Tax changes for 2013

A number of tax law changes will occur on January 1, 2013 as existing tax rules expire. The existing tax law has a number of sunset provisions that effect the average taxpayer. I don't expect congress to do anything to extend these provisions prior to the elections in November. Congress may change some or all of these provisions in 2013 and make them retoactive to January 1. The 10% tax rate for lower income amounts will go away and the 15% bracket will be the lowest. The 25% bracket increases to 28%, the 28% goes to 33%, the 33% goes to 36% and the top bracket goes from 35% to 39.6%. Capital gains tax rate increases from 15% to 20%; 18% is held over 5 years. Dividends will be taxed at ordinary income rates. Coverdale Education Savings accounts have the maximum contribution reduced to $500 per year. Student loan interst will only be deductable for the first 60 months of interest payments on the loans. Deductions for adoptions will be decreased. Marriage penalty is back. Standard deduction of married filing joint is 167% of the standard deduction for single filers. It was 200%. Likewise the 15% tax rate applies to 167% of the income spread of the single filers 15% tax table. Again it was 200%. The child tax credit drops from $1,000 per child under 17 years old to $500. Payroll tax cut for social security to 4.2% from 6.2% will return to the 6.2% Likewise the self employment tax rate increases from 10.4% to 12.4%. Hope credit for education drops from $2,000 plus 25% of the next $2,000 in education expenses to $1,000 and 50% of the next $1,000. From a maximum credit of $2,500 to a maximum of $1,500. Exclusion for the discharge of qualified personal residence debt goes away. The short sale or forclosure on your personal residence may result in taxable income. In the past we were able to exclude from income any 1099C issued for cancellation of debt on the personal residence. We may be able to exclude some but not all in the future. A number of other changes are going to happen as well but the changes are more complex and don't effect but a few people. As you can see from the list all these changes result in more taxes being collected. If you have any questions please call KatTax at 702-796-1040 and we will be happy to discuss these issues with you and how they may impact your taxes.