How the 2013 Potential Tax Changes Could Affect You
How the 2013 Potential Tax Changes Could Affect You: A Basic Example
Many of the 2013 potential tax changes have not been set in stone. This doesn’t mean that you should ignore them and hope for the best. You should be aware of the possible changes and make plans for dealing with their effects.
The following example assumes you are a single taxpayer earning a $250,000 salary and $5,000 in dividends. It roughly takes into account the increases in 2013 tax brackets, increase in Medicare tax rates and capital gains rates, as well as the additional Medicare tax on capital gains for high-income tax payers. It also includes a rough calculation of the potential standard exemption phase-out. It is important to remember that these changes could be prevented by Congress.
| 2012 | 2013 | Difference | |
| Status | Single | Single | |
| Salary | 250,000 | 250,000 | — |
| FICA | (4,624) | (4,624) | — |
| Medicare | (3,625) | (5,875) | (2,250)a |
| Exemption | 3,800 | 1,850d | |
| Standard deduction | 5,950 | 6,000e | |
| Taxes | (62,491) | (66,871)f | (4380) |
| Dividend income | 5,000 | 5,000 | — |
| Gains taxes | (750) | (1,800) | (1,050)b |
| Additional Medicare tax | — | (190) | (190)c |
| Net income | 183,510 | 175,640 | (7,870) |
As you can see, the potential changes in tax laws from 2012 to 2013 may significantly impact the amount of taxes you will pay. By taking advantage of 2012 tax laws now, you could potentially save thousands of dollars.
a: This additional tax is 2.35%, up from 1.45%, reflecting a 0.9 percent increase in Medicare taxes on single taxpayers earning more than $200,000. This tax will also affect married filing joint taxpayers earning over $250,000.
b: The change in gains taxes assumes an increase from 15% capital gains rates to ordinary rates, calculated at 36% in this example.
c: This additional tax of 3.8% on unearned income may affect single taxpayers earning more than $200,000 and married filing joint earning over $250,000.
d: The decrease in the exemption amount projects a hundred dollar increase from the 2012 amounts to account for inflation, subtracted by the projected phase-out amount.
e: This amount is simply a projected increase for inflation in the standard deduction.
f: This increase in taxes assumes a change in the tax rates projected onto the 2012 tax table. For this example the rate is projected to increase from 33% to 36% in 2013.
Alyssa McBride, Associate Accountant
Davis & Hodgdon Associates CPAs