Are you unsure
what expenses you can deduct from your moonlighting income? Not sure what to
track all year for professional expenses? Do you want to make sure you receive
the maximum deduction allowed for work-related expenses? If so, this
recorded webinar is
for you! Learn what the most common expenses allowable for healthcare
professionals are and how to track them to make tax time easy!
Are you looking for a recap of the 2013 tax law changes and how they’ll
impact you? Do you need help navigating your retirement planning options for
2013? If so, this
recorded webinar is for you! Learn what tax changes are coming in
2013 to capital gains, deductions, personal tax rates, Medicare and Social
Security. Rick also covered how to choose the retirement vehicles that
will bring you the most savings.
THE NEW AMERICAN TAXPAYER RELIEF ACT: HOW MUCH RELIEF IS IN IT
Taxpayer Relief Act of 2012 rescued the vast majority of Americans from the
tax edge of the “fiscal cliff” and the steep tax increases scheduled to kick
in as the Bush tax cuts expired at the end of 2012. This legislation,
however, did not entirely spare high-income earners. Here are the key
provisions of the Act passed on the first day of 2013, how they may affect
you, and strategies you can implement to minimize your tax burden under
these new rules:
On The Income Side
Rate Increases to 39.6%
January 1, 2013, the Act raises the top federal marginal income tax rates from
the 35% max in place since the Bush tax cuts to 39.6% for taxable income above
the following thresholds: $400,000 for Single filers; $425,000 for Heads of
Household; $450,000 for Married Filing Jointly and qualifying surviving spouses;
and $225,000 for those Married Filing Separately. Translating this provision
into real numbers, a married couple with $600k of taxable income will now pay
just under $7,000 in additional federal income taxes in 2013 than they
did in 2012, while an individual earning at the same income level will pay just
over $9,000 more in federal income taxes.
Increase in Federal Income Taxes For 2013 Due To The 39.6% Tax Rate
New Investment Tax Rates
2013, the top tax rate for dividends and capital gains is permanently set at
20%, a whopping one-third increase from the top rate of 15% in place since 2003,
starting at the same income levels as the 39.6% tax rates.
The tax rate for dividends was set to revert to one’s marginal tax rate per the
pre-2003 Bush rules, so the Act provides some relief to high-wage earners with
substantial corporate dividend income.
mind that the Affordable Care Act enacted an additional Medicare tax of 3.8% on
unearned income for married couples with adjusted gross income (AGI) over
$250,000 and individuals with AGI over $200,000, effective January 1, 2013.
Unearned income includes interest, dividends, capital gains, annuities,
royalties, and rents.
Tax Rates for Capital Gains and Qualified Dividends
– 2012 vs 2013
Gains and Qualified Dividends -2012 rates
Gains and Qualified Dividends -2013 rates
Increase in Tax Rates on Investments 2012 vs 2013
$0 - $36,250
$0 - $72,500
$36,250 - AGI of $200,000
$72,500 - AGI of $250,000
$200,000 - taxable income of $400,000
$250,000 - taxable income of $450,000
concerned about paying higher taxes on the sale of your personal residence,
please note that the first $500,000 of gain on your home for a married couple
and $250,000 of gain for unmarried individuals is exempt from all taxes,
including this 3.8% Medicare surtax, when your home qualifies for the residence
gain exclusion. To qualify, you need to own your home and use it as your primary
residence for two out of the five years prior to the date the home is sold.
What’s Being Deducted From Your Deductions
Please, No Pease!
At first blush,
you may be inclined to utter this lament when learning about the reduction of
your itemized deductions due to the Pease Limitation. Fear not: This provision
should leave many popular deductions intact for most taxpayers, including
deductions for mortgage interest and charitable giving.
Here’s how it
works: For a married couple, the Pease Limitation phases out itemized deductions
by 3% of the amount that their adjusted gross income is over $300,000 [for
individuals, the threshold is $250,000]. A married couple with an AGI of
800,000, for example, loses the right to deduct the first $15,000 of their
itemized deductions. Since most of you already deduct more than this amount in state
income taxes paid when you itemize, you effectively will still be able to deduct
your mortgage interest and charitable giving. Take note that no matter how high
your income, your itemized deductions cannot be phased out by more than 80%.
Exemptions Phased Out
Similar to the
phase out of itemized deductions, personal exemptions will be phased out at the
rate of 2% for each $2,500 above $300,000 in income for married couples and
$250,000 in income for individuals, causing high-income taxpayers to lose out on
the tax break for themselves, their spouse, and their children and other
You no longer
have to worry from year to year whether the government will
patch the dreaded
AMT. The Act permanently indexes the AMT to inflation, saving millions of people
earning somewhere between $150,000 and $750,000 from paying this tax, and reducing the AMT
for most other individuals who will end up paying this tax.
