By Pamela Yip
(MCT)—As taxpayers sit down to work on their income tax returns, they will face the impact of several law changes in 2013.
Among them are the American Taxpayer Relief Act, new provisions of the Affordable Care Act and the U.S. Supreme Court’s decision to strike down a portion of the Defense of Marriage Act.
“New laws, as well as tax provisions that expired at the end of 2013, may make a noticeable impact for some taxpayers, depending on their income levels and other factors,” said Mark Luscombe, principal federal tax analyst at Wolters Kluwer CCH, which publishes information for tax professionals.
Higher-income taxpayers will feel the biggest hit from the tax law changes.
The tax legislation passed at the start of 2013 permanently extended the Bush-era tax cuts, but also added a top marginal tax rate of 39.6 percent for those at higher incomes $400,000 for single filers, $450,000 for married couples filing jointly and $425,000 for heads of household.
On top of that, higher-income taxpayers could see their itemized deductions and personal exemptions phased out and pay higher capital gains taxes, 20 percent for some taxpayers.
“Higher-income people have a lot to worry about,” Luscombe said.
Here are the major changes in tax law:
NEW MEDICARE TAXES: The Affordable Care Act imposed two new Medicare taxes that start with the 2013 tax year: a 3.8 percent tax on net investment income and a 0.9 percent additional Medicare tax.
Net investment income includes income from interest, dividends, rents, royalties and gains from the sale of most properties. The exception is if that income came from an “active” trade or business, said Ken Sibley, certified public accountant and principal at CliftonLarsonAllen LLP in Dallas.
“Income from passive activities is generally included in net investment income” and is subject to the tax, Sibley said. Income from an active business is not.
The difference between active and passive activities has to do with how much risk you assume and the level of personal involvement you have, he said.
“Where you have the most to lose, you’re going to be more active,” Sibley said.
For example, if you own a building and you rent it to a grocery store, the rental income would be considered passive. But if you own and operate the store, it’s considered an active activity, he said.