What’s New

This section summarizes important tax changes that took effect in 2013. Most of these changes are discussed in more detail throughout this publication.

Future developments. For the latest information about the tax law topics covered here, including information about any tax legislation, go to www.irs.gov/pub17.

Additional Medicare Tax. Beginning in 2013, a 0.9% Additional Medicare Tax applies to Medicare wages, railroad retirement (RRTA) compensation, and self-employment income that are more than:

• $125,000 if married filing separately,
• $250,000 if married filing jointly, or
• $200,000 for any other filing status.

Net Investment Income Tax. Beginning in 2013, you may be subject to Net Investment Income Tax (NIIT). The NIIT is 3.8% of the smaller of (a) your net investment income or (b) the excess of your modified adjusted gross income over:

• $125,000 if married filing separately,
• $250,000 if married filing jointly or qualifying widow(er), or
• $200,000 if any other filing status.

Change in tax rates. The highest tax rate is 39.6%. For more information, see the 2013 Tax Computation Worksheet or the 2013 Tax Rate Schedules near the end of this publication.

Tax rate on net capital gain and qualified dividends. The maximum tax rate of 15% on net capital gain and qualified dividends has increased to 20% for some taxpayers. See chapter 16.

Medical and dental expenses. You can deduct only the part of your medical and dental expenses that is more than 10% of your adjusted gross income (7.5% if either you or your spouse is age 65 or older). See chapter 21.

Personal exemption amount increased for certain taxpayers. Your personal exemption is increased to $3,900. But the amount is reduced if your adjusted gross income is more than:

• $150,000 if married filing separately,
• $250,000 if single,
• $275,000 if head of household, or
• $300,000 if any other filing status.

Limit on itemized deductions. You may not be able to deduct all of your itemized deductions if your adjusted gross income is more than:

• $150,000 if married filing separately,
• $250,000 if single,
• $275,000 if head of household, or
• $300,000 if any other filing status.

Same-sex marriages. If you have a same-sex spouse whom you legally married in a state (or foreign country) that recognizes same-sex marriage, you and your spouse generally must use the married filing jointly or married filing separately filing status on your 2013 return, even if you and your spouse now live in a state (or foreign country) that does not recognize same-sex marriage. See chapter 2.If you meet certain requirements, you may be able to file amended returns to change your filing status for some earlier years. For details on filing amended returns, see chapter 1.

Health flexible spending arrangements (FSAs). You cannot have more than $2,500 in salary reduction contributions made to a health FSA for plan years beginning after 2012. See chapter 5.

Expiring credits. The plug-in electric vehicle credit and the refundable part of the credit for prior year minimum tax have expired. You cannot claim either one on your 2013 return. See chapter 37.

Ponzi-type investment schemes. There are new rules for how to claim a theft loss deduction on Form 4684 due to a Ponzi-type investment scheme. See chapter 25.

Home office deduction simplified method. If you can take a home office deduction, you may be able to use a simplified method to figure it. See Publication 587.

Standard mileage rates. The 2013 rate for business use of your car is increased to 56½ cents a mile. See chapter 26.The 2013 rate for use of your car to get medical care is increased to 24 cents a mile. See chapter 21.The 2013 rate for use of your car to move is increased to 24 cents a mile. See Publication 521, Moving Expenses.

Interest Rates Remain the Same for the First Quarter of 2014

IR-2013-96, Dec. 9, 2013

WASHINGTON ? The Internal Revenue Service today announced that interest rates will remain the same for the calendar quarter beginning Jan. 1, 2014. The rates will be:

• three (3) percent for overpayments [two (2) percent in the case of a corporation];
• three (3) percent for underpayments;
• five (5) percent for large corporate underpayments; and
• one-half (0.5) percent for the portion of a corporate overpayment exceeding $10,000.

Under the Internal Revenue Code, the rate of interest is determined on a quarterly basis. For taxpayers other than corporations, the overpayment and underpayment rate is the federal short-term rate plus 3 percentage points.

Generally, in the case of a corporation, the underpayment rate is the federal short-term rate plus 3 percentage points and the overpayment rate is the federal short-term rate plus 2 percentage points. The rate for large corporate underpayments is the federal short-term rate plus 5 percentage points. The rate on the portion of a corporate overpayment of tax exceeding $10,000 for a taxable period is the federal short-term rate plus one-half (0.5) of a percentage point.

The interest rates announced today are computed from the federal short-term rate determined during Oct.2013 to take effect Nov. 1, 2013, based on daily compounding.

Revenue Ruling 2013-25 announcing the quarterly rates will be published in Internal Revenue Bulletin 2013-52, dated Dec. 23, 2013.

Posted in Uncategorized