With the passage on January 1, 2013 of the tax bill to pull us off the politically made fiscal cliff, there are many questions pertaining to how this legislation affects you individually. In addition there are a number of other taxes, not included in this legislation that will affect you just as much. While I am not a tax expert, nor am I offering tax advice, it is helpful for me to understand these changes since the clients I deal with in the Chicago area want to know how to plan their businesses in the upcoming year.
First the highlights of the new tax structure:
- The top federal tax rate is now 39.5% for singles earning over $400,000 and $450,000 for joint returns.
- Personal exemptions, which include state income tax, mortgage interest and contributions are phased out starting at $250,000 for single filers and $300,000 for joint returns. This will increase the tax for many others in addition to those making over $400,000. This also allows Mr. Obama to say he increased taxes for those earning more than $250,000 per year.
- The gift tax exemption stays at the $5 million mark but the tax rate goes up to 40% from 35%.
There are many more provisions to this legislation and if you have questions on specifics please contact your tax advisor.
The second group of tax changes that went into effect on January 1 and not a part of this legislation will affect many more people. They include:
- The social security tax holiday of 2% was not renewed. Everyone’s tax on social security increased by this 2% going to up to full historic 6.2% of salary up $113,700. There is no limit on the 1.45% Medicare tax.
- The limit on FSA accounts was reduced from $5,000 to $2,500. This is the amount you can put away tax free to pay for medical expenses.
All this is just to remind everyone that planning is critical, not only for your business but how the changes in these laws, as well as a slew of additional regulations will affect how you operate in 2013.