2013 and 2014 Income and Estate Tax Issues January 14, 2014 J C. Hobbs - Assistant Extension Specialist OSU Department of Agricultural Economics.

2013 and 2014 Income and Estate Tax Issues

January 14, 2014

J C. Hobbs - Assistant Extension SpecialistOSU Department of Agricultural Economics

2013 & 2014 Income Tax Rates

• 2013 and the future rates are to be: 10, 15, 25, 28, 33, 35, and 39.6 percent.

• 39.6% rate applies to:– Single Filers with TI > $400,000

($406,750)– Married Filers with TI > $450,000

($457,600)– Head of Household Filers with TI >

$425,000– Married Filing Separate with TI >

$225,000

Tax Rates: Single FilersRate 2013 2014

10% 0 to 8,925 0 to 9,075

15% 8,926 to 36,250 9,076 to 36,900

25% 36,251 to 87,850 36,901 to 89,350

28% 87,851 to 183,250 89,351 to 186,350

33% 183,251 to 398,350 186,351 to 405,100

35% 398,351 to 400,000 405,101 to 406,750

39.6% 400,001 and over 406,751 and over

Tax Rates: Married Filing Joint

Rate 2013 2014

10% 0 to 17,850 0 to 18,150

15% 17,851 to 72,500 18,151 to 73,800

25% 72,501 to 146,400 73,801 to 148,850

28% 146,401 to 223,050 148,851 to 226,850

33% 223,051 to 398,350 226,851 to 405,100

35% 398,351 to 450,000 405,101 to 457,600

39.6% 450,001 and over 457,601 and over

Net Investment Income Taxbeginning in 2013

• Net Investment Income Tax on unearned income at a 3.8% rate if modified adjusted gross income exceeds $250,000 for married filing joint or $200,000 all others.

• Net investment income - applies to interest, dividends, annuities, royalties and rent (unless it is from business activities).

• Net income from the sale of capital investments including stock and real estate (unless it is from the sale of business property).

Net Investment Income Taxafter Dec. 31, 2012

• Does not include wages, social security, self-employment income, alimony, unemployment, tax exempt interest, distributions from qualified retirement plans, etc.

• Does not apply to the exclusion allowed on the sale of a principal residence of $250,000 for individuals or $500,000 on a joint return.

Additional Medicare Taxafter Dec. 31, 2012

• New Medicare Tax on earned income at 0.9% on wages and self-employment exceeding $250,000 for joint returns and surviving spouses or $200,000 single filers and all others.

• Applies only to the employees share of the Medicare tax ( not the employers) and to self-employment income.

Itemized Deductions• Up to 80% of itemized deductions

for higher income taxpayers will be subject to a 3% phase out (“Pease limitations”)

• Reduction does not affect deduction of medical expenses, investment interest, casualty losses, and gambling losses

Phaseout Ranges

Filing Status Start EndSingle $250,000$327,501Married filing joint $300,000$422,501Married filing sep.$150,000$211.501Head of household $275,000$397,501

Provisions Taking Effect in 2013

• Itemized deduction floor for medical expense will rise to 10% of AGI for taxpayers under age 65

• During 2013 through 2016, the floor remains at 7.5% for taxpayers who are 65 years of age or older.

Capital Gain Rates

• Capital gains for 2013 and 2014– Net capital gain is taxed at the 0% rate

for taxpayers in the 10% and 15% income tax brackets.

– Net capital gain is taxed at the 15% rate for taxpayers in the 25%, 28%, 33%, and 35% income tax brackets.

– Net capital gain is taxed at the 20% rate for taxpayers in the 39.6% income tax bracket.

Dividends

• Qualified dividend rates for 2013 and 2014– Qualified dividends are taxed at the 0%

rate for taxpayers in the 10% and 15% income tax brackets.

– Qualified dividends are taxed at the 15% rate for taxpayers in the 25%, 28%, 33%, and 35% income tax brackets.

– Qualified dividends are taxed at the 20% rate for taxpayers in the 39.6% income tax bracket.

Self Employment and Social Security Taxes

• For 2013 and 2014: FICA has reverted back to 12.4% for self-employed individuals and 6.2% for employees.

Alternative Minimum Tax

• Finally Fixed the Exemption issue (no need for an annual AMT patch to be passed by Congress).

• 2013 and beyond the exemption amount will be indexed for inflation.

Credits

• Adoption credit has been made permanent

• The $1,000 child tax credit for children under 17 has been made permanent

• Dependent care credit has been made permanent

• The simplified Earned Income credit has been made permanent

• American Opportunity (education) credit has been extended through 2018

Estate Taxes

• Rates:– 2013 & 2014 maximum rate is 40

percent• Exemption amount:

– 2013 exemption amount is $5.25 million

– 2014 exemption amount is $5.34 million

• The exemption amount is indexed for annual inflation.

Estate Taxes

• Portability between spouses made permanent– Husband and wife can transfer $10.68

million of assets free of estate taxation.– The unused estate tax exemption ($5.34

million) can be transferred from the deceased spouse and thus can be used by the surviving spouse when he/she passes.

Gift Taxes• Federal Gift Tax Exclusion (annual)

– 2013 & 2014 exclusion is $14,000 per person ($28,000 husband & wife using gift splitting)

• Gift Tax Rates:– 2013 & 2014 maximum rate is 40

percent • Exemption Amount (lifetime)

– 2013 exemption amount is $5.25 million – 2014 exemption amount is $5.34 million

• Indexed for inflation annually

Section 179 Expensing

• Purchased capital assets that are depreciable (new or used).

• 2013 was $250,000 with a $500,000 investment limit

• 2014 reverted back to $25,000 with a $200,000 investment limit. (Will Congress enact new legislation to modify this?)

Additional First-Year Depreciation

• 2013: 50% Additional First-Year Depreciation is allowed for qualifying property placed in service through 12/31/2013.

• Expired effective January 1, 2014

Contact Information

J C. [email protected]

580-237-7677

Oklahoma Cooperative Extension Service

Oklahoma State University