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Tax planning for individuals 2013

We are in the final quarter of the year, just three short months left before tax season begins.  Here are some considerations before the end of the year.

 

 

Provisions set to expire at year end:

  1. Sales tax Deduction – those who have the ability to utilize the sales tax deduction over the income tax deduction and have a larger purchase in mind should try to make it in 2013.
  2. IRA Distributions to charity – taxpayers 70 ½ or older who have required minimum distributions can distribute them straight to charity.
  3. Exclusion for discharge of principal residence indebtedness – Taxpayers working through foreclosures will want to get this process finalized before year end.
  4. Residential energy property credit
  5. Teachers classroom expense deduction
  6. Mortgage insurance premium deduction

Make sure to plan to take advantage of some of this credits and deductions in case they are not renewed for 2014

Itemized Deductions

  1. The medical expense deduction is now subject to a 10% of AGI threshold instead of 7.5%.  If any elective procedures can be merged into the same year, taxpayers will have a better chance of getting this deduction.
  2. Taxpayers with AGI above $250,000 for singles and $300,000 for joint filers will notice a phase-out of the majority of their itemized deductions

Tax Rates

Remember that the federal tax bracket restored the highest rate, the bracket now consists of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6%.

Minnesota also added a higher rate; their bracket now taxes at 5.35%, 7.05%, 7.85%, and 9.85%.

Long term capital gains will be taxed at 20% for those in the higher income brackets.  (These could potentially be subject to the 3.8% Medicare surtax as well)

Minnesota

Something else new to Minnesota is a gift tax.  There is a 10% tax on gifts exceeding the life time limit of 1 million dollars.  This tax follows the same rules as the federal gift tax with respect to spouse, charities, and the annual exclusion of $14,000.

If any of these considerations has you concerned about your 2013 tax filing, please consult your tax advisor and consider a formal tax plan to help mitigate any unnecessary surprises.

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