Give Withholding and Payments a Check-up to Avoid a Tax Surprise

Article Highlights

  • 2013 could hold some unpleasant tax surprises because of :
    o Increased long-term capital gains rates.
    o Increased ordinary tax rates.
    o A new 3.8% tax on net investment income.
    o The new additional 0.9% HI (Medicare) payroll and self-employment tax.
    o Life-changing events such as marriage, birth of a child, or new job.
    o One-time increase in income from sales of stock or real estate.
  • Under-withholding and underpaid estimates could cause penalties, but corrective actions before year-end may mitigate the penalties.

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Back-to-School Tax Tips for Students and Parents

Article Highlights

  • Sec. 529 plans allow very large sums of money to be put away for a child’s college education with the earnings accumulating as tax-deferred and tax-free, if used for qualified college education expenses.

  • Coverdell Education Savings Accounts allow $2,000 a year to be set aside for a child’s education. Earnings are tax-deferred and tax-free if used for qualified education expenses. Coverdell funds can be used for kindergarten through college education Expenses.

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October Extension Due Date Rapidly Approaching

Article Highlights

  • October 15 is the extended due date for filing 2012 federal individual tax returns.
  • Late-filing penalty for individual federal returns is 5% of the tax due for each month, or part of a month, for which a return is not filed, up to a maximum of 25% of the tax due. A separate penalty applies for filing a state return late.
If you could not complete your 2012 tax return by the normal April filing due date, and are now on extension, that extension expires on October 15, 2013, and there are no additional extensions. Failure to file before the extension period runs out can subject you to late-filing penalties.

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Preparing for the New Surtax

As part of the Affordable Care Act (the new health care legislation), a new tax kicks in this year. The official name of this tax is the Unearned Income Medicare Contribution Tax, and even though the name implies it is a contribution, don’t get the idea that it is voluntary or that you can deduct it as a charitable contribution. It is actually a surtax levied on the net investment income of taxpayers in the higher income brackets. And although it is perceived as an additional tax on higher-income taxpayers, it can affect even those who normally don’t have higher income if they have a large income from the sale of real estate, stocks, or other investments.

The surtax is 3.8% on whichever is less: your net investment income or the excess of your modified adjusted gross income (MAGI) over a threshold based on your filing status. Net investment income is your investment income reduced by investment expenses; MAGI is your regular AGI increased by income excluded for working out of the country.

The filing status threshold amounts are:

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Don’t Overlook the Credit for Small Employer Health Insurance Premiums

Article Highlights

  • Small employers get a tax credit for providing a health insurance plan.
  • Credit can be as much as 35% of the premiums paid.
  • A small employer is one with no more than 25 full-time equivalent employees (FTE) with average wages less than $50,000.
  • Self-employed individuals, including partners and sole proprietors, 2% shareholders of an S corporation, and 5% owners of the employer are not treated as employees for purposes of the small employer health insurance credit.
  • Seasonal workers of an employer are not taken into account in determining the FTE employees and average annual wages of the employees unless the worker works for the employer more than 120 days during the tax year.

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