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I hope you enjoyed all the presidential debates last month—and I also hope that you are are happy with the election results. Perhaps now our elected officials can get back to work.
In today’s political climate, it can be difficult for taxpayers to do tax planning. How can we determine how to handle open enrollment on our flexible spending accounts, whether or not we want to get married, or any number of other possible tax circumstances?
Let’s look at some changes to expect in 2013 if Congress doesn’t pass some extender laws really quickly. (Note: These projected numbers are approximate.)
Special capital gains and qualified dividend income rates of 0 percent and 15 percent will expire. In 2013, expect to pay up to 20 percent for capital gains and up to 39.6 percent on dividends.
The marriage penalty will return. The standard deduction for couples will drop from twice that of singles ($11,800) to about 84 percent of that—under $10,000. In other words, where singles’ tax rates rise to 15 percent at about $35,000, they will rise to 15 percent at about $59,000 for couples instead of at $70,000.
The adoption expense credit will drop. The 2013 credit is projected to be $5,000 ($6,000 for a special needs child), while the 2012 credit is $12,650.
Medical expenses are presently reduced by 7.5 percent of your adjusted gross income. In 2013 that rises to 10 percent.
The allowance of up to $250 for educator expenses as an above-the-line deduction will end. The impact of this is minimal on an individual basis—it only saves the average educator between $38 and $63.
The sales tax deduction will stop being an option instead of the state income tax deduction. For taxpayers living in states without an income tax, this can have a significant impact.
The nonbusiness energy property credit will change in value. This credit was created to reduce energy waste by encouraging the installation of insulation, roofing, and similar things. It has been bouncing around in value—from 10 percent of the costs to a lifetime credit of $500 in 2011. In 2013, it will be gone.
Additionally, there will be other increases to personal taxes, including alternative minimum taxes.
To find out about how these changes may impact you, check out the Tax Foundation’s Tax Burden Calculator. It compares three tax scenarios: the elimination of the Bush tax cuts, President Obama’s proposals, and the Republican plan to extend some of the Bush tax cuts. When I tried it, my federal tax burden was the same under the President’s plan and the Republican plan. But the elimination of the Bush tax cuts increased my joint taxes by nearly $3,000. How did you do?
Come back next week to look at how the expiration of the Bush tax cuts will affect small business—and by that, I mean, your Schedule C business or your small partnership or corporation.
Eva Rosenberg, EA, is the publisher of TaxMama.com®, where your tax questions are answered. She teaches tax professionals how to represent you when you have tax problems. She is the author of several books and e-books, including Small Business Taxes Made Easy. Follow her on Twitter: @TaxMama
The information contained in this blog post is designed to generally educate and inform visitors to the Equifax Finance Blog. The blog posts do not give, and should not be assumed to provide, personalized tax, investment, real estate, legal, retirement, credit, personal financial, or other professional advice. Before making any financial decision, you should always consult with the appropriate professionals who can explain your options, rights, and legal responsibilities, and advise you on any tax, legal, credit, or business implications that may result from those decisions. The views and opinions expressed by the authors of blog posts are their own views and may not be the views or opinions of Equifax, Inc. and/or its affiliates.
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