Watch this page for timely updates about tax and financial information related to your successful philanthropy.
Three things to know:
Permanent alternative minimum tax (AMT) Patch agreed starting in 2013
Return of limitations on itemized deductions (“Pease” limitations)
Other tax increases on high-income taxpayers
ONE: Permanent AMT patch
The American Taxpayer Relief Act (ATRA) permanently “patches” the AMT by increasing the exemption amounts dramatically, and continually adjusting them for inflation in future years. The 2013 exemption amounts are projected as $80,750 for married couples filing jointly, and qualified widow(er)s, $51,900 for single/head of household, and $40,375 for those married persons filing separately.
TWO: Itemized deduction limits
The American Taxpayer Relief Act (ATRA) also revives the phase-out of itemized deductions for higher-income taxpayers, although the phase-out begins at higher levels of income than in the past. The new limitations affect married couples and surviving spouses with adjusted gross income (AGI) of $300,000 or more (or unmarried taxpayers with AGI of $250,000). Now, any itemized deductions will be reduced by three percent of any income in excess of these amounts (up to a maximum of 80% of the itemized deductions).
THREE: Tax increases for upper incomes in 2013:
A. Starting in 2013, a 0.9% Medicare surtax will apply to wages in excess of $200,000 for single taxpayers and over $250,000 for married couples. Also, for the first time ever, a Medicare tax will apply to investment income of high earners. The 3.8% levy will hit the lesser of (1) their unearned income or (2) the amount by which their AGI exceeds the $200,000 or $250,000 threshold amounts. The new law defines unearned income as interest, dividends, capital gains, annuities, royalties, and rents. Tax-exempt interest won’t be included, nor will income from retirement accounts.
From: Health Care Reform: 13 Tax Changes on the Way, by Joan Pryde, senior tax editor, The Kiplinger Letters, October 8, 2010.
B. Also, taxpayers subject to the highest tax bracket of 39.6% (married taxpayers filing jointly with taxable income of $450,000, single taxpayers with income of $250,000 and heads of household with income of $425,000) must as of 2013 pay a tax of 20% on dividends and capital gain, up from 15% formerly. Taxpayers at the 15% tax rate will continue to pay no tax on any dividends or capital gains, while taxpayers in between will continue to pay the 15% rate, as before.