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Individual Income Tax Updates for the 2013 Filing Season

Individual Income Tax Updates for the 2013 Filing Season. Agenda. Introduction Agenda Income Tax Rates New Taxes Phase-Outs 2014 Outlook Terminology Contact Information. Income Tax Rates. Federal Rates for 2013: Ordinary Income: 10, 15, 25, 28, 33, 35, and 39.6% 39.6% new for 2013

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Individual Income Tax Updates for the 2013 Filing Season

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  1. Individual Income Tax Updates for the 2013 Filing Season

  2. Agenda • Introduction • Agenda • Income Tax Rates • New Taxes • Phase-Outs • 2014 Outlook • Terminology • Contact Information

  3. Income Tax Rates • Federal Rates for 2013: • Ordinary Income: • 10, 15, 25, 28, 33, 35, and 39.6% • 39.6% new for 2013 • 39.6% rate applies at $400,000/$450,000 • Long-Term Capital Gains: • 0, 15, and 20% • 0% rate applies when in the 10 or 15% brackets noted above • 20% new for 2013 • 20% rate applies when in the 39.6% bracket noted above 1

  4. Income Tax Rates (cont.) • Federal Rates for 2013 (cont.): • Employee portion of Medicare: • 1.45% on income up to $200,000/$250,000 • 2.35% on income above $200,000/$250,000 • MFJ Amounts are combined • Example: • Husband earns $150,000, pays 1.45% • Wife earns $150,000, pays 1.45% • Combined, they have $300,000, which is $50,000 over limit, so that $50,000 is subject to additional 0.9% tax 2

  5. Income Tax Rates (cont.) • California Rates for 2013: • 1, 2, 4, 6, 8, 9.3, 10.3, 11.3, and 12.3% • 10.3% rate applies at $250,000/$500,000 • 11.3% rate applies at $300,000/$600,000 • 12.3% rate applies at $500,000/$1,000,000 • Additional Mental Health Tax of 1% applies at $1,000,000 • No rate difference between ordinary and capital 3

  6. New Taxes • Medicare Tax of 3.8% on net investment income • Interest, Dividends, Annuities, Royalties, Rents • Other passive trades or businesses • Gain from non-trade or business property • Gain from sale of principal residence to extent gain exceeds §121 exclusion ($250,000/$500,000) • Tax is on lesser of net investment income (NII) or the amount by which Modified AGI (MAGI) > $200,000/$250,000 • Example: MFJ, NII = $100,000, MAGI = $300,000, tax would be on lesser ($300,000-$250,000 = $50,000, which is less than $100,000) 4

  7. Phase-Outs • Itemized Deductions: • Federal: • Starts at AGI of $250,000/$300,000 • Phase-out equals 3% of each dollar above AGI threshold • Does not include medical, investment interest, and casualty, theft or wagering losses • Can have up to 80% phased out • Example: MFJ $400,000 AGI, so $400,000-$300,000=$100,000x3%=$3,000 of itemized deductions phased-out 5

  8. Phase-Outs (cont.) • Itemized Deductions: • California: • Starts at AGI of $172,615/$345,235 • Phase-out equals 6% of each dollar above AGI threshold • Does not include medical, investment interest, and casualty, theft or wagering losses • Can have up to 80% phased out • Example: MFJ $400,000 AGI, so $400,000-$345,235=$54,765x6%=$3,286 of itemized deductions phased out 6

  9. Phase-Outs (cont.) • Personal Exemptions: • Federal ($3,900 in 2013): • Starts at AGI of $250,000/$300,000 • Phase-out equals 2% for each $2,500 of AGI above threshold • Can have up to 100% phased out • California ($106 in 2013): • Starts at AGI of $172,615/$345,235 • Phase-out equals $6/$12 for each $2,500 of AGI above threshold • Can have up to 100% phased out 7

  10. Phase-Outs (cont.) • Personal Exemptions (cont.): • Example: MFJ $400,000 • Federal: $400,000-$300,000=$100,000/$2,500=40x2%=80% phased out • California: $400,000-$345,235=$54,765/$2,500=21x$12=$252 phased out 7

  11. 2014 Outlook • Numerous federal provisions (55 total) expired at end of 2013, including: • Deduction for state and local sales taxes • Premiums for mortgage insurance deductible as qualified residence interest • Tax-free IRA distributions to charity • Energy-efficient home improvement tax credits • Exclusion from income for discharge of debt on principal residence 8

  12. 2014 Outlook (cont.) • Pending Federal Legislation: • President Obama’s budget • The Republican’s budget • Rep. Camp’s tax simplification bill • The Senate’s tax simplification bill 9

  13. Terminology • § ___ = Code section of the Internal Revenue Code • Two figures provided (e.g. $250,000/$300,000) represent Single and Married Filing Joint filing status • AGI = Adjusted Gross Income • MFJ = Married Filing Joint • Long-Term = one year or more 10

  14. Contact Info Mark A. Bellows, CPA GALLINA LLP 925 Highland Pointe Drive, #450 Roseville, CA 95678 (916) 784-7800 Email: mbellows@gallina.com LinkedIN: Mark Bellows Twitter: RE_Const_CPA

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