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Tax Law Changes You Need to Know About for 2013

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Tax law changesBy Bonnie Lee

Happy New Year!

I don't know what you did on New Year's Eve, but we all know what Congress did: they finally hammered down some tax legislation for 2013 and beyond.

These last-minutes decisions put the IRS behind when it comes to processing tax returns because the agency has to work to update its software to adjust for the new laws. But just because the IRS is left scrambling, that shouldn't stop you from preparing your income tax return. Even if you can't electronically file as yet, now is the time to get your return in order so you know the news – good or bad – in advance.

Here are the new tax changes for 2013:

If you are a high-income household making more than $400,000 (single) or $450,000 (married filing joint), your tax bracket will be up to 39.6% from 35%. However, this will not affect your 2012 income tax return. Those in the new high tax bracket will also be subject to a capital gains rate of 20% - up from 15% as well as the 3.8% surcharge from the Affordable Care Act.

In a speech following the congressional vote, President Barack Obama declared that the changes pushed through will not affect 98% of Americans.

In the fiscal cliff legislation, the Pease itemized deduction phase-out is reinstated and the personal exemption phase-out will be reinstated. The thresholds are $300,000 for married filing joint, $275,000 for head of household, and $250,000 for single. This means that if you make that kind of money, you will not be allowed to take all of your itemized deductions. Your personal exemptions – another subtraction from your income before taxes are calculated – will be reduced.

Employees' net pay is also now 2% lower as the payroll tax holiday was allowed to expire. This means the full 6.2% of Social Security will now be withheld from your pay. The holiday lasted two years, and this increased percentage will help continue funding to the Social Security system. The wage ceiling on which Social Security is taxed has been increased to $113,700. Medicare tax is unlimited, but if you earn more than $200,000 an additional 0.9% will be withhold.

Congress patched the Alternative Minimum tax and adjusted it for inflation, which will keep taxes lower for the 60 million Americans that would have been affected.

While Congress did take a scalpel to some tax deductions others were left untouched and extended through 2013:

1. Discharge of qualified principal residence exclusion. Filers going through a foreclosure or short sale who may have had loan forgiveness should look into this as it will exclude most, if not all, of the forgiven amount from taxable income
2. Educators may continue to deduct $250 in related job expenses as an adjustment to income
3. Mortgage insurance premiums may be deducted as mortgage interest
4. The deduction for state and local sales taxes may still be taken
5. The $1,000 Child Tax Credit, the enhanced Earned Income Tax Credit, and the enhanced American Opportunity Tax Credit will all be extended through 2017;
6. Tuition costs may be deducted as an adjustment to income
7. IRA-to-charity exclusion from taxable income remains including a special provision that allows transfers made in January 2013 to be treated as made in 2012.

Beginning on Jan. 1, the standard mileage rates for the use of a car (also vans, pickups or panel trucks) will be 56.5 cents per mile for business miles driven, 24 cents per mile driven for medical or moving purposes, and 14 cents per mile driven in service of charitable organizations.

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Amending Your Income Tax Return

What if you've sent in your income tax return for a previous year and then discover you made a mistake? You can make things right by filing an amended tax return. And, don't think an amended return will automatically cost you money; it's perfectly okay to change a return to capture a tax break you missed the first time around.

How to File Taxes with IRS Form 1099-MISC

If you receive tax form 1099-MISC for services you provide to a client as an independent contractor and the annual payments you receive total $400 or more, you'll need to file your taxes a little differently than a taxpayer who only receives regular employment income reported on a W-2.

What If I Did Not File My State Taxes?

At the time of this writing, the only states that do not charge a state income tax are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. If you live or earn money in one of the other 41 states or the District of Columbia, you may need to file a state income tax return by April 15. It is a separate and independent requirement from filing your federal tax return and failure to file it on time may result in interest and penalty charges.

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kent05r

More money out of your paycheck, Taxes that were never told to us, turned into a law by one person, more government control and the low in formed on non informed of fifty four percent that voted him in were lied to or not told the truth at all. This is our current government. People are sharing now, no capitalist allowed. If you built it, its not yours. Good for Donald, warren and George. There all taking there money out of the USA.. And avoiding paying taxes. Even the Obama just purchased a Mansion in Hawaii for forty million dollars of your money. Do you care. No. Some should do well to remember that forty six percent said no to the re-election of this one. Suck it up America, the Socialist idea is here to stay. Read Jim Marrs book, "The Rise of Fourth Reich". All fact of history and the floor plan for you and me. But you don't care to begin with. Because if you read and informed yourself Obama never would of gotten his second swing at taking down America. Bet he gets the job done this time though. Impeach Obama for Benghazi, the worst attack on America since 911, But you don't care."Circuses and Bread" is all you care about. Your going to miss what millions died for you to keep. Impeach Obama.

February 16 2013 at 5:10 PM Report abuse rate up rate down Reply
Robert

This whole fiasco screams for a flat tax

February 08 2013 at 10:23 AM Report abuse rate up rate down Reply
scottee

don't you just hate it when rich politicians call other rich people out for simply obeying the tax code that they wrote?

February 05 2013 at 8:59 AM Report abuse rate up rate down Reply