Transcript Surviving the Next Ag Crisis: Legal and Tax Issues

2013 Income, Estate, & Gift Taxes
Ag Econ Current Issues
May 14, 2013
J C. Hobbs - Assistant Extension Specialist
OSU Department of Agricultural Economics
2013
In 2013, most households
will see the highest income
tax burden since 2008.
2013 Income Tax Rates
• 2013 and future rates are to be: 10, 15,
25, 28, 33, 35, and 39.6 percent. (a 3.8%
surtax will impact high income taxpayers)
• The 39.6% rate applies to:
– Single Filers with Taxable Income > $400,000
– Married Filing Joint with TI > $450,000
– Married Filing Separate with TI > $225,000
– Head of Household Filers with TI > $425,000.
Capital Gain Rates
• Capital gains for 2013
– Net capital gain is taxed at the 0% rate for
taxpayers in the 10% and 15% income tax
brackets.
– Net capital gain is taxed at the 15% rate for
taxpayers in the 25%, 28%, 33%, and 35%
income tax brackets.
– Net capital gain is taxed at the 20% rate (plus a
3.8% surtax from Obamacare) for taxpayers in
the 39.6% income tax bracket.
Dividends
• Qualified dividend rates for 2013
– Qualified dividends are taxed at the 0% rate for
taxpayers in the 10% and 15% income tax brackets.
– Qualified dividends are taxed at the 15% rate for
taxpayers in the 25%, 28%, 33%, and 35% income
tax brackets.
– Qualified dividends are taxed at the 20% rate (plus a
3.8% surtax from Obamacare) for taxpayers in the
39.6% income tax bracket.
Self Employment and
Social Security Taxes
• For 2012: Self-employment tax – a 2%
reduction in social security taxes (FICA)
from 12.4% to 10.4% or a payroll tax
reduction for the employee share of social
security taxes (FICA) from 6.2% to 4.2%.
• For 2013: Back to 12.4% for self-employed
individuals and 6.2% for employees.
(roughly a decrease in take home pay by
$100 per month)
Section 179 Expensing
• 2013 is $500,000 with a $2,000,000
investment limit.
• Purchased capital assets that are
depreciable (new or used).
• Must not create a loss (any amount that is
not used due to the taxable income limit
may be carried forward to future years).
Section 179 Expense Election
• Purchased capital assets that are depreciable
under MACRS deprecation rules.
• Property generally must be used in a trade or
business.
• Farm machinery and equipment; draft,
breeding, or dairy livestock; grain storage
facility; single purpose livestock or
horticultural structures; and field tile all qualify
for the Section 179 expensing.
Section 179 Expense Election
• General-purpose farm buildings, such as
machinery sheds or hay barns, are not
eligible for Section 179 expensing.
• The amount expensed is treated the same
as depreciation and is subject to recapture
when the asset is sold.
Additional First-Year Depreciation
• 2013: 50% Additional First-Year Depreciation is
allowed for qualifying property placed in service
through 12/31/2013.
• Property must have a depreciable life of 20
years or less.
• Original use must occur with the taxpayer
claiming the deduction (in other words - new
property).
• Expires January 1, 2014
What is New Property?
• Never placed in service by anyone else
other than the current owner (original use
by the taxpayer)
• New Cow - original use applies to the
owner when she has her first calf.
• New Bull - original use applies to the
owner when he is first used as a sire.
Medicare Tax on Unearned
Income begins Jan. 1, 2013
• New Medicare Tax on unearned income at
3.8% rate if modified adjusted gross income
exceeds $250,000 for married filing joint or
$200,000 all others.
• Net investment income - applies to interest,
dividends, annuities, royalties and rent (unless
it is from business activities).
• Net income from the sale of capital investments
including stock and real estate (unless it is from
the sale of business property).
Medicare Tax on Unearned
Income (cont.)
• Unearned income does not include
distributions from qualified retirement
plans.
• Rule does not apply to the exclusion
allowed on the sale of a principal
residence of $250,000 for individuals or
$500,000 on a joint return.
Medicare Tax on Earned Income
after Jan. 1, 2013
• New Medicare Tax on earned income at
0.9% on wages and self-employment
exceeding $250,000 for joint returns and
surviving spouses or $200,000 single filers
and all others.
• Applies only to the employees share of the
Medicare tax ( not the employers) and to
self-employment income.
Personal Exemption & Itemized
Deduction Phase-outs for 2013
• Phase-out based on Adj. Gross Income
–
–
–
–
joint filers = $300,000
single filers = $250,000
head of household = $275,000
married filing separate = $150,000
Personal Exemptions
The personal exemption amount is
reduced 2% for every $2,500 that your
Adjusted Gross Income exceeds the
threshold amount.
Itemized Deductions
• Up to 80% of itemized deductions for
higher income taxpayers will be subject
to a 3% phase-out (“Pease limitations”)
• The phase-out does not affect the
deductible amount of medical
expenses, investment interest, casualty
or theft losses, and gambling losses
Itemized Medical Expenses
• Itemized deduction floor for medical
expenses will rise to 10% of AGI for
taxpayers under age 65
• During 2013 through 2016, the floor
remains at 7.5% for taxpayers who
are 65 years of age or older.
Alternative Minimum Tax
• Finally Fixed the Exemption issue (no
need for an annual AMT patch to be
passed by Congress).
• 2013 and beyond the exemption amount
will be indexed for inflation.
Estate Taxes
• Rates:
– 2013 maximum rate is 40 percent
• Exemption amount:
– 2013 exemption amount is $5.25 million
– Indexed for inflation
Estate Taxes
• Portability between spouses made
permanent
– Husband and wife can transfer $10.5 million
of assets free of estate taxation.
– The unused estate tax exemption ($5.25
million) can be transferred from the deceased
spouse and thus can be used by the surviving
spouse when he/she passes.
Example of Portability
• Husband passed in 2010 and the value of the
estate was $2.0 million. The exemption was $3.5
million, so an unused amount of $1.5 million was
left from the husband that the wife can use later.
• In 2013, the wife passes and the fair market
value of the estate is now $6.0 million, she can
use her $5.25 million exemption plus up to $1.5
million (a total of $6.75 million) which was not
used when her husband passed, thus avoiding
estate tax completely.
Gift Taxes
• Federal Gift Tax Exclusion (annual)
– $14,000 per year per person ($28,000 H&W)
• Gift Tax Rates:
– 2013 maximum rate is 40 percent
• Exemption Amount (lifetime)
– 2013 exemption amount is $5.25 million
– Indexed for inflation
The End!
• Questions
• Comments
• Concerns
Contact Information
J C. Hobbs
[email protected]
580-237-7677
Oklahoma Cooperative Extension Service
Oklahoma State University