Changes in new law for individuals

Here are a few changes to the tax laws for 2013 which you should be aware of:

  • The limit for deductible medical expenses has been increased to 10% of your adjusted gross income from 7.5%.  It remains at 7.5% for taxpayers turning 65 before December 31, 2016.  This means it is even less likely than before that you will be able to deduct medical costs on your tax return.
  • If you work overseas the foreign earned income exclusion is $97,500, up from 95,100 in 2012.  There are several restrictions on this exclusion, so if you are working overseas you should be very careful about the details and discuss your situation with your tax advisor to assure you qualify for as high an exclusion as possible.
  • Long term capital gains rates have increased, but not for taxpayers who earn less than $400,000(single) or $450,000(married filing joint).
  • Personal exemption and Itemized deduction phaseouts.  Single taxpayers with incomes above $250,000 and married taxpayers with incomes above $300,000 will be subject to phaseouts of their personal exemptions and itemized deductions.
  • The annual exclusion for gifts rises to $14,000 from $13,000.  As long as your gifts to an individual for the year do not exceed this amount you will not be required to file a gift tax return.
  • Child tax credit is $1,000 per child for 2013 for children under the age of 17.  There are phaseouts of this amount for higher income taxpayers.
  • Several of the education benefits were extended.  The American Opportunity Tax Credit and Lifetime learning credits were extended to the end of 2017.  For 2013, there is a deduction for qualified tuition payments.  Note that you cannot “double dip” on these benefits.  The deduction for interest in student loans was also extended and improved, but is also phased out for higher income taxpayers.

The AGI limit for the saver’s credit (also known as the retirement savings contribution credit) for low and moderate income workers is $59,000 for married couples filing jointly, up from $57,500 in 2012. It is $44,250 for head of household and $29,500 for single or married filing separate

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