Mariner Tax Preparation

It’s 2024. Here’s some changes for the 2023 Tax Season

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Adjusted Income Tax Brackets:

  • The income tax brackets for 2023 have undergone slight adjustments to accommodate inflation. Despite still maintaining seven tax rates, each rate’s income ranges (tax brackets) have shifted.

Increased Standard Deduction:

  • After adjusting for inflation, the standard deduction for 2023 has slightly increased. It stands at $13,850 for single filers, married couples filing separately, and $20,800 for single heads of household. For married couples filing jointly, the standard deduction rises to $27,700.

Itemized Deductions:

  • Itemized deductions remain largely unchanged for 2023. Notable points include:
    • A $10,000 cap on deductions for state and local income taxes, property taxes, and real estate taxes.
    • A limit of $750,000 on the mortgage interest deduction.
    • Medical expenses are deductible only if they exceed 7.5% of adjusted gross income (AGI).
    • Deduction limits for charitable donations stand at 30% of AGI for contributions of non-cash assets and 60% of AGI for cash contributions. The overall limit is typically 50% of AGI for both cash and non-cash assets.

Increased Contribution Limits for Retirement Accounts:

  • Contribution limits for traditional IRAs, Roth IRAs, tax-deferred 401(k)s, and Roth 401(k)s have slightly increased for 2023. Individuals can contribute up to $6,500 to an IRA, with an additional $1,000 catch-up contribution for those aged 50 and older. Contribution limits for 401(k)s have risen to $22,500, with a $7,500 catch-up contribution for individuals aged 50 and older.

Expanded Health Savings Account (HSA) Contributions:

  • The maximum contributions to HSAs have increased for 2023. Individuals can now contribute up to $3,850, with an additional $1,000 catch-up contribution for those aged 55 and older. Family contributions have risen to $7,750.

Child Tax Credit:

  • The Child Tax Credit remains at $2,000 per child under age 17 for 2023. However, it is subject to phase-out starting at $400,000 for joint filers and $200,000 for single filers. A $500 credit is available for other qualified dependents.

Adjustments to Alternative Minimum Tax (AMT) Exemption:

  • The AMT exemption for 2023 has increased, affecting mainly households with incomes over $500,000. Exemptions stand at $81,300 for single filers and $126,500 for married taxpayers filing jointly. Phase-out thresholds are $1,156,300 for married taxpayers filing jointly and $578,150 for all other taxpayers.

Higher Estate Tax Exemption:

  • The estate and gift tax exemption for 2023 has risen to $12,920,000, indexed to inflation. The annual gift exclusion also increased to $17,000 per recipient.

Flexible Spending Account vs. Dependent-Care Credit

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flexible spending taxesA couple of tax breaks are available for working parents who pay for child care, but you’ll have to choose one or the other.  Is it better to pay for child-care expenses using a flexible spending account or to claim the dependent-care credit on my tax return?

Many people will have that question over the next few months, as they make decisions about their employee benefits for 2014. You may be allowed to set aside up to $5,000 in pretax money for the year in a flexiblespending account for dependent-care expenses. Or you could claim those expenses for the dependent-care credit when you file your 2012 tax return. But you can’t use the same expenses for both tax breaks. Most familieswho have access to a dependent-care flexible spending account at work would be better off running their child-care expenses through the FSA.

Money you set aside in a flexible spending account is not only subtracted from your paycheck before income taxes are calculated, but it also avoids the 7.65% Social Security and Medicare tax. So if you’re in the 15% income-tax bracket, you won’t have to pay the 15% federal tax or the 7.65% Social Security tax, which means that you’ll avoid paying a total of 22.65% in taxes on that money. In that case, contributing the maximum $5,000 to your dependent-care flex plan cuts your tax bill by $1,133. The benefits get even better as your tax bracket rises. If you’re in the 25% bracket, for example, you’ll end up saving 32.65% in taxes on the money you contribute to the FSA — and lowering your tax bill by $1,633. You’ll save even more if your FSA contribution escapes state income taxes.

