Tax Breaks Expiring in 2013Tax Professionals' Resource
June 13, 2013 — 1,505 views
Tax breaks are an essential aspect of being able to successfully manage a business. It helps you ensure that you are capitalizing on any profits or legislature that is focused on helping businesses in your particular field of expertise. Knowing about the various tax break expirations are even more important – primarily because of the added cost that it poses to your business.
Tax Breaks that Expire After 2013
There were a number of changes to the taxation system with the Jobs and Growth Tax Relief Reconciliation Act of 2003 as well as the Economic Growth and Tax Relief Reconciliation Act of 2001 that were slotted to expire by the end of 2012. Although the government is contemplating whether to extend the expiration of these credit expiration timelines, there are a few serious issues that would crop up over the course of time. For instance, the CBO, or Congressional Budget Office, calculates that the country will lose as much as $5.4 trillion if the tax break expiration is extended for another decade. Additionally, the fact that these tax break expirations will primarily affect the top 20% of individual taxpayers in the country means that there is likely to be strong opposition.
Some facets of the tax break expiration sees reduced deductions when it comes to education benefits. The education system has a huge impact on the middle class. If any tax breaks expire at this time it will cause a significant increase in their monthly expenses. The tax break expiration mandate also lists other items such as the reinstatement of the marriage penalty as well as a raise in capital gains coupled with the exclusion of qualified dividend treatment.
Other changes in the tax break expirations that will take effect in 2013 include a new Medicare tax system that will see a 3.8% tax being imposed on any interest. This interest has to be accrued through capital gains, interest or dividends, as well as any other possible investment income that is registered in the names of individuals who have AGI of more than $200,000 a year, or are joint filers with people whose AGI amount to more than $250,000 a year.
Other Changes Due to the Tax Break Expiration
The social security tax, once the tax break expiration has passed, will increase from 4.2% to 6.2%. This means a family that earns about $50,000, will end up spending about an increase of $1,000 in taxes from the year 2013.
The credit expiration and tax break expiration of the estate and gift law also means that failing to plan properly prior to 2013 will have resulted in an increased transfer of liability tax of up to $2,111,000.
The medical deduction floor will also be increased as a result of the tax break expiration – the medical expenses incurred will have to be more than 10% of the AGI before the expenses are deductible. The previous floor was 7.5%.
In conclusion, the tax break expiration is likely to cause a significant increase in the overall expenses of a household. Make it a point to study all the changes carefully so that you are aware of the increases.