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Tax Tips for January 2013
by Gil Debner, CPA
As of this writing, the Federal Government is still debating what changes to the Tax Law will be made for the year 2013. But there are some changes already on the books. One of them is the Medicare surtax for high income taxpayers. It is a 3.8% tax on unearned income for those taxpayers that fall into the specified category. This includes single taxpayers who have modified adjusted gross income above $200,000, marrieds filing jointly with modified adjusted gross income over $250,000 and marrieds filing separately with modified adjusted gross income over $125,000. Modified adjusted gross income is the taxpayers adjusted gross income plus ay tax free foreign earned income. The surtax applies to the smaller of the taxpayer’s modified adjusted gross income above the thresholds stated above or the net investment income (NII). As you may know, investment income includes capital gains, dividends, interest, annuities, royalties, passive rental income and payments by brokers as substitute interest and dividends. This does not include tax free interest and payouts from retirement plans like IRAs, deferred pay plans, pension plans and 401(k)s.
Gains from the sale of a primary residence is usually exempt from the surtax, Except if the profit exceeds the $250,000 exclusion for single filers or the $500,000 exclusion for marrieds, then the surtax kicks in on that portion. Remember that the capital gains are the profits over the basis of the property. But the surtax can apply to the total gain on a second or non-primary home.
Here is an example. Gibbs, a single filer, has modified AGI of $220,000 and NII of $50,000. Gibbs will pay $760 as a surtax. This amount is 3.8% of the $20,000, the amount above the AGI threshold.
NII is the gross investment income reduced by investment expense. Investment expense includes such things as investment interest, margin interest, broker fees and investment advisor fees and state income tax that applies to the investment income. So some calculations are necessary to come up with NII.
Passive activity income is subject to the surtax if the recipient is not materially participating in the activity of the entity.
Standard Mileage Rates. Here are the standard mileage rates for 2013.
For business miles driven, the rate is 56.5 cents per mile.
For medical services and moving, the rate is 24 cents per mile.
For service provided to charitable organizations, the rate is 14 cents per mile.
Of course, taxpayers have the option of calculating the actual costs of using their vehicle rather than using the standard mileage rates.
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