 

w-4 withholding

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Why you should Adjust Your W-4 Withholding

Common lifestyle changes, like getting a job or getting married, can change your tax liability. To avoid being caught off guard by an unexpected tax bill or huge tax refund, you’ll need to adjust your withholdings on your paycheck.

What’s a W-4 and Why Should I Pay Attention to It?
mariner taxes w-4Every time you earn income, you’ll most likely owe taxes. How much you pay is determined by your Form W-4. Your employer deducts taxes based on the number of allowances you claim on your W-4. This system works well if you’re a “standard” taxpayer who files single, has one job, and claims a standard deduction. But if you don’t fit into this category — and many of us don’t — it’s likely that you have too much or too little tax withheld.

When you have too much money withheld from your paychecks, you end up giving Uncle Sam an interest-free loan (and getting a tax refund). Ask yourself if there are better ways to use that money. Why not take home more money in your weekly paycheck? Or invest the proceeds and earn interest on it? On the other hand, having too little withheld from your paycheck could mean an unexpected tax bill or even a penalty for underpayment. Either way, there’s a better way to manage your hard-earned money.

The key to paying the right amount of tax is to update your W-4 regularly. Do this whenever you have a major personal life change. The goal is to reduce the potential for both a tax bill and a tax refund to zero, or close to it. But if you count on a big tax refund every year, you should also pay attention to your withholding, because how much you have withheld directly impacts your refund.

Here are Five Life Changes that Should Make You Revisit Your W-4 Withholding

You get a second job
Getting a second job is the most common reason for needing to adjust your W-4. Do this whether you moonlight, have a home business, or get another full-time job. Any time your income goes up, your tax liability will likely go up too, requiring a new W-4. If your extra income comes from a side job with no W-4, you can still adjust the W-4 at your main job to account for the increase in income.

Your spouse gets a job or changes jobs
Any change of household income, whether up or down, could put joint filers in a different tax bracket and require both of you to modify your allowances. To ensure accuracy, use your combined income to figure the allowances. Once this is calculated, one spouse can claim all of them, or they can be divided between both W-4s.

You’re unemployed part of the year
If you get laid off from your job and stay unemployed the rest of the year, you likely had too much tax withheld. But if you get re-hired in the same year, you’ll need to adjust for the downtime. To avoid paying too much tax, you should increase the allowances on a new W-4. We’ll show you how to do that below.

You get married…or divorced
Tying or untying the knot will surely change your tax rate, especially if both spouses work. Married persons filing jointly qualify for a lower tax rate and other deductions. Getting a divorce will take you back to single status and reverse many tax benefits. If you fail to account for these events on your W-4 by adjusting allowances, your withholdings could be inaccurate.

You have a baby…or adopt one
A new baby is more than a bundle of joy for you and your spouse. It’s a major tax event too. You can claim an additional allowance for a dependent and may qualify for the Child Tax Credit, Child Care Tax Credit and others. If you adopt a child, there’s another tax credit. Any of these could allow you to reduce your withholding to account for the added tax benefits. Leaving your withholdings as-is will likely result in a larger than expected tax refund.

If you want to have more or less taken out each paycheck ask your employer for a fresh W-4. You can claim as many allowances as warranted by your personal situation. Another way to increase your withholdings is to put the actual amount you want deducted on Line 6 (“Additional Withholdings”) of the W-4.

If you want to verify if your W-4 is filled out correctly for your life; use the IRS W-4 Calculator…
http://www.irs.gov/Individuals/IRS-Withholding-Calculator

You can adjust your W-4 at any time during the year. Just remember, adjustments made later in the year will have less impact on your taxes for that year.

Health Care Reform

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mariner taxes health care reformNow that healthcare reform is the law of the land, it’s time to think about how it will affect your taxes. Whether your income is high, low or in-between, everyone will be affected in some way. Here’s a year-by-year breakdown of what’s on the horizon and details about how the new law may change the amount of tax you pay.

