The US Tax codes keep changing, and they aren’t necessarily changing in your favor. Congress failed to act at the end of the year and now there are changes headed towards us. Many deductions and credits are being split in half, at least – some are being chopped even further, and unless president Obama does something, you might not see that tax refund you rely on so much in 2014.
One of the biggest things you can expect to see is an increase in social security from 4.2% to 6.2 % – a 2% increase. It may not seem like a lot, but over time it could help social security from going bankrupt, and make your retirement better down the road. 꽁머니
Everyone’s income tax is going up across the board, at least 4% and even more through the middle class – the 15% tax bracket is going up to 28% and 25 and 28% brackets to 31 and 36 respectively – expect a leaner 2013 for the already struggling middle class. Not only that, but the child tax credit is being cut in half from $1,000 to $500 per qualifying child. It no longer pays quite as well to have a large family.
Dividends and Capital Gains: these aren’t tax categories that involve everyone, but for those who are affected, there is a little good news? The Maximum long-term rate on capital gains is going to increase from 15 to 20% and in the realm of less good news dividends are now being taxed as regular income with a top rate of 39.6%. Higher income taxpayers will also have fewer deductions and personal exemptions after 2012.
For those who are wondering what’s going on with the AMT – it’s still around. Exemptions are 33,750 for singles and 45,000 for couples. The estate tax will increase from 35% to 55% in the highest bracket and the exclusion amount will be reduced to 1 million dollars, down from the 2012 amount of 5 million. Thankfully this means that everyone who leaves behind an estate sub one million dollars is still exempt.
Tax breaks and other perks
Finally, your education and tax extender tax breaks are also getting slashed: education savings account contribution limit will be $500, down from the 2012 limit of $2000. And the following tax breaks will no longer be available:Teachers’ classroom expense deduction, state and local sales tax deduction, tax-free charitable IRA distributions for those 70½ and older, higher education tuition deduction, business R&D credit, and 15-year depreciation for leasehold improvements and restaurant property. This means that the people who need better tax rates the most are going to be unable to get them.
What this means for you overall is higher taxes, harder work, and hopefully a raise from your employer because you’re certainly going to need it. Hopefully, congress will work with the president to come up with something more favorable for the American people, or else we’re all in for a bumpy ride for the next couple of years.