How Will 2013 Taxes Affect You?

The new tax landscape looks very different than it did in 2012. How will the tax law changes affect your situation? Here is a brief summary covering some of what you can expect.

IRA charitable rollover is back for 2012 and 2013: Donors aged 70½ or older are once again eligible to move up to $100,000 from their IRAs directly to qualified charities without having to pay income taxes on the money. You may make a gift on or before Dec. 31, 2013, to qualify for a 2013 gift. Because this legislation was enacted in 2013, Congress provided two special transitional rules for 2012 gifts:

    • Qualified distributions made before Feb. 1, 2013, may be counted retroactively for the 2012 tax year.
    • A taxpayer who took a distribution from the IRA in December 2012 may make a contribution to a qualified charity before Feb. 1, 2013, and treat that as a direct transfer.
  • Income taxes: Individual taxpayers earning more than $400,000 a year will see a tax rate increase. The top income tax rate has been raised to 39.6 percent in 2013. The 2013 ordinary income tax rates are now 10 percent, 15 percent, 25 percent, 28 percent, 33 percent, 35 percent and 39.6 percent.

    Estate, gift and generation-skipping taxes: The 2013 tax law permanently preserves the current individual gift, estate and generation-skipping tax to a unified $5.12 million exemption, indexed for inflation. The top estate and gift tax rates will rise from 35 percent to 40 percent. The annual gift tax exclusion?the amount you can give to anyone gift tax-free each year?is now $14,000.

    Itemized deductions: In 2013, the Pease limitation was revived, meaning that itemized deductions, including charitable deductions, are reduced for individuals earning $250,000 or more. These amounts will be indexed annually for inflation. The Pease limitation does not apply to deductions for medical expenses, investment interest, casualty and theft losses, and gambling losses.

    Personal exemptions: In 2013, personal exemptions are limited for individuals making $250,000 or more.

    Dividend income: Qualified dividend income will be taxed at a maximum rate of 20 percent.

    Long-term capital gains: The capital gains tax rate will depend on a taxpayer?s ordinary income tax rate. The capital gains tax will be waived for taxpayers below the 25 percent ordinary income tax rate. For those taxpayers who fall at or above the 25 percent income tax rate but below the 39.6 percent tax rate, the capital gains tax will be 15 percent. For those at the 39.6 percent ordinary income tax rate, the capital gains tax will be 20 percent.

    Charitable deduction for donating real property for conservation purposes: Taxpayers are able to take a charitable deduction for qualified conservation contributions, which are contributions of a qualified real property interest to a qualified organization exclusively for conservation purposes.

    Payroll taxes: In 2013, the Social Security payroll tax will increase from 4.2 percent to 6.2 percent, meaning taxpayers will have more withheld from each paycheck.

    Consult Your Tax Advisor Today Because of the numerous changes to tax laws in 2013, everyone can expect to be affected. Consult your tax advisor on what the new tax laws will do to your bottom line and how to plan accordingly.

    If you are contemplating a charitable gift under the new laws, please feel free to contact Laurie L. Dietrich '80 at 507-933-6043 or ldietric@gustavus.edu with any questions you may have.