The annual inflation adjustments for tax year 2013, including the tax rate schedules, and other tax changes from the recently passed American Taxpayer Relief Act of 2012 have been released by the Internal Revenue Service.

The tax items for 2013 of greatest interest to most taxpayers include the following changes.

• Beginning in tax year 2013 (generally for tax returns filed in 2014), a new tax rate of 39.6 percent has been added for individuals whose income exceeds $400,000 ($450,000 for married taxpayers filing a joint return). The other marginal rates — 10, 15, 25, 28, 33 and 35 percent — remain the same as in prior years. The guidance contains the taxable income thresholds for each of the marginal rates.

• The standard deduction rises to $6,100 ($12,200 for married couples filing jointly), up from $5,950 ($11,900 for married couples filing jointly) for tax year 2012.

• The American Taxpayer Relief Act of 2012 added a limitation for itemized deductions claimed on 2013 returns of individuals with incomes of $250,000 or more ($300,000 for married couples filing jointly).

• The personal exemption rises to $3,900, up from the 2012 exemption of $3,800. However beginning in 2013, the exemption is subject to a phase-out that begins with adjusted gross incomes of $250,000 ($300,000 for married couples filing jointly). It phases out completely at $372,500 ($422,500 for married couples filing jointly.)

• The Alternative Minimum Tax exemption amount for tax year 2013 is $51,900 ($80,800, for married couples filing jointly), set by the American Taxpayer Relief Act of 2012, which indexes future amounts for inflation. The 2012 exemption amount was $50,600 ($78,750 for married couples filing jointly).

• The maximum Earned Income Credit amount is $6,044 for taxpayers filing jointly who have 3 or more qualifying children, up from a total of $5,891 for tax year 2012.

• Estates of decedents who die during 2013 have a basic exclusion amount of $5,250,000, up from a total of $5,120,000 for estates of decedents who died in 2012.

• For tax year 2013, the monthly limitation regarding the aggregate fringe benefit exclusion amount for transit passes and transportation in a commuter highway vehicle is $245, up from $240 for tax year 2012 (the legislation provided a retroactive increase from the $125 limit that had been in place).

More details on Revenue Procedure 2013-15 and Revenue Procedure 2012-41.

If you have any questions or you need financial guidance please contact us.

To your financial success,

Laura

It is the end of January. Picked up the mail…no W-2 yet?!

You know that your employers have to send you all your wages in the mail, and you checked the mail every day hoping the day to file your taxes has arrived (especially if you are expecting a refund ☺). In our many years of dealing with individual taxpayers, we have encountered people in one of the categories below. Here is a suggested solution for each of the categories and remedies available.

1. You worked for a specific employer for just a few days last year, and you think it is no big deal if you haven’t received it, and maybe you don’t even have to report it.
Solution: it might indeed not mean a whole lot on your overall tax liability, but if you worked or have any wages that you do not report to the IRS you should be expecting a ‘Letter of Underreported Wages’, or what we call CP2000. This letter means that the information that was received by the IRS does not match the information you reported on your tax return (which in most cases is an underreported income). To avoid dealing with this notice from the IRS, you should wait to receive all the W-2s for the previous year. If January 31st has passed, give it a few days and contact their payroll department to make sure they have the correct information on your mailing address.

2. You worked for an employer in the year before the tax year, for example for the 2012 tax year you worked for an employer in 2011 and the paycheck was received in 2012. The employer hasn’t sent you a W-2 and you are not sure if you will even receive one.
Solution: Unfortunately, all individual taxpayers are on cash basis, and what this means is simply that income is being reported when received not necessarily earned. Hence the income received in 2012 will be reported on the W-2 generated for the year 2012. Contact the payroll company to make sure they have your most updated information on file.

3. You worked for an employer the previous year and they went out of business; will you ever receive your W-2? No payroll department to talk to.
Solution: All employers have the responsibility to report the W-2 wages regardless if they are in or out of business. Little said than done, very few of them actually do, leaving you with a little bit of work on your part. There are a few things you would need in order to reconstruct your W-2 form:
- employer identification number: if you worked for the employer the previous year it should be the same (unless they have changed entity type, or merged with another company)
- last paystub: giving the fact that on it you have reported year to date wages, year to date payroll taxes withheld, federal and state income taxes withheld, contributions to your company retirement 401(k) plan.
With all this information you can have a reconstructed W-2 and with the help of a tax professional you can have this used to file your taxes.

4. You know you should receive other W-2s in the mail, but you are expecting a refund and you just want to file your taxes, and deal with the other W-2s later on.
Solution: You could file your taxes with partial wages, which is definitely not recommended. The main reason behind it is that if you receive a refund and use it, when you receive your W-2s in the mail you will have to file an amended tax return including the additional income, which might lead to an increased tax liability, having to pay back some of the money you already received or possible even spent. It saves everyone some trouble if you wait until the latest February 15th to get all your wages reported in order to avoid future inconveniences.

Hope this helps you, and if you have any questions please contact us.

To your financial success,
Laura

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