Current Tax Updates

Dear Individual Tax & Financial Planning Client:

It is time to start getting your 2012 tax return data together and consider planning for 2013. Our letter and/or organizer were delayed as we wanted to get you information on the tax law changes made on January 1, 2013.

E-Filing Individual Form 1040 with the Internal Revenue Service (IRS) - Required Response:
As we informed you last year, we have the capability to E-File your personal tax return with the IRS. If do not wish to e-file you must elect not to e-file. Please see separate attachment you need to sign & return to us if you do not want to e-file.

If you wish to e-file, you will need to sign Form 8879. We cannot provide this form to you until your return is completed and you have reviewed it. Thus, e-filer’s (clients who wish to e-file) will be provided that form to sign upon completion of your return. Please be aware that e-filing your return will result in additional professional charges.

Tax Deadline: The tax deadline is Tuesday April 16th because of Patriots’ Day, a New England holiday, is Monday April 15th. The extended deadline is October 15th.

Tax Law Changes-2013-Individuals

The curiously named “2012 American Taxpayer Relief Act” (enacted on January 1, 2013), raised tax rates on all taxpayers. Here's a look at the key elements of the package and the new “Health Care” taxes.

Tax Increase for all taxpayers:

  • The 2% payroll tax cut was allowed to expire and all wages and earnings will be taxed 2% more.
  • Itemized medical deduction threshold was increased to 10% from 7.5% of adjusted gross income.
  • In 2013, the maximum medical “Flexible Spending Account-FSA” deduction for employees is capped @ $2,500. There was no cap in prior years.

Tax Increases for higher income taxpayers:

  • A new 39.6% rate, that will apply for income over: $400,000 (single) & $450,000 (joint filers).
  • Capital gains and qualified dividends rate increase: The new law modifies the 15% rate, and establishes a new 20% rate if income falls in the 39.6% tax bracket noted above. This rate does NOT include the new 3.8% surtax on investment-type income and gains for 2013. See next section for description of this separate new tax.
  • New Medicare Tax of 3.8% on Net Investment Income: An ADDITIONAL 3.8% tax will apply on “Net Investment Income” above $200,000 (single) and $250,000 (joint filers). So actually if your TOTAL income falls in the 39.6% tax bracket, the top rate for capital gains and dividends beginning in 2013 will be 23.8%, and for interest and rental income will be 43.4%. After including a state tax rate of 8% will put your top combined rate @ 51.4%.
  • New Medicare Surplus Tax of 0.9%: An ADDITIONAL 0.9% tax (i.e. almost 1%) will charged on wages & self employment income above for taxpayers $200,000 (single) and $250,000 (joint filers). This is in addition to the tax discussed above and not in place of it.
  • Itemized deduction limitation: Itemized deductions will be limited for taxpayers with adjusted gross income over $250,000 (single) and $300,000 (joint filers). The itemized deductions will be reduced by 3% of the amount by which your adjusted gross income (AGI) exceeds the thresholds noted above. Thus, a joint filer with $350,000 AGI will have their itemized reduced by $1,500.
  • Personal exemption phase-out: Personal exemptions will be phased out (i.e., reduced) for taxpayers with adjusted gross income over $250,000 (single) and $300,000 (joint filers). Taxpayers claim exemptions for themselves, their spouses and their dependents. Last year, each exemption was worth $3,800.
  • Estate tax: The new law permanently increases the top estate, gift, and GST rate from 35% to 40%. The portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion ($5,000,000) to the surviving spouse continues. All changes are effective for individuals dying and gifts made after 2012.

AMT Relief

The one piece of good news for taxpayers is the law provides permanent increases a base amount of income exempt from alternative minimum tax (AMT) relief. Effective for tax year 2012 returns, the new law permanently increases the exemption of income of AMT tax of amounts to $50,600 for unmarried taxpayers, $78,750 for joint filers. Income above that amount would be subject to AMT tax.

Capital Transactions Reporting-reminder

As you may recall, Investment Advisors/Brokers are now required to report to you (and the IRS) the cost basis of the securities you sold. They must also tell you if the gains were long term or short term. The Form 8949 that is now part of your tax return reports more detail on your investment transactions. Since Investment advisors are not always aware of your cost basis we faced some discrepancies in this reporting and please enclose any tax documents you receive from your Investment advisor. You should also review the information for accuracy. This reporting “does not apply” to IRA, Roth, 401K, or SIMPLE retirement accounts.

Business Clients

We have or will be discussing directly with business clients how the tax law changes affect your corporation or operating entity. You will also receive separate mailings as we receive more detail on new tax regulations (just now being drafted by the IRS) on business tax changes, particularity on the new “Health Care Law” and how they will affect your business and employees.

Web Site

We are establishing a new web site which should be completed in the coming month. The web site main address will be but will also be accessed by

As always, do not hesitate to contact us if you have any questions.