Tax Law Updates

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Gray Easterling
Gray Easterling

Just received a “special issue” of the Kiplinger Tax Letter that outlines the more recent updates to our voluminous tax code, and thought I would share some of them with you.  For higher income folks—couples with earnings over $250,000 and singles with earnings over $200,000—will pay an additional .9% surtax for Medicare. It applies only to employees’ share of the Medicare tax, not the employer’s share. Another Medicare tax is the 3.8% surtax on net investment income for those married couples with modified adjusted gross income above $250,000; singles, above $200,000. Modified AGI is AGI plus any tax free foreign earned income. Tax free income is exempted, as are payouts from retirement plans.

 

The estate and gift tax exemption for 2013 is $5,250,000 with a tax rate of 40%. If one or more closely held businesses make up greater than 35% of the estate, up to $572,000 of the tax can be deferred with a 2% interest rate on the unpaid balance. The top rate on marrieds with taxable income over $450,000 is now 39.6%. High income taxpayers will lose itemized deductions by 3% of AGI over $300,000 (for married couples), with exemptions for medical expense, investment interest, casualty losses and gambling losses to extent of winnings. The top rate on capital gains increases to 20% for couples with taxable income over $450,000.  Alternative Minimum Tax exemptions are bumped up to $80,800 for couples and are indexed for inflation. The social security wage base rises to $113,700.

 

The basic Medicare Part B premium increases to $104.90 per month this year. If a senior couple’s modified adjusted gross income for 2011 exceeded $170,000, Part B and D surcharges can reach $297.40 per month. Married couples under the age of 65 cannot deduct medical expenses that total less than 10% of AGI. Seniors retain the current 7.5% limit. Limits on deducting long-term care premiums are higher and the limit for tax free payouts on LTC policies has increased.

 

The basic contribution limit for 401k plans has increased to $17,500; SIMPLE IRA’s goes to $12,000 and IRA’s go to $5,500. Seniors can contribute more. The standard mileage allowance is now 56.5 cents per mile. Travel for medical purposes is allowable at 24 cents per mile, while travel for charitable purposes remains at fourteen cents per mile. Misplaced priorities. However, the tax-free direct transfer from IRA’s to charity, up to $100,000 has been reinstated. All the above is a general summary. Please contact your tax advisor for detailed explanations of the various provisions before you take any action. Also, these updates are a small part of an extensive rewrite of the tax law. Does anyone else think it might be time to find a better way to fund the government?

 

We are constantly reading articles about running out of money before we run out of life. An article in the May 16, 2013 online version of Financial Advisor suggests that there are other events that can contribute to a less than pleasant retirement. One is the loss of hearing, which makes it harder to communicate with family and friends. Declining vision is another problem, which may result in having to give up driving. This is a huge loss as it makes one dependent on family and friends for everything we take for granted, like grocery shopping, going to church, visits to see grandchildren and other similar excursions. Dental problems are also more frequent in old age. Note also that Medicare does not cover routine dental or eye care or hearing aids and exams for fitting them.

 

A few nights ago, as my head hit the pillow, I, for some reason, remembered all I have to be thankful for.  Before sleep crept up on me, I was able to give thanks to God for these blessings, known and unknown, made and to be made. It was much better than counting sheep.  You might also add the Collect for Purity: “Almighty God, to you, all hearts are open, all desires known, and from you, no secrets are hid. Cleanse the thoughts of our hearts by the inspiration of your Holy Spirit, that we may perfectly love you, and worthily magnify your holy Name, through Christ our Lord.”

 

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