The changes to expect on your tax return

US Wealth Napolitano |

The past few years have seen so many tax changes that it is hard to remember what’s in, what was phased out and what is still waiting to come into effect. Some of the changes you’ll feel now when you file your 2013 tax return and the others will impact 2014 and beyond.

The biggest change that may impact you on your 2013 return is the 0.9% Medicare surtax and the 3.8% tax on net investment income.  Both of these will impact married taxpayers with earnings greater than $250,000. Maybe you didn’t think too much of this as the law was enacted, but if you had 1099’s received from investment accounts that had dividend or interest distributions, you’ll notice it when it comes to settle your taxes.  This additional tax is likely to cause a bit more care in your tax and investment planning for 2014.

For joint filers, the amount you can deduct for itemized deductions such as mortgage interest will be reduced for high wage earners.  In 2014, this will impact those with income slightly above $305,000.  At this same income level, you will also begin to lose the tax benefit of your personal exemptions.

Capital gains taxes were increased by 33% for high earners.  The top rate on capital gains is increased from 15% to 20 %.  Basically, if you are in the top income tax bracket, you are also in the top bracket for capital gains.

Same sex couples will now be allowed to file a joint tax return with the IRS if that state has recognized same sex marriages.  This is likely to help couples save taxes and possible go back and amend prior years in which the same sex marriage was recognized by the states but not by the Feds.

Home office deductions have been simplified.  This deduction required a separate form that confused many taxpayers.  This tax season, home office deductions for mortgage interest and real estate taxes will be claimed on your schedule A along with the rest of your itemized deductions.

After the banking crisis, many were left with underwater houses where the mortgage balance was larger than the value of the house.  Until December 31 of last year, the IRS provided an exemption that would allow forgiven unpaid mortgage balances to be free from federal taxes. Starting in 2014, and discharge of indebtedness from a home mortgage will be treated as a taxable event.

For small business owners, congress had allowed up to $250,000 of equipment or other depreciable assets to be deducted in the year that the asset was placed into service.  Starting in 2014, this section 179 deduction is back down to the $25,000 level.

Federal estate tax exemptions are on the rise again. After indexing for inflation, the federal estate tax exemption now stands at $5,340,000. This is likely to rise again for 2015.

When filing this year’s return, pay attention to the matters that you can improve for next year.  To reduce your tax bill next year, you should start now rather than at the end of the year. 

This article was written by John P. Napolitano