FORT MILL — As Americans turn to the annual task of tax preparation and there are new laws that will affect their return.
It’s go time for local tax preparers Melissa Westergard, a Lake Wylie certified public accountant, and Cowetas Nicole Morris, a tax professional with a MBA at ReNew You Tax Service in Fort Mill.
Westergard has 15 years experience preparing taxes and runs her own business. Most of the changes this year are related to the Affordable Care Act, she said.
“If you buy health insurance on the exchange and receive a subsidy you have to file a tax return,” she said. “There are new taxes that are in effect to help pay for this enormous piece of legislation.”
Westergard lists a couple of the new taxes as:
• You must have qualified health insurance coverage starting in 2014. If not, you will be subject to a penalty.
• The 3.8 percent Medicare tax on Net Investment Income for those married individuals with modified adjusted gross income (MAGI) in excess of $250,000. If you are single, the threshold is $200,000. This is a complicated calculation that must be done if your income is close to these thresholds.
• There is also a .9 percent Medicare tax for high income earners, including those who are self employed. If your salary is more than $200,000, you should have already seen this additional amount withheld on your paycheck. The withholding of this tax is going to be reconciled on your 2013 tax return.
• There still is a 0 percent capital gains rate for some, but there is also a new 20 percent capital gains rate for others. This is a 5 percent increase from prior years.
• Depending on your income, phaseouts of your itemized deductions have been brought back, so you may not get the full benefit of your itemized deductions.
Also, the ACA will affect all individuals and businesses in one way or another, she said and recommends taxpayers hire a qualified CPA to help them.
“The penalty for not having health care is being listed on many news articles as a maximum of $285 per family, but this is not true,” she said. “It is the higher of the $285 or 1 percent of income over the minimum filing threshold requirement.”
If people say they will pay the penalty, Westergard warns them that the penalty increases.
“After 2014, the penalty goes as high as $2,085 in 2016 or 2.5 percent of income over the filing threshold, whichever is higher, up to the cost of the average bronze plan annual premium,” she said. “The ACA is not going to go away, but there definitely will be some changes and clarification coming on it. All taxpayers need to be aware of the basic requirements of the law.”
Morris said some of this year’s changes are:
• The deductible amount of medical and dental expenses will be the amount that exceeds 10 percent, up from 7.5 percent, of the filer’s adjusted gross income. If either you or your spouse is age 65 or older, the deductible amount will be the amount that exceeds 7.5 percent of your adjusted gross income.
• The personal exemption is $3,900, however, it is subject to reduction for taxpayers with adjusted gross incomes more than $150,000 if married filing separately, $250,000 if single, $275,000 if head of household and $300,000 for any other filing status.
• Only medical expenses that exceed 10 percent of your adjusted gross income (AGI), often referred to as the “medical expense deduction floor,” will be allowed as a deduction. Taxpayers who are age 65 or older in 2013 still have a medical deduction floor of 7.5 percent. This change will affect all those who itemize deductions and claim a medical expense deduction. So, if you typically claim this deduction, you’re going to want to watch for this change.
She also said taxpayers should be aware that with the government closure, the IRS had to change its opening date from Jan. 21 to Jan. 31.
“The IRS cautioned that it will not process any tax returns before Jan. 31,” Morris said. “The April 15 tax deadline is set by statute and will remain in place.”
Both Westergard and Morris recommend that taxpayers stay up-to-date with changes by speaking with professional tax preparers and visiting www.irs.gov.