2013 and 2014 Income and Estate
Tax Issues
January 14, 2014
J C. Hobbs - Assistant Extension Specialist
OSU Department of Agricultural Economics
2013 & 2014 Income Tax Rates
• 2013 and the future rates are to be: 10,
15, 25, 28, 33, 35, and 39.6 percent.
• 39.6% rate applies to:
– Single Filers with TI > $400,000 ($406,750)
– Married Filers with TI > $450,000 ($457,600)
– Head of Household Filers with TI > $425,000
– Married Filing Separate with TI > $225,000
Tax Rates: Single Filers
Rate
2013
2014
10%
0 to 8,925
0 to 9,075
15%
8,926 to 36,250
9,076 to 36,900
25%
36,251 to 87,850
36,901 to 89,350
28%
87,851 to 183,250
89,351 to 186,350
33%
183,251 to 398,350
186,351 to 405,100
35%
398,351 to 400,000
405,101 to 406,750
39.6%
400,001 and over
406,751 and over
Tax Rates: Married Filing Joint
Rate
2013
2014
10%
0 to 17,850
0 to 18,150
15%
17,851 to 72,500
18,151 to 73,800
25%
72,501 to 146,400
73,801 to 148,850
28%
146,401 to 223,050
148,851 to 226,850
33%
223,051 to 398,350
226,851 to 405,100
35%
398,351 to 450,000
405,101 to 457,600
39.6%
450,001 and over
457,601 and over
Net Investment Income Tax
beginning in 2013
• Net Investment Income Tax on unearned
income at a 3.8% rate if modified adjusted
gross income exceeds $250,000 for married
filing joint or $200,000 all others.
• Net investment income - applies to interest,
dividends, annuities, royalties and rent (unless
it is from business activities).
• Net income from the sale of capital investments
including stock and real estate (unless it is from
the sale of business property).
Net Investment Income Tax
after Dec. 31, 2012
• Does not include wages, social security,
self-employment income, alimony,
unemployment, tax exempt interest,
distributions from qualified retirement
plans, etc.
• Does not apply to the exclusion allowed
on the sale of a principal residence of
$250,000 for individuals or $500,000 on
a joint return.
Additional Medicare Tax
after Dec. 31, 2012
• New Medicare Tax on earned income at
0.9% on wages and self-employment
exceeding $250,000 for joint returns and
surviving spouses or $200,000 single filers
and all others.
• Applies only to the employees share of the
Medicare tax ( not the employers) and to
self-employment income.
Itemized Deductions
• Up to 80% of itemized deductions for
higher income taxpayers will be
subject to a 3% phase out (“Pease
limitations”)
• Reduction does not affect deduction of
medical expenses, investment
interest, casualty losses, and gambling
losses
Phaseout Ranges
Filing Status
Single
Married filing joint
Married filing sep.
Head of household
Start
$250,000
$300,000
$150,000
$275,000
End
$327,501
$422,501
$211.501
$397,501
Provisions Taking Effect in 2013
• Itemized deduction floor for medical
expense will rise to 10% of AGI for
taxpayers under age 65
• During 2013 through 2016, the floor
remains at 7.5% for taxpayers who
are 65 years of age or older.
Capital Gain Rates
• Capital gains for 2013 and 2014
– Net capital gain is taxed at the 0% rate for
taxpayers in the 10% and 15% income tax
brackets.
– Net capital gain is taxed at the 15% rate for
taxpayers in the 25%, 28%, 33%, and 35%
income tax brackets.
– Net capital gain is taxed at the 20% rate for
taxpayers in the 39.6% income tax bracket.
Dividends
• Qualified dividend rates for 2013 and
2014
– Qualified dividends are taxed at the 0% rate for
taxpayers in the 10% and 15% income tax
brackets.
– Qualified dividends are taxed at the 15% rate
for taxpayers in the 25%, 28%, 33%, and 35%
income tax brackets.
– Qualified dividends are taxed at the 20% rate
for taxpayers in the 39.6% income tax bracket.
Self Employment and
Social Security Taxes
• For 2013 and 2014: FICA has
reverted back to 12.4% for selfemployed individuals and 6.2% for
employees.
Alternative Minimum Tax
• Finally Fixed the Exemption issue (no
need for an annual AMT patch to be
passed by Congress).
• 2013 and beyond the exemption amount
will be indexed for inflation.
Credits
• Adoption credit has been made permanent
• The $1,000 child tax credit for children
under 17 has been made permanent
• Dependent care credit has been made
permanent
• The simplified Earned Income credit has
been made permanent
• American Opportunity (education) credit
has been extended through 2018
Estate Taxes
• Rates:
– 2013 & 2014 maximum rate is 40 percent
• Exemption amount:
– 2013 exemption amount is $5.25 million
– 2014 exemption amount is $5.34 million
• The exemption amount is indexed for
annual inflation.
Estate Taxes
• Portability between spouses made
permanent
– Husband and wife can transfer $10.68 million
of assets free of estate taxation.
– The unused estate tax exemption ($5.34
million) can be transferred from the deceased
spouse and thus can be used by the surviving
spouse when he/she passes.
Gift Taxes
• Federal Gift Tax Exclusion (annual)
– 2013 & 2014 exclusion is $14,000 per person
($28,000 husband & wife using gift splitting)
• Gift Tax Rates:
– 2013 & 2014 maximum rate is 40 percent
• Exemption Amount (lifetime)
– 2013 exemption amount is $5.25 million
– 2014 exemption amount is $5.34 million
• Indexed for inflation annually
Section 179 Expensing
• Purchased capital assets that are
depreciable (new or used).
• 2013 was $250,000 with a $500,000
investment limit
• 2014 reverted back to $25,000 with a
$200,000 investment limit. (Will Congress
enact new legislation to modify this?)
Additional First-Year Depreciation
• 2013: 50% Additional First-Year
Depreciation is allowed for qualifying
property placed in service through
12/31/2013.
• Expired effective January 1, 2014
Contact Information
J C. Hobbs
jc.hobbs@okstate.edu
580-237-7677
Oklahoma Cooperative Extension Service
Oklahoma State University