointly. People who are filing as Head of Household, Married Filing Separately and Single Filers have lower thresholds than those listed above. There are many other changes than those listed above. As always, consult a tax adviser if your tax situation is complex.