Payroll Tax Cuts
The Act restores
the pre-2011 Social Security tax rate of 6.2% on all non-government employees,
after two years at a reduced rate of 4.2%. Physicians earning more than $113,700
should expect to pay an additional $2,274 in social security taxes in 2013 than
in each of the previous two years.
Deduction Limit Maintained at Half A Million
For those of you
who are practice owners, you will be able to write off up to $500,000 in
equipment and machinery purchases under Section 179 in 2013, and this amount is
retroactive for 2012 as well. Prior to the legislation, the available Section
179 would have been drastically reduced to a paltry $25,000 in 2013. Under Section 179
of the IRS Tax Code, a taxpayer can elect to write-off the cost of equipment
purchased and placed into business use during the year instead of “depreciating”
those assets over their useful life of 5 or 7 years, allowing for a much larger
upfront tax deduction.
With the top
marginal tax rate as high as it’s been in several years, and the new Medicare
tax on investment income kicking in on January 1st, what can you do
to minimize your tax burden?
Invest in retirement
Always a good
idea, socking away money in retirement
accounts is even more valuable now when it means
saving 39.6% in federal income taxes and allowing your investment to grow
tax-deferred. You should also consider rebalancing your portfolio, putting less
tax-efficient investments in your tax-advantaged accounts while keeping index
funds, ETFs, non-dividend paying stocks, and tax-exempt bonds and bond funds in
your taxable accounts.
a 529 plan
income taxes higher in 2013, take the opportunity to invest in a 529 plan to
begin planning for your child’s college education. All earnings in a 529 plan
are tax-free, provided that the funds are used to pay for college. And many
states even allow you to deduct a 529 contribution on your state tax return. The
annual maximum contribution into these tax-advantaged college savings plans
is $14,000 per child per year for Gift Tax purposes (or $28,000 for spouses
splitting gifts), however, you can frontload five year’s worth of contributions
all in one year. Don’t forget to file a Gift Tax Return if you contribute more
than $14k ($28k if married) into 529 accounts in one calendar year on behalf of
needed equipment and machinery for your practice
With the fate of
the Section 179 deduction up in the air past 2013, it might be in your best
interest to buy big-ticket equipment and machinery during the year to take
advantage of the immediate deduction.
spouse and children
If there’s extra
work to be done at your practice,
putting your children and spouse on your
payroll can be a great way to shift income to a lower tax bracket (in your
child’s case) and enable your spouse to put away the maximum ($17,500 for 2013)
pre-tax into a 401k retirement fund. Moreover, your child can fund a Roth IRA with
the money they earn, up to a maximum of $5,500 in 2013.
Health Savings Account
If you have a
qualified high-deductible health insurance plan, take advantage of the
opportunity to pair it with a Health Savings Account (HSA). Contributions to an HSA are tax-deductible, grow tax-deferred, and allow tax-free distributions to
cover your family’s health care costs. Plus, any money remaining in the HSA is
available penalty-free to supplement your retirement once you reach age 65. The
maximum contribution into an HSA for 2013 is $6,450 for married couples and
$3,250 for single individuals.
By and large, the
American Taxpayer Relief Act maintained the status quo for most lower and
middle-income Americans by extending many provisions into 2013 and making
permanent many others. Those of you at the upper end of the income spectrum,
however, may not feel as lucky. If that’s the case, perhaps you can take solace
in the fact the Act did shunt some of the drastic tax increases set to take
place. If there’s little comfort in that, remember that things could be much
worse: The top marginal rate, a little more than 30 years ago, was at 70% after
Bohigian, EA, is a staff accountant at
Schwartz PC with a MS in Accounting and an MBA from Boston College.
ISSUES A SIMPLIFIED WAY TO CALCULATE THE HOME OFFICE DEDUCTION
Rev-Proc 2013-13 to learn about a simplified way that taxpayers can
calculate the home office deduction starting in 2013. Here is the
press release issued by the IRS:
IRS Announces Simplified Option for
Claiming Home Office Deduction Starting This Year; Eligible Home-Based
Businesses May Deduct up to $1,500; Saves Taxpayers 1.6 Million Hours A Year
Jan. 15, 2013
— The Internal Revenue Service today announced a simplified option that many
owners of home-based businesses and some home-based workers may use to
figure their deductions for the business use of their homes.
In tax year
2010, the most recent year for which figures are available, nearly 3.4
million taxpayers claimed deductions for business use of a home (commonly
referred to as the home office deduction).
optional deduction, capped at $1,500 per year based on $5 a square foot for
up to 300 square feet, will reduce the paperwork and recordkeeping burden on
small businesses by an estimated 1.6 million hours annually.
"This is a
common-sense rule to provide taxpayers an easier way to calculate and claim
the home office deduction," said Acting IRS Commissioner Steven T. Miller.
