Tax Law Changes and Mid-Year Tax Planning for 2013


By John T. Grebe, CPA, CFP of Grebe & Associates, P.C.

Midyear tax planning is important to ensure you are not left with a large tax burden when filing your 2013 tax returns.  There are significant tax law changes that may affect you as a result of the roll-out of two legislative initiatives: 1)The American Taxpayer Relief Act of 2012 passed on January 2, 2013; and 2)The Patient Protection and Affordable Care Act (PPACA) of 2010 also known as Obamacare

Originally scheduled for implementation beginning 2014, the White House announced on July 2, 2013 that the PPACA health insurance mandate for mid-sized and large employers, as well as reporting requirements for these same employees and health insurers would be delayed until 2015. The PPACA  is very complex in that it creates additional  reporting requirements and tax filings for businesses. It is because of these complexities that I do not believe we have seen the end of changes, delays or adjustments to this controversial law.

 Higher income, capital gain and qualified dividend tax rates:  For taxpayers with taxable income greater than  $400,000 (single) and $450,000 (married/Joint)

  -Taxable income above those amounts, the tax rates increase from 35% to 39.6%

  -Long-term capital gains on income above these thresholds will be subject to 20% tax rate, up from 15%.  Additionally, you may have to add the 3.8% Medicare surtax on capital gains resulting in a possible combined rate of 23.8%.

 -Qualified dividends above these same thresholds will be taxed at 20%, up from 15% along with the possible 3.8% Medicare surtax, resulting in possible 23.8% marginal rate.

Reduction to itemized deductions and phase-out of personal exemptions:  For taxpayers with adjusted gross income (AGI) greater than $250,000 (single) and $300,000 (married/joint).

 -Itemized deductions will be reduced by 3% of the amount by which your AGI exceeds these thresholds.  However, the amount of your itemized deductions will never be reduced by more than 80% of the original number. Affected deductions include state/local tax, mortgage interest, charitable contributions and medical expenses.

 -The personal exemption will be trimmed by 2% for each $2,500 (or portion thereof) by which your AGI exceeds your respective threshold.

Payroll Tax:  Effective 2013, the Social Security portion of the payroll tax on employees’ wages jumped from 4.2% to 6.2%. I am sure you have all noticed this change with your first payroll check issued in 2013.

Medicare surtax on compensation and/or net investment income due to the PPACA of 2010:
 -Additional .09% Medicare surtax on compensation (including self-employed income) above $200,000 (individual filers) or $250,000 (married/joint filers).

  -A 3.8% Medicare surtax on net investment income if your modified adjusted gross income (MAGI) exceeds those same thresholds.


  -Check your withholding:  Avoid underpayment penalty, which is incurred if you do not make timely payment of tax through either a combination of withholding or quarterly estimated tax payments.  You will not be hit with a penalty if you pay at least 90% of your current tax liability or 100% of previous year’s tax liability (110% if your adjusted gross income was more than $150,000 last year).
 –Plan ahead for medical deductions:  To qualify for a write-off, your unreimbursed medical expenses must exceed 10% of your AGI (7.5% if either you or your spouse is age 65 or older).  If possible, you may consider lumping scheduled procedures into the same tax year.  Be sure to track all qualifying expenses.

  -HSA accounts: The deduction for a health savings account (HSA) is available regardless if you itemize.  For 2013, the deductible contribution limit is $3,250 for self-only coverage or $6,450 family coverage.  HSA’s are only eligible for high-deductible health plans, check with you plan provider.  Earnings on HSA investments accumulate on a tax-deferred basis and withdrawals used to pay qualified medical expenses are tax-free

    Make charitable gifts from your IRA account, or gift your appreciated securities: By giving appreciated assets, you avoid taxes on the gains, and still get to deduct the full value of the securities.  Charitable gifts from your IRA are not deductible, but will lower your AGI, and if you are retired, count towards your RMD thus helping to reduce taxes on Social Security benefits.

    Take advantage of tax-deferred accounts: Consider contributing to an IRA, 401(k), Health Savings Account, or Flexible Spending Account, to lower your adjusted gross income.

    -Harvest capital gains or losses: Any capital losses realized between now and the end of the year can offset any capitals gains you may have up to $3,000 on ordinary income.

    -Pile on equipment purchases:  For business owners, you can currently deduct up to $500,000 of qualified business property placed in service this year (subject to a phase-out threshold of $2 million).  Next year the deduction will plunge to $25,000 with a $200,000 phase-out.

    -Take advantage of the extended energy credit: For 2013 the energy tax credit was extended for energy-saving improvements installed in your home like insulation, windows, doors, etc.

The above identifies major tax planning moves that will allow you to maximize income retention by minimizing tax payment, and there are many others, such as investment planning to minimize taxable income by investing in municipal bonds, taking advantage of educational tax credits for college costs, etc.  Now more than ever it is crucial for taxpayers to seek the services of a skilled professional.  We look forward to continuing to partner with you to improve your financial situation by using effective tax planning as a means of maximizing income retention.  Should any of your friends, relatives or colleagues require professional tax assistance, please do not hesitate to contact me.


For additional information contact John at 630-653-3510 or



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