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Many of us have started getting the 1099s and W-2 forms in the mail.  It’s the beginning of tax season, and for those of us with family members who work in the financial sector, we won’t get to spend much time with them until after April 15th.  As most of you know, North Carolina passed new tax legislation last summer, and it will take effect for the 2014 tax year.  Unfortunately, we cannot take advantage of those tax savings this April, as we are still operating within the 2013 laws.

Due to the federal government shutdown in October, it has taken the IRS a little more time to implement changes and ensure everything is ready for the 2014 tax-filing season.  You will be able to start filing your returns on January 31st, a week and a half later than the original January 21st date.

Below are some of North Carolina’s Tax Statistics from the 2012 fiscal year.

Number of Returns Filed in NC

6,662,337

Total Tax Returns Filed Electronically

4,045,561

Gross Federal Collections

$61.6 Billion

Number of Refunds Issued

3,589,629

Total Amount of Refunds Issued

$10.067 Billion

I have already received lots of questions about tax law changes that have occurred in the last year.  I want to share a brief outline of some of the new Federal Tax law changes for the 2013 year, meaning those that will affect taxpayers this spring.  Congress set these laws last January, when we had the fiscal cliff fiasco.  Again, remember that the state’s new tax code won’t go into effect until we file our taxes in the spring of 2015 for the 2014 earnings year.

Married includes Same-Sex

The most popular tax change for the media has been the recognition of same-sex couples for tax purposes.  The IRS stated in a press release,

Same-sex couples, legally married in jurisdictions that recognize their marriages, will be treated as married for federal tax purposes. The ruling applies regardless of whether the couple lives in a jurisdiction that recognizes same-sex marriage or a jurisdiction that does not recognize same-sex marriage.

Top Marginal Tax Rate

The extension of the Bush-era tax cuts doesn’t help everyone.  There is a new top marginal tax rate of 39.6% for single filers making $400,000, married filing jointly making $450,000, and heads of household making $425,000.  To put that tax rate into perspective, the highest individual tax rate in the world is 59% in Aruba, followed by Sweden’s at 56.6% and Denmark’s at 55.4%.  Remember, that doesn’t include state taxes, so you can throw 7.75% on top of that for 2013 in North Carolina (39.6+7.75=47.35%). And don’t forget your local taxes, too.

Health Care Tax

New taxes were imposed to help pay for health care reform.  Married filing jointly earning over $250,000 and single/head of household making $200,000 will pay an additional 0.9% Medicare tax and a 3.8% tax on investment income.

Exemptions

For the 2013 tax year, the exemptions are as follows:

  • $3,900 for personal
  • $12,200 for married filing jointly
  • $6,100 for singles, and
  • $8,950 for heads of household

Credits and Deductions

2013 was the last year for many taxpayers to take advantage of a variety of credits and deductions.  Among those that expired at the end of 2013 were:

  • $4,000 deduction for students who attend higher education or their parents
  • State and local tax deduction
  • Mortgage forgiveness from taxable income
  • Charitable giving directly from IRA
  • Energy efficiency updates to homes
  • Reduction in pre-tax transportation benefit from $245 to $130 per month

The American Opportunity Credit of up to $2,500 per student for tuition is still in place, but it phases out at higher income levels.  Schoolteachers can still deduct up to $250 for out-of-pocket expenses for the classroom.  Medical expenses are still deductible, but it will be more difficult to qualify.  The threshold for deduction of medical expenses is now 10% of AGI, up from the previous 7.5%.  The exception is for those older than 65, who will be grandfathered in at the lower rate until 2017.

While there have been a number of changes over the last year with regards to taxes, we can still try to find those little deductions that are easily missed.  Remember to consult with your tax professional earlier rather than later to avoid long wait times.

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