Wednesday, March 13, 2013

2013 Individual Tax Rates

2013 Individual Tax Rates

Important Tax Law Highlights
Under the Act tax rates for individuals will generally remain at 2012 levels for single taxpayers under the income threshold of $400,000 annual income and less than $450,000 for married couples. Find your tax bracket (rate) in the table below.

2013 Individual Tax Rates from

Tax rate
Single filers
Married filing jointly or qualifying widow/widower
Married filing separately
Head of household
Up to $8,925
Up to $17,850
Up to $8,925
Up to $12,750
$8,926 - $36,250
$17,851 - $72,500
$8,926- $36,250
$12,751 - $48,600
$36,251 - $87,850
$72,501 - $146,400
$36,251 - $73,200
$48,601 - $125,450
$87,851 - $183,250
$146,401 - $223,050
$73,201 - $111,525
$125,451 - $203,150
$183,251 - $398,350
$223,051 - $398,350
$111,526 - $199,175
$203,151 - $398,350
$398,351 - $400,000
$398,351 - $450,000
$199,176 - $225,000
$398,351 - $425,000
$400,001 or more
$450,001 or more
$225,001 or more
$425,001 or more

Capital Gains and Dividends
Under the Act a 20% rate applies to long term capital gains and qualified dividends for taxpayers who are taxed at the 39.6% rate. The 15% rate continues for taxpayers in the 25%, 28%, and 35% brackets. For taxpayers in the 10% and 15% brackets the rate remains 0%.

Payroll Tax
The payroll tax reduction of recent years has been allowed to expire. Those taxes will increase for all who have earned income and pay into the Social Security and Medicare systems.

Alternative Minimum Tax (AMT)
The Act permanently indexes the individual AMT exemption amount for inflation. For 2012 the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers.

Estate and Gift tax laws made permanent
The Act will permanently extend the $5,120,000 per person lifetime exemption. This lifetime exemption unifies the estate and gift taxes and will be indexed for inflation. The tax rate is increased from 35% to 40%.
The Takeaway Here: The sophisticated estate and business succession strategies historically available to high net worth taxpayers has been maintained.

IRA Rules
The Act extends the $100,000 charitable rollover provision for IRA's through 2013. In addition a taxpayer is permitted to treat a rollover made during January 2013 as a 2012 rollover.

Taxpayers who took an IRA distribution in December 2012 will be able to contribute any portion of that amount to a charity and count it as an eligible charitable rollover. It must meet all the requirements for an eligible charitable rollover.

Question of the Day: Should one contribute to a Roth or Traditional IRA?

Solution: Generally speaking a Traditional IRA if the deductions would generate significant 2012 tax savings. A Roth IRA may be more appropriate if a tax deduction would reap negligible tax savings in the year contributed.  

In addition the Act amends the provisions applicable to 401k, 403b, government 457b plans, and the Federal Thrift Savings Plan to permit, effective January 1, 2013. Participants in those plans may convert their existing pre-tax deferral accounts into Roth IRA's.

Coverdell Education Savings Accounts will remain at $2,000.

Note: The above is a very brief overview of changes wrought by the "American Taxpayer Relief Act of 2012".

Important: Be sure to work with an accountant who proactively seeks to lessen your tax burden. You need one who does more than simply inputs your data into a computer, then hands you the completed return and a bill that's probably too high for the minimal service rendered.

Seek advice from qualified professionals before proceeding with any strategies discussed in this letter. Each individual situation varies so the solutions vary as well.

Source; Stephen Hood Blog

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