Isn't that a terrible title for a returning post? We recently received another tax update newsletter from our tax accountant and I wanted to again share a few of the tips included in the newsletter in preparation for many of the new 2013 tax increases that will affect ALL tax payers, regardless of income levels.
Tip #1: Start cutting costs now. Social Security withholding will increase from 4.2% to 6.2% on January 1, 2013. This means you will see a 2% decrease in your take home pay. ($50,000 annually = a reduction of $83.33 per month).
Tip #2: Child tax credit and earned income tax credit will be lower and available to fewer tax payers. Project the impact of these reductions to tax credits in 2013 so you will know what to expect.
Tip #3: Consider taking gains and delaying losses. In 2013, the rates of capital gains will increase, while the benefit of losses will be worth more. Use this to your advantage.
Tip #4: Small business owners take action. Health care costs and increased tax rates will reduce your cash flows. Try to create a full year projection of income and expenses, especially important to seasonal businesses.
Tip #5: Health care reform laws. Understand how the Affordable Care Act will impact you and your family. Medical expense deduction threshold will increase from 7.5% to 10%. The purchase of health insurance will be mandatory and prepare for less take-home pay with an increase in medicare tax of 0.9% to 3.8% contingent upon withholding rates and income levels. ($50,000 annually = a reduction of $37.50 - $158.33 per month).
Tip #6: Flexibility. We will all need to remain flexible and take required action this year and next to manage our tax bills. Keep enough liquid assets (CASH) available to take action on short notice if necessary.
Also included in this quarter's newsletter were a list of tax deductions for those who looked for or are currently looking for new employment. The following are tax deductible, (these employment related expenses when combined with other misc. expenses are subject to reduction equal to 2% of your adjusted gross income):
Costs to prepare resumes and letters including typing, stationary and postage.
Fees paid to employment agencies, recruiters, and consultants.
Transportation to interviews including out of town lodging.
Meals while out of town for interviews related to the job hunt are deductible at 50%.
Local and long distance telephone bills.
NOTE: When added together, tip #1 and tip #2 will reduce the annual take home pay for the $50K median income earner by $1,485.96 - $2,899.92 annually.
Since I'm out of time, please check back for a future post containing additional tax tips.