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Koontz & Parkin, CPAs Individual Income Tax
Planning, calculating, and paying income tax can be complicated. The professional tax services provided by the Sarasota CPA firm of Koontz & Parkin, CPAs can ease the stress of income tax payment with comprehensive individual income tax preparation and planning services.
New Laws Make Certified Public Accountants a Necessity for Smart Tax Planning
Each year, the federal government passes new laws regarding income taxes, and recently, the government has made more sweeping changes than ever before. When President Obama signed The American Taxpayer Relief Act into law it reduced the amount of income tax to be paid by most Americans and it extended many tax incentives, either permanently or temporarily.
While the Act is primarily beneficial for most Americans, not all of its provisions work to your advantage. In addition, the widespread changes make income tax planning for the following years very difficult. Koontz & Parkin CPAs can help you take advantage of the positive aspects of the Act, minimize negative impact, and make a smart, well-informed tax plan for the future. In particular, the Koontz & Parkin team can help you with specific areas affected by the new laws, including:
- Tax Rates: The Taxpayer Relief Act permanently extended previous tax rates for families, except for single filers with incomes above $400,000, heads of households with incomes above $425,000, and married couples with joint returns of $450,000 or more. These taxpayers will pay at a 39.6% interest rate, with adjustments for inflation in the following years. However, the amount of Social Security each worker must pay increased to 6.2% (a 2% increase) meaning that Americans will actually take home less income this fiscal year.
- Capital Gains and Dividends: For taxpayers with the incomes mentioned in the section above, capital gains and dividends are now being taxed at 20% rather than at 15%, as they were in previous years. For other taxpayers, the taxation rate remains at 15%, and for income below the top 15% tax-bracket, there is a 0% taxation rate.
- Alternative Minimum Tax: The Alternative Minimum Tax (AMT) was established more than 40 years ago to ensure that wealthy citizens paid their taxes. However, it was never adjusted for inflation, and in recent years it began affecting middle-income taxpayers, as well. The American Taxpayer Relief Act made permanent adjustments for inflation and changed exemption amounts.
- Estate Tax: For a number of years, estate, gift, and generation-skipping transfer taxes have been inconsistent. The Taxpayer Relief Act set a standard of taxation, and the minimum estate, gift, and generation-skipping transfer tax is now 40%, which represents a 35% increase from 2012. However, there is no change in the exclusion amount for estate and gift tax in 2013. In subsequent years, it is at $5 million, with adjustments for inflation. The generation-skipping transfer tax exemption is also $5 million for 2013 and years following, with adjustments for inflation.
- Tax Deductions: The American Taxpayer Relief Act permanently and temporarily extended a number of tax credits and deductions, including a permanent extension of the enhanced adoption credit/exclusion, a permanent extension of the enhanced child and dependent care credit, a permanent extension of the $1,000 child tax credit, and a permanent extension of the enhanced student loan interest deduction. Temporary extensions include the higher education tuition deduction, transit benefits parity, IRA distributions to charitable organizations, American Opportunity Tax Credit, teachers’ classroom expense deductions, cancellation of indebtedness on principal residence, and residential energy efficient property credit.
- 3.8% Net Investment Tax: Additional tax is now calculated based on a taxpayer’s “net investment income,” including interest, dividends, annuities, rent, royalties, and similar sources of income. However, it is not calculated based on income from a business or the sale of property related to a business. It is also based on the lesser of the taxpayer’s net investment income or adjusted gross income in excess of $200,000 ($250,000 for a married couple or $125,000 for married couple filing separately).
- 0.9% Medicare Tax: Beginning in 2013, higher income individuals are required to pay an additional 0.9% Medicare tax. In other words, any income exceeding $200,000 ($250,000 for a married couple or $125,000 for a married couple filing separately) will be taxed at a 2.35% Medicare rate.
- Retirement Savings: The American Taxpayer Relief Act has made it easier for taxpayers to save and plan for retirement, lifting most restrictions on Roth accounts.