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Your income tax rate may be higher than you think!
January 22, 2013

Your income tax rate may be higher than you think!

Your 2013 income tax marginal rate may be higher than you think. Married filers with incomes over $300,000 and singles with incomes over $250,000 will want to read on.

The individual income tax rate does not jump to 39.6% until married filers reach over $450,000 of taxable income for 2013. Beware – due to phase outs of itemized deductions and personal exemptions, many filers may pay more than 35% (which is the top rate in 2012).

Married filers with over $300,000 ($250,000 for singles) of adjusted gross income will see their itemized deductions reduced by 3% of the excess of adjusted gross income over $300,000 ($250,000 for singles). Deductions such as mortgage interest, charitable contributions, and property taxes will be subject to the phase out.  Medical expenses, investment interest and casualty losses are exempt.

Notice that the phase-out of itemized deductions is not based on taxable income, but rather AGI.  As a result, filers with a large amount of itemized deductions could be subjected to the phase out even if they are in the 28% bracket.

Personal exemptions will be reduced by 2% for each $2,500 of AGI over $300,000 for couples.  A family of four with AGI of $350,000 would lose 40% of their personal exemptions.

Good tax planning is essential with tax law changes such as these that many filers are not aware of.

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Author
Dawn Schneider

Dawn Schneider has been a Certified Public Accountant (CPA) for over 20 years. She enjoys providing top notch service to individuals and small to mid-sized business for all of their accounting and tax needs.