How Will 2013 Taxes Affect You?
IRA Charitable Rollover, Portability Provision Return
The new tax landscape looks very different than it did in 2012. How will the tax law changes affect your situation? Here is a brief summary covering some of what you can expect.
Estate, gift and generation-skipping taxes: The 2013 tax law permanently preserves the current individual gift, estate and generation-skipping tax to a unified $5 million exemption. This amount will be indexed for inflation each year. The top estate and gift tax rates will rise from 35 percent to 40 percent. The annual gift tax exclusion—the amount you can give to anyone gift tax–free each year—is now $14,000 ($28,000 for married couples).
Income taxes: Individual taxpayers earning more than $400,000 a year and married couples earning more than $450,000 will see a tax rate increase. The top income tax rate has been raised to 39.6 percent in 2013. The 2013 ordinary income tax rates are now 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent.
Itemized deductions: The new law officially revives the "Pease" limitation on itemized deductions, including the charitable deduction, on incomes above a certain threshold. For individuals, the threshold amount is $250,000 and for couples it is $300,000. These amounts will be indexed for inflation annually. The Pease limitation on itemized deductions reduces most itemized deductions by 3 percent of the amount by which adjusted gross income exceeds the thresholds. Itemized deductions cannot be reduced by more than 80 percent for any taxpayer. The Pease limitation does not apply to deductions for medical expenses, investment interest, casualty and theft losses, and gambling losses.
Personal exemptions: In 2013, itemized deductions are limited for individuals earning $250,000 or more and for married couples earning $300,000 or more. Personal exemptions for these taxpayers are being phased out.
Payroll taxes: In 2013, the payroll tax will increase from 4.2 percent to 6.2 percent, meaning taxpayers will have more withheld from each paycheck.
Long-term capital gains and qualified dividends: The capital gains and qualified dividend rates will depend on a taxpayer’s ordinary income tax rate. Capital gains will be waived for taxpayers below the 25 percent ordinary income tax rate. For those taxpayers who fall at or above the 25 percent income tax rate but below the 39.6 percent tax rate, the capital gains tax will be 15 percent. For those at the 39.6 percent ordinary income tax rate, the capital gains and qualified divided tax rate will be as high as 20 percent.
Portability: In 2012, if one spouse died without using up his or her federal estate tax exemption, the unused portion could be transferred to the surviving spouse. This was called a portability provision. In 2013, this portability provision was made permanent.
Charitable deduction for donating real property for conservation purposes: Taxpayers are able to take a charitable deduction for qualified conservation contributions, which are contributions of a qualified real property interest to a qualified organization exclusively for conservation purposes.
IRA charitable rollover is back for 2013: Donors age 70½ or older are once again eligible to move up to $100,000 from their IRAs directly to qualified charities without having to pay income taxes on the money. You may make the gift on or before Dec. 31, 2013 to qualify for a 2013 gift. This year, Congress recognized the issues with a late extension and provided two special rules:
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- Qualified distributions made before Feb. 1, 2013, may be counted retroactively for the 2012 tax year.
- A taxpayer who took a distribution from the IRA in December 2012 may make a contribution to a qualified charity before Feb. 1, 2013, and treat that as a direct transfer.
Because of the numerous changes to tax laws in 2013, everyone can expect to be affected. Consult your tax advisor on what the new tax laws will do to your bottom line and how to plan accordingly.
If you are contemplating a charitable gift, please feel free to contact Ms. Andrea Ryan at
800-688-1827 or firstname.lastname@example.org with any questions you may have.