New changes to tax laws require taking an early look at your tax planning for 2013. A couple of items in particular:
Personal Exemptions
A previous tax rule based on adjusted gross income (AGI) has been reinstated for 2013: the phase-out of the deduction for personal exemptions. Your deduction for yourself, your spouse, and your dependents (each worth $3,900) will be reduced if you're married, filing a joint return and your AGI is greater than $300,000. For singles the threshold amount is $250,000.
For every $2,500 of AGI over the threshold amount, exemptions are reduced by 2%; at $422,500 for joint filers, the exemptions are completely phased out.
Itemized Deductions
Itemized deductions for higher- income taxpayers will again be limited in 2013. They will be reduced by 3% of that portion of AGI exceeding the thresholds mentioned above ($250,000 for singles and $300,000 for couples). The amount of your itemized deductions won't be phased out completely, however. They can't be reduced by more than 80%, and certain deductions are not affected (medical expenses, investment interest, theft and casualty losses, for example).
To determine if or how these tax changes will impact you, it’s best to start working with your financial and tax advisors now to get a jumpstart on planning.