As 2013 draws to a close, you can still reduce your 2013 tax bill and plan ahead for 2014.
A New Definition of Married Couple
This year, a married couple includes same-sex marriages for income tax purposes. All married couples may elect to file one return reporting their combined income, computing the tax liability using the tax tables or rate schedules for “Married Persons Filing Jointly.” A joint return may be filed even though one spouse has neither gross income nor deductions. If one spouse dies during the year, the surviving spouse may file a joint return for the year in which his or her spouse died. Certain married persons who do not elect to file a joint return may be entitled to use the lower head of household tax rates.
New Tax Rates
Tax rates for 2013 changed from 2012 and are 10%, 15%, 25%, 28%, 33%, 35% and 39.6%. Beginning in 2013, a 3.8% tax is levied on certain unearned income. The tax is levied on the lesser of net investment income or the amount by which modified AGI exceeds certain dollar amounts ($250,000 for joint returns and $200,000 for individuals). Investment income is: (1) gross income from interest, dividends, annuities, royalties, and rents (other than from a trade or business); (2) other gross income from any business to which the tax applies; and (3) net gain attributable to property other than property attributable to an active trade or business. Investment income does not include distributions from a qualified retirement plan or amounts subject to self-employment tax. With this additional tax, the maximum net capital gains rate on the sales of stocks is 23.8% in 2013. Because distributions from qualified retirement plans are not subject to the tax, taxpayers may want to invest in retirement accounts, if possible, rather than taxable accounts.
Gift Giving
The most commonly used method for tax-free giving is the annual gift tax exclusion. For 2013, a person can give up to $14,000 to each donee without reducing the giver's estate and lifetime gift tax exclusion amount ($5.25M) or filing a gift tax return. A person is not limited as to the number of donees to whom he or she may make such gifts. Thus, if an individual makes $14,000 gifts to 10 donees, he or she may exclude $140,000 from tax. In addition, because spouses may combine their exemptions in a single gift from either spouse, married givers may double the amount of the exclusion to $28,000 per donee. Qualifying tuition payments and medical payments do not count against this limit, but the payments must be made directly to the educational institution or the health care provider.
