to Discuss Your 2016 Taxes (7 Tax Law Changes You Must Know Now)
OK, nobody loves tax season. If you’re feeling stressed out by the looming April 15th tax deadline (or the just-passed deadline for company taxes!), take a break. Forget taxes for a moment and instead look ahead to next year. Why?
Because the tax code has changed effective January 1, 2013 and what you are doing today will impact what you pay next year at this time (which should impact your business strategy too!).
The January 2013 deal in congress created the amusingly named “American Taxpayer Relief Act of 2012“. You may not find much relief in this, but here are the 7 most important changes to the 2013 tax code that you should know:
1. Expiration of Social Security Payroll Tax Break
Effective 2013, the payroll tax rate returned to its traditional 6.2% rate. Maybe your employees have already noticed a modest decrease in their paychecks: make sure they know that the difference is caused by Uncle Sam taking a slightly bigger share than last year.
2. Change in Income Tax Brackets
Congress made the Bush-era tax cuts permanent for all Americans, except those in the highest tax bracket. The cut off is different for each filing status: be sure to check out the new 2015 tax brackets.
3. Exemptions and Deductions
The standard personal exemption increased by $100 to $3,900, but those individuals earning $250,000 (or $300,000 for married couples) won’t get the full benefit of that exemption. There was also a small increase in the standard tax deduction, which increased from $5,950 to $6,100 for an individual, and from $11,900 to $12,200 for married couples filing jointly.
4. Increased 401(k) Contribution Limits
While taxpayers could contribute up to $17,000 to a 401(k) in 2012, that amount increases to $17,500 in 2013. The total an employee can contribute, including any match offered by an employer, is $51,000. If you are matching employee contributions to a 401(k), make sure that your budget allows for employees who contribute heavily to their retirement.
5. Limitation on Itemized Deductions
For individuals making $250,000 or more ($300,000 for married couples), the new rules limit the total value of “Schedule A” itemized deductions. Further, the threshold for one particular itemized deduction, medical expenses, was increased to 10% from last year’s 7.5% of adjusted gross income. This making it even more difficult to utilize that deduction, regardless of your income.
6. Estate Taxes
One of the most hotly contested aspects of the recent federal tax debate focused on the estate tax: The exemption for the first $5 million of your estate was set to expire. Rather than cut this benefit, however, Congress raised the exemption amount to $5,250,000.
7. Capital Gains
The majority of Americans will see no change in 2013 to the way their capital gains are taxed. But that’s not true for individuals earning $400,000 and up ($425,000 for heads of household and $450,000 for married couples filing jointly), who will see tax rates on capital gains and dividends will increase from 15% to 20%.
The changes mentioned here relate to the tax year 2013, so they won’t impact the tax return due to the IRS as of April 15, 2013. However, making note of these changes and taking action where necessary could make your life a little easier come April 15, 2014.
Dedicated to your (after-tax) success, Erin Schwartz
Guest blogger and marketing guru Erin Schwartz blogs at www.123Print.com and is a frequent guest contributor to a variety of blogs. 123Print provides customizable business cards, banners, post-it notes and a wide array of products for small businesses and home offices.