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The Importance of Tax Planning

October 29, 2013

 

 

Fall’s cooler weather brings two things; the holidays and your last chance to tax plan for 2013!

There are many reasons to contact your accountant prior to December 31st.  The best reason - once 2014 arrives, it will be virtually impossible to improve your tax situation for 2013.

Are you self-employed?  Do you have household employees?  Did your marital status change?  Did you have net investment income in 2013?  Is your income up or down significantly from last year?  Do you have any idea how your business is doing this year?  Are you, or could you be, in alternative minimum tax (AMT) for 2013?

These changes could affect the amount of estimated tax owed for the year, and are reasons to contact your accountant now to protect yourself from penalties or a large tax bill next spring.  Every year there are changes to the tax rules, rates and regulations; your accountant should be well apprised of these updates and can inform you as to how the changes affect you.

In 2013, the social security withholding from employee's paychecks increased from 4.2% to 6.2%.  If you are self employed and are having a good year, this 2% increase in tax due on your schedule C earnings could be a big shock when you finalize your 2013 tax return in 2014.  The same tax increase applies to household employees for whom you remit payroll taxes on your individual income tax return.

For tax years beginning after December 31, 2012, net investment income for married filing joint taxpayers whose modified adjusted gross income (AGI) is greater than $250,000, $200,000 for single taxpayers, is subject to an additional tax of 3.8%.  Estates and trusts may also be subject to this tax.  Some types of income that are included in net investment income include interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities, and businesses that are passive activities to the taxpayer.   Certain gains may also be subject to this tax.

2013 also brings higher tax rates for married filing joint taxpayers with income over $450,000, $400,000 for single filers.  The new marginal tax rate for incomes over these amounts is 39.6%, up from 35%.  Additionally, the tax rate on qualified dividends and long term capital gains will increase from 15% to 20% when your income exceeds these amounts. 


As a taxpayer, you are required to pay in either 90% of the current year's tax liability, or 100% to 110% of last year's tax liability, as estimated taxes during the year (whether through W-2 withholding or timely estimated payments), depending on your 2012 income.  Penalties may be incurred if you miss an estimated tax payment during the year, or if you pay too little during one of those periods.  Even if you haven't made any payments during the year, waiting to pay until April 15th can only increase potential penalties.  Planning for the January 15th deposit date may be the best holiday gift you can give yourself, and your checking account!

 

We highly recommend that you be proactive, so that these changes, plus many others, won’t cause a tax shock when April 15th rolls around.  And bear in mind that these are the changes that are in place today; more could be coming down the road.   Please call or email your ECS contact as soon as possible to ensure you go into the 2013 tax filing season prepared and aware of your tax responsibilities.


2013 Tax Due Dates:

October 31st –

3rd quarter 2013 employer payroll tax returns due

November 30th –

Monthly Illinois wage report for October due (employers with 100 or more employees)               

December 15th –4th estimated tax payment for 2013 due for Corporations

This email disclaimer is subject to IRS Circular 230 as mandated by federal law. Unless expressly stated otherwise above, nothing contained in, forwarded with, or attached to this email was intended or written by ECS Financial Services, Inc. to be used, and cannot be used, by any person for the purpose of (1) avoiding any penalties that may be imposed under the Internal Revenue Code, or (2) promoting, marketing or recommending any federal tax transaction or matter addressed herein.