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The end of 2013 will bring with it relief—hopefully now that the Shutdown crisis is over—as well as major changes in tax laws to consider. This may be one of the most significant years in terms of tax law revisions especially for business owners but also individuals, since the ACA is now a reality.

The year’s end also brings with it challenges for both individuals and businesses. There are very important changes in the works because of both the American Taxpayer Relief Act of 2012 (ATRA) (signed into law on January 2, 2013) and due to all of the provisions to the ACA since its inception in 2010.

Here is a brief overview of 2013 year-end planning options available to taxpayers:

Highlights of Tax Changes

ATRA has really clarified some tax filing issues of years past. Consequently, the 2013 year-end brings with it much more certainty. Some highlights include:

• Permanent Extension of Bush-era tax cuts for lower/ middle income taxpayers

   Here are the increases filers will see as increased income in their pockets :

• The revival of the 39.6 percent tax bracket for higher income individuals
• The Reinstituted Personal Exemption Phaseout (PEP)
• Pease limitation and increased maximum tax rate on qualified dividends and capital gains —  ATRA has raised the top rate for capital gains and dividends to 20 percent, an increase from the previous Bush-era maximum 15 percent rate
• The NII (Net Investment Income) surtax and the new Additional Medicare Tax due to the ACA. Note: The NII tax threshold amounts are not indexed for inflation.

Additional Revisions…

There are many more revisions including for those taxpayers who were accustomed to reviewing their AMT liability v. regular tax liability in past years. According to the IRS, the Alternative Minimum Tax or AMT is described as a bumper for certain types of taxpayers:

The regular tax law excludes certain kinds of income and provides deductions and credits for certain expenses. Enacted by Congress in 1969, the alternative minimum tax (AMT) attempts to ensure that individuals and corporations that benefit from certain exclusions, deductions, or credits pay at least a minimum amount of tax. 

Prior to ATRA taxpayers had to seriously consider this liability. But now ATRA patches closes the gap in terms of any ambiguity. For many taxpayers, large amounts of certain items may trigger AMT liability. These include, but are not limited to, itemized deductions for medical expenses and certain income from incentive stock options. Also, due to the ACA there are changes regarding in terms of what you can deduct from a health flexible spending account. The Affordable Care Act caps annual contributions to health flexible spending arrangements (health FSAs) at $2,500. Any salary reductions in excess of $2,500 will be subject an employee tax on distributions from the health FSA. The $2,500 maximum amount is indexed for inflation after 2013. For 2014, the cap is projected to be $2,500, the same as in 2013.  Also, tax incentives known as “extenders” are scheduled to expire in 2013. Now that may change in 2014, but you may want to speak to your tax advisor about a planning strategy.

Plan Carefully with Your Tax Advisor

If you are not yet familiar with the reams of revisions and provisions in tax codes that will take effect in 2014, you are wise to plan with an advisor. There are many more changes not listed here that may impact both individuals, business owners, property owners and the elderly. For a comprehensive tax consultation, contact Joel Lewinson, CPA today for an appointment.