Individual Income
Tax Updates for the
2013 Filing Season
Agenda
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Introduction
Agenda
Income Tax Rates
New Taxes
Phase-Outs
2014 Outlook
Terminology
Contact Information
Income Tax Rates
 Federal Rates for 2013:
– Ordinary Income:
• 10, 15, 25, 28, 33, 35, and 39.6%
– 39.6% new for 2013
– 39.6% rate applies at $400,000/$450,000
– Long-Term Capital Gains:
• 0, 15, and 20%
– 0% rate applies when in the 10 or 15% brackets noted
above
– 20% new for 2013
– 20% rate applies when in the 39.6% bracket noted above
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Income Tax Rates (cont.)
 Federal Rates for 2013 (cont.):
– Employee portion of Medicare:
• 1.45% on income up to $200,000/$250,000
• 2.35% on income above $200,000/$250,000
• MFJ Amounts are combined
– Example:
» Husband earns $150,000, pays 1.45%
» Wife earns $150,000, pays 1.45%
» Combined, they have $300,000, which is $50,000 over
limit, so that $50,000 is subject to additional 0.9% tax
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Income Tax Rates (cont.)
 California Rates for 2013:
– 1, 2, 4, 6, 8, 9.3, 10.3, 11.3, and 12.3%
• 10.3% rate applies at $250,000/$500,000
• 11.3% rate applies at $300,000/$600,000
• 12.3% rate applies at $500,000/$1,000,000
– Additional Mental Health Tax of 1% applies at
$1,000,000
– No rate difference between ordinary and capital
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New Taxes
 Medicare Tax of 3.8% on net investment income
Interest, Dividends, Annuities, Royalties, Rents
Other passive trades or businesses
Gain from non-trade or business property
Gain from sale of principal residence to extent gain
exceeds §121 exclusion ($250,000/$500,000)
– Tax is on lesser of net investment income (NII) or the
amount by which Modified AGI (MAGI) >
$200,000/$250,000
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• Example: MFJ, NII = $100,000, MAGI = $300,000, tax would be
on lesser ($300,000-$250,000 = $50,000, which is less than
$100,000)
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Phase-Outs
 Itemized Deductions:
– Federal:
• Starts at AGI of $250,000/$300,000
• Phase-out equals 3% of each dollar above AGI
threshold
• Does not include medical, investment interest, and
casualty, theft or wagering losses
• Can have up to 80% phased out
• Example: MFJ $400,000 AGI, so $400,000$300,000=$100,000x3%=$3,000 of itemized
deductions phased-out
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Phase-Outs (cont.)
 Itemized Deductions:
– California:
• Starts at AGI of $172,615/$345,235
• Phase-out equals 6% of each dollar above AGI
threshold
• Does not include medical, investment interest, and
casualty, theft or wagering losses
• Can have up to 80% phased out
• Example: MFJ $400,000 AGI, so $400,000$345,235=$54,765x6%=$3,286 of itemized
deductions phased out
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Phase-Outs (cont.)
 Personal Exemptions:
– Federal ($3,900 in 2013):
• Starts at AGI of $250,000/$300,000
• Phase-out equals 2% for each $2,500 of AGI above
threshold
• Can have up to 100% phased out
– California ($106 in 2013):
• Starts at AGI of $172,615/$345,235
• Phase-out equals $6/$12 for each $2,500 of AGI above
threshold
• Can have up to 100% phased out
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Phase-Outs (cont.)
 Personal Exemptions (cont.):
– Example: MFJ $400,000
• Federal: $400,000$300,000=$100,000/$2,500=40x2%=80% phased
out
• California: $400,000$345,235=$54,765/$2,500=21x$12=$252 phased
out
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2014 Outlook
 Numerous federal provisions (55 total)
expired at end of 2013, including:
– Deduction for state and local sales taxes
– Premiums for mortgage insurance deductible as
qualified residence interest
– Tax-free IRA distributions to charity
– Energy-efficient home improvement tax credits
– Exclusion from income for discharge of debt on
principal residence
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2014 Outlook (cont.)
 Pending Federal Legislation:
– President Obama’s budget
– The Republican’s budget
– Rep. Camp’s tax simplification bill
– The Senate’s tax simplification bill
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Terminology
 § ___ = Code section of the Internal Revenue
Code
 Two figures provided (e.g.
$250,000/$300,000) represent Single and
Married Filing Joint filing status
 AGI = Adjusted Gross Income
 MFJ = Married Filing Joint
 Long-Term = one year or more
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Contact Info
Mark A. Bellows, CPA
GALLINA LLP
925 Highland Pointe Drive, #450
Roseville, CA 95678
(916) 784-7800
Email: mbellows@gallina.com
LinkedIN: Mark Bellows
Twitter: RE_Const_CPA