Don't Miss These Year End 2013 Tax Deadlines
NEW YORK ( MainStreet) Some year-end tax moves never change but 2013 presents special challenges and opportunities.
Tax rates for the average American have stayed the same but the affluent will pay more thanks to a new tax of 3.8% on net investment income.
"Since this is the first year these taxes are in effect -- high-income taxpayers may not have planned for them," said ReKeithen Miller, a certified financial planner with Palisades Hudson Financial Group in Atlanta. "Make sure you've paid enough tax through withholding and/or quarterly estimated payments to avoid underpayment penalties."
The tax applies to investment income, such as interest, dividends, capital gains, royalties and annuities and is implemented for single taxpayers with $200,000 of modified adjusted gross income (MAGI) and married couples with $250,000 of MAGI.
There is also a new 0.9% Medicare tax on wages and self-employment income starting at $200,000 for single taxpayers and $250,000 for married taxpayers and the Affordable Care Act (ACA) increased the income threshold this year from 7.5% to 10% of adjusted gross income for medical expense deductions.
"It's harder to meet this requirement than last year. So, taxpayers may need to prepare or defer medical bills to lump expenses in a single year to get the deduction," said Rick Rodgers, a certified financial planner in Lancaster, Penn. "For example, if you have medical insurance premiums due in January 2014, pay it now so you can claim it in 2013."
In addition to medical insurance premiums, co-pays, prescriptions, lab work, X-rays, sonograms and eye exams all fall under medical expenses that can be itemized and deducted once over the taxpayer's 10% adjusted gross income.
The cut off remains at 7.5% for those 65 and older.
Tax provisions set to expire on December 31 include payments of private mortgage insurance, state and local sales tax deductions and discharge of principal residence indebtedness.
Private mortgage insurance is typically half to 1% of the average cost of the mortgage. So on a $100,000 mortgage, expect a deduction of $500 to $1,000.
As for deducting state and local income tax versus sales tax, use the sales tax deduction calculator at IRS.gov to determine the amount of sales tax paid throughout the year based on your income. It's either claiming state and local income tax or sales tax. You can't do both but like other provisions, they are expiring year end.
"If you are thinking of making a big purchase that's subject to sales tax, it may tip your decision one way or the other. For example, taxes on a new car might outweigh state or local income tax," Rodgers said. "Taxpayers who will benefit the most are those who live in a state with no state income tax."