"The IRS continues to look for similar ways to combat complexity and
encourages people to look at this option as they consider tax planning in
option provides eligible taxpayers an easier path to claiming the home
office deduction. Currently, they are generally required to fill out a
43-line form (Form
8829) often with complex calculations of allocated expenses,
depreciation and carryovers of unused deductions. Taxpayers claiming the
optional deduction will complete a significantly simplified form.
homeowners using the new option cannot depreciate the portion of their home
used in a trade or business, they can claim allowable mortgage interest,
real estate taxes and casualty losses on the home as itemized deductions on
Schedule A. These deductions need not be allocated between personal and
business use, as is required under the regular method.
expenses unrelated to the home, such as advertising, supplies and wages paid
to employees are still fully deductible.
restrictions on the home office deduction, such as the requirement that a
home office must be used regularly and exclusively for business and the
limit tied to the income derived from the particular business, still apply
under the new option.
simplified option is available starting with the 2013 return most taxpayers
file early in 2014. Further details on the new option can be found in
Revenue Procedure 2013-13, posted on IRS.gov. Revenue Procedure
2013-13 is effective for taxable years beginning on or after Jan. 1, 2013,
and the IRS welcomes public comment on this new option to improve it for tax
year 2014 and later years. There are three ways to submit comments.
Notice.Comments@irscounsel.treas.gov. Include “Rev. Proc. 2013-13” in
the subject line.
to: Internal Revenue Service, CC:PA:LPD:PR (Rev. Proc. 2013-13), Room
5203, P.O. Box 7604, Ben Franklin Station, Washington, DC 20044.
deliver to: CC:PA:LPD:PR (Rev. Proc. 2013-13), Courier’s Desk, Internal
Revenue Service, 1111 Constitution Avenue NW, Washington, DC, between 8
a.m. and 4 p.m., Monday through Friday.
Businesses that pay independent contractors $600
or more for services during any calendar year
MUST issue a
Form 1099-MISC at the end of the year to the
independent contractor. A business is any
activity operated for profit. An independent
contractor is a person or business not
incorporated, or an attorney whether incorporated
or not, who performs services of any kind for a
business. Forms 1099 for 2012 must be
given/sent to the recipient on or before
January 31, 2013 and sent to the IRS on or
before February 28. 2013.
Failure to file the required Forms 1099 can
result in penalties of up to $500 for each form
not filed. Failure to file Forms 1099 can also
result in loss of deduction of the payment to
the independent contractor from business expense
which increases net income and costs more tax.
There are two new questions on every
business tax return. Question #1 is, “Did
you make any payments in 2012 thatwould
require you to file Forms 1099?” Question
#2 is, “If “Yes,”did you or will you
file all required Forms 1099?”Failure
to answer the questions or answering the
questions untruthfully makes a taxpayer subject
to penalties of perjury.
Begin collecting information at the beginning of
the year. Keep a supply of
Forms W-9 on hand. The forms provide the
information necessary to properly complete the
1099, including name, address and social
security or employer identification number. The W-9s
should be filled out by the contractor, because
they provide verification that you complied with
the law, should the contractor/vendor provide
you with incorrect information. Each time a new
independent contractor comes to work for you,
have them fill out a W-9, even though you don’t
plan on paying them $600 at that time. Should
you use their services later in the year, and
total payment exceeds $600, you already have the
Our firm provides Form 1099 preparation
services. If you need help or have a question,
please call us.
For 2012, the standard deduction for a single individual is $5,950 and
for a married couple is $11,900. A person will benefit by itemizing once
allowable deductions exceed the applicable standard deduction. Itemized
deductions include state and local income taxes (or sales taxes), real estate
taxes, mortgage interest, charitable contributions, and unreimbursed employee
For 2012, the personal exemption is $3,800.
Individuals will claim a personal deduction for themselves, their spouse, and
The maximum earnings subject tosocial security taxes is $113,700
for 2013, up from $110,100 for 2012.
The standard mileage rateis $.565 per business mile as of
January 1, 2012, up one cent from $.555 per mile since July 1, 2011.
The maximum annual salary deferral into a 401(k) plan or a
403(b) plan is $17,500 in 2013, up from $17,000 in 2012. And if
you'll be 50 or older by December 31st, you can contribute an extra $5,500 into
your 401(k) or 403(b) account that year.
The maximum annual contribution to your IRA is $5,000 for
2012, increasing to $5,500 in 2013. And if you turn 50 by December 31st,
you can contribute an extra $1,000 that year. You have until April 15,
2013 to make your 2012 IRA contributions.
In a shocking development, the
IRS recently announced that they will be honoring the FICA tax refunds
submitted by residency programs and individual doctors. The catch is
that only FICA taxes paid prior to 4/1/05 qualify.