With the Supreme Court’s ruling on the new Patient Protection and Affordable Care Act (a.k.a. Affordable Care Act or Obamacare), you may be wondering how you’ll be affected.

While there are some tax implications of the new law, there’s no need to panic. The revisions are gradual and stretch out over 10 years. You’ll have plenty of time to adjust to them.

Some changes to tax credits and medical accounts went into effect in 2010 and 2011. But you won’t see major changes until 2013 and 2014.

Here’s a year-by-year breakdown of what’s on the horizon.

2010
$250 prescription drug rebate: This rebate addresses the gap in drug coverage for people on Medicare.

Revised adoption tax credit: The maximum credit increased from $12,150 to $13,170 per eligible child.

The tanning tax: The legislation imposes a 10% tax on individuals who use ultraviolet indoor tanning services. The tax was levied beginning July 1, 2010.

2011

Limit on tax-free medical accounts: You are no longer able to use your flexible spending account (FSA) to buy over-the-counter drugs like ibuprofen. Prescription drugs are still covered.
Stiffer fines for abuse of Health Savings Accounts (HSAs): Penalties for using your HSA to buy non-qualified products increase. They climbed from 10% to 15% to 20%, giving you added motivation not to purchase a laptop or furniture with your HSA.

2013

This is an important year for joint filers with incomes over $250,000 and single filers with incomes over $200,000. These taxpayers will now be subject to two taxes:

Medicare tax on earned income: The tax will increase from 1.45% to 2.35%, but only on income beyond the $200,000/$250,000 thresholds.

Medicare tax on investment income: This new 3.8% tax will be assessed on interest, dividends, capital gains, rent and royalty income. Investment income from retirement accounts is not subject to the tax.

Taxpayers at any income level could be subject to these changes:

Cap on flexible spending account (FSA) contributions: Previously, employers could set the limit on contributions to FSAs. Many opted for caps as high as $5,000. In 2013, a cap of $2,500 goes into effect. Anything above the cap becomes part of your taxable income. The cap will rise each year as the cost-of-living increases.

New limits on medical deductions: Current law allows filers who itemize their deductions to deduct out-of-pocket medical expenses that exceed 7.5% of their income. In 2013, expenses must exceed 10% for filers under age 65. (If you’re over 65, the law goes into effect in 2016.)

2014

The year 2014 is a watershed for the healthcare reform law. This is when the major changes to your healthcare plan will begin. At this time, all Americans will be required to maintain health insurance. (Exceptions include Native Americans, prisoners and illegal immigrants.)

If you are not covered by an employer plan, or by Medicare or Medicaid, you’ll have to purchase your own coverage from a market exchange.

The IRS is responsible for monitoring whether people comply with the new laws. They’ll do this by requiring you to report the value of your health plan on your tax return. If you don’t have coverage, a penalty will be assessed.

Here are the details:

Something new on Form W-2: Starting in 2014, you’ll see a new number on your W-2 form. This is how employers will report the value of your health plan to the IRS. This key figure will determine whether you’re eligible for tax credits or liable for tax penalties.

Health plans are not income: Even though the value of your plan is reported on your W-2, it’s not taxable. So you don’t need to report it as income on your tax return.

Penalties for those without medical coverage: The penalty starts at $95 or 1% of income (whichever is greater) per person in 2014. It gradually rises until it hits 2.5% or $695 (whichever is greater) per person by 2016.
Tax credits for low-income filers: If you can’t afford health insurance, you may be eligible for tax credits to help you pay the cost of coverage if you earn between 133% and 400% of the federal poverty level. Based on the current poverty level of $10,830 per year for singles and $22,050 per year for a family of four, assistance would be available for singles with income between $14,404 and $43,320 and families with income between $29,327 and $88,200.

More changes coming
These changes take taxpayers through the first four years of healthcare reform. More are coming down the road.