Every year tax laws change and so do the situations you might find yourself or your business in. It is something we can’t stop from happening but we can prepare you to be in the best financial position for the coming year with solid tax planning. The idea is to make sure you don’t miss something big, so here is a list of what to look out for this year.
If your income is over $250,000 (filing single), $275,000 (heads of household), or $300,000 (joint filers), you’ll lose three dollars of itemized deductions for every hundred dollars of income above the threshold. You’ll also lose two dollars of personal exemptions for every $2,500 of income above the threshold. This is part of the “fiscal-cliff” bill which re-imposed the phase-out of itemized deductions and personal exemptions that went away in 2010
The Affordable Healthcare Act makes it harder to deduct unreimbursed expenses; formerly you could deduct medical expenses exceeding 7.5% of your Adjusted Gross Income (AGI). Under the new law, that floor rises to 10% unless you’re over age 65; it also limits contributions to employer-sponsored flexible spending plans to $2,500/year.
If you’re free to select your own coverage, consider choosing a “high-deductible health plan” and opening a Health Savings Account. These arrangements bring down premium costs and use pre-tax dollars for out-of-pocket costs, bypassing the floor on AGI. If you’re self-employed, consider establishing a Medical Expense Reimbursement Plan, or MERP. These plans let you pay family medical expenses with pre-tax business dollars. They may even help you avoid self-employment tax.
To save taxes, it is always a good idea to make sure you contribute the maximum amount allowable to your retirement plan. The amount you can contribute depends on your income level and the type of plan you have – don’t forget some plans can be funded up to April 15th of next year but must be put in place before the end of the year. Check with your financial planner for more information. If you do not have a personal financial planner please let us know – we have several recommendations for you of professionals who are amazing at helping you figure out not only retirement plans but also life insurance and stock purchases.
The Affordable Healthcare Act imposes a new “Unearned Income Medicare Contribution” of 3.8%, beginning on January 1, 2013, on unearned income. This includes income from stocks, bonds, interest, dividends and rental income this makes the use of tax deferred investment accounts more favorable. Again consult with your financial planner for what types income fall in this category.
Need help making sense of all this? Wonder how these changes will affect you? Alpha Omega Accounting now offers comprehensive tax planning and forecasts which can help you understand how these and other tax changes can affect your bottom line. Now is the perfect time to get ready for next year and stay ahead of the tax changes, call our office for an appointment today.