Key Changes That Will Impact Your 2013 Income Tax Liability

In the Press · December 18, 2013

It’s not too late for some last
minute tax planning, especially since you could potentially save thousands of
dollars on your tax liability as a result of some of the changes from
2012.  Some of the more significant changes and potential steps you may
take include: 

Tax Changes from 2012  

  • Tax Rates – Income tax rates have increased with a new
    personal income tax top rate of 39.6% on modified adjusted gross income (AGI)
    above $400,000 for single filers and $450,000 for those filing jointly.
  • Capital Gains Tax – The tax on capital gains and
    dividends has increased to 20% for those in the 39.6% income tax bracket (with
    a possible further increase to 23.8% if the Medicaid surtax described below
    applies).
  • Medicaid Surtax – A new Medicaid surtax of 3.8%
    is levied on certain unearned income. The tax applies to the lesser of net
    investment income or the amount by which modified adjusted gross income exceeds
    $200,000 for single filers and $250,000 for those filing jointly.
  • Deduction Phaseouts – Deductions are phased out for
    single taxpayers with income above $200,000 and for income above $300,000 for
    taxpayers filing jointly. In addition, the deduction floor for medical
    deductions has been increased from 7.5% of AGI to 10% of AGI for most
    taxpayers. 
  • Business Expenses – Businesses may expense up to
    $500,000 of depreciable assets in 2013, but this limit reverts to $25,000 in
    2014. Certain purchases may also be eligible for 50% bonus depreciation. In
    2014, with limited exceptions, bonus depreciation will no longer be available.
  • Gift Taxes – The annual gift tax exclusion for 2013
    is $14,000 per donee without reducing the giver’s estate and lifetime gift tax
    exclusion amount. Thus, a husband and wife may combine their exclusions to give
    up to $28,000 per donee.

Possible Planning Steps

  • Defer Income – If your AGI will be lower in
    2014, deferring income until 2014 may reduce your overall tax liability for the
    two combined years. You may delay billing or taking dividends from your
    business.
  • Accelerate Income – If your AGI will be higher in
    2014, accelerating income to this year may reduce your overall tax liability
    for the two combined years. You may increase collection activity or take
    dividends from your business.
  • Time Sales – You may want to time the sale of assets
    in order to realize a gain or capture losses in order to offset other gains.
  • Deduction Planning – Depending on your AGI, you
    may wish to pay additional deductible expenses in 2013, or defer deductible
    expenses that would otherwise be reduced or lost until 2014.  An analysis
    of your alternative minimum tax (AMT) situation is also important with regards
    to deduction planning, as too many deductions may cause you to be subject to
    the AMT.

For a more detailed explanation of the most significant tax
changes possibly impacting your 2013 tax liability, and possible steps you can
take to minimize your taxes, please click the link below. For questions or concerns
about your specific tax situation, please contact Serge
O. Bechade
, an attorney in the Corporate
Practice Group
and author of this alert. You can reach Serge at 617
456 8016 or sbechade@princelobel.com.