Even though a new tax season is greeted with about as much enthusiasm as the recent harsh winter weather, it’s important to stay informed.Business owners and entrepreneurs have good news ahead this year.
Same-sex couples have new tax options to consider. And wealthy taxpayers probably will pay more.
A look at some of what’s new for 2013:
Ohio tax cuts
As part of a tax-reform package the state put in place last year, a majority of small-business owners and entrepreneurs are eligible for a 50 percent tax deduction on their first $250,000 of business income, the Ohio Department of Taxation says.
A small-business owner who can claim the full deduction could save $6,000 in state taxes — money that the state hopes will be invested to boost the state’s economy.
The package of cuts, valued at $2.7 billion, also includes an 8.5 percent tax cut for individuals for 2013 and additional cuts of 0.5 percent for 2014 and 1 percent for 2015. Meanwhile, the state sales tax rose a quarter of 1 percent.
Joe Popp, tax manager for Rea & Associates Inc., said the tax cut for small-business owners, entrepreneurs, artists and others doesn’t require them to have done anything different from what they did in 2012 to claim the deduction.
“You’re not changing anything you did last year,” he said. “It’s free money.”
Popp said the cut can be confusing, though, because it applies only to income the business generated in Ohio, not income that an owner might generate in another state. The same goes for partnerships in which the income is generated in more than one state.
“Ohio taxes are getting a lot of questions from people,” Popp said.
Same-sex couples who have officially tied the knot now will go through the same decision-making process that other couples have had to deal with, at least for their federal return. Should they file a separate return or a joint return? What are the benefits and penalties that go along with that decision?
The change is a result of the U.S. Supreme Court’s 2013 decision that found part of the federal Defense of Marriage Act unconstitutional.
Same-sex couples will be able to file amended federal tax returns that go back as far as 2010 to claim the joint-filing status.
Despite the change in federal status, same-sex couples still will have to file separate returns in Ohio, which doesn’t recognize such relationships.
“No matter what the rule is in Ohio, for federal purposes, you’re considered married,” said Bernie Ostrowski, the partner in charge of the tax practice in the Columbus office of Plante Moran, an accounting and business-advisory firm.
The state has prepared a new form for same-sex couples whose out-of-state marriage is recognized by the federal government but not by Ohio.
The instructions say that taxpayers who filed a joint federal income-tax return with someone of the same gender must file an Ohio return “using ‘single’ or, if qualified, ‘head of household’ filing status.”
Popp said some same-sex couples might find that, even with the new right to file a joint return, it will be to their benefit to file separate returns.
Wealthy pay more
Higher-income people probably are looking at a bigger tax bill for 2013.
The top federal rate has risen to 39.6 percent for the highest income bracket: singles with income of more than $400,000, married couples filing jointly with income of more than $450,000, and heads of household with incomes of more than $425,000.
The increase came as part of a tax deal struck at the beginning of 2013 that left most of the tax cuts put in place when George W. Bush was president, but not those for the wealthiest taxpayers. In the 2012 tax year, the highest rate had been 35 percent.
Those aren’t the only tax increases that high-income earners might face.
Some taxpayers will pay a higher rate on capital gains and dividends, an additional 0.9 percent Medicare tax and an investor income tax of 3.8 percent. On top of that, high-income earners could see some of their itemized deductions and personal exemptions phased out.
Ostrowski said that for some taxpayers, marginal rates will approach 50 percent.
“The harder I work, the more I’m paying,” is a comment Ostrowski says he is hearing from clients.
People who run a business from home will have an easier option for claiming the deduction for a home office.
Of course, that assumes that the portion of the home is used regularly and exclusively for that business.
Before 2013, taxpayers claiming the deduction had to figure their actual expenses, something they still can do if they want. Under the new rule, they will be able to claim a standard deduction of $5 per square foot up to 300 square feet, for a maximum deduction of $1,500.
For taxpayers with home offices, “it will be simpler for them and give them another choice,” said Ted Johnson, a partner with local accounting firm Parms & Co.
Claiming a deduction for medical expenses for 2013 will be more difficult. The threshold for those 65 or younger to claim the deduction rose to 10 percent of adjusted gross income, up from 7.5 percent in 2012.
“There are few people who can take it, and those who do will see a smaller benefit,” Popp said.
Tax credits/ deductions
An assortment of credits and deductions remain in place for 2013 for many taxpayers. These include the Child Tax Credit, the Earned Income Tax Credit, the child/dependent care credit and the American Opportunity Credit.
Teachers still can claim a $250 deduction for out-of-pocket expenses for running their classroom.
The IRS is pushing eligible families to make sure they claim the Earned Income Tax Credit.
One in 5 eligible families misses out on the credit. They either fail to claim it on their tax return or don’t file a return because their income is so low they aren’t required to do so, the IRS says.
“We urge people to look into EITC,” IRS Commissioner John Koskinen said in a statement. “Many people don’t realize they are eligible and simply overlook this credit.”
Easier year, maybe
A year ago, the federal government’s resolution of the “fiscal cliff” put tax preparers in a bind and put the IRS behind schedule as computers had to be reprogrammed before handling returns. The result was delays for many taxpayers in getting returns filed.
“Legislation and changes in the law, relatively speaking, have led to a less-complex startup period” this year, Johnson said.
But Johnson said taxpayers shouldn’t wait until the last minute to hand over to their preparer the forms, slips, receipts and other documents needed for their return, expecting the preparer to complete it by the April 15 deadline.
Many preparers offer clients an organizer to help put their records in order, he said.
But seeking help directly from the IRS could be tougher.
National taxpayer advocate Nina Olson said in her 2013 annual report that the IRS answered only 61 percent of the calls from taxpayers seeking to speak with an IRS service representative last year.
“The year 2013 was a very challenging one for the IRS. Because of sequestration, the IRS’ funding was substantially cut, which translated into a reduction in taxpayer service,” Olson said in the report.
The IRS says more self-help options are available at its website, IRS.gov.
About 3 in 4 taxpayers get a refund, and more than 90 percent of those refunds are paid in less than three weeks, the IRS says.
The average refund is $2,744.
By Mark Williams - The Columbus Dispatch, Ohio (MCT)
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