Filing Status Implications &
Retirement Contribution Limitations
Status Implications - For married taxpayers, the
implications of filing a joint or separate return extend
beyond tax rates and the standard deduction.
Like many aspects of income taxation, there is usually more
than one approach to finding the optimal solution.
We have listed some of the more common implications of filing
either a joint or separate return. Although not an exhaustive
list, it highlights several issues to consider.
Some of the implications of filing a
joint return include
The requirement that individuals who file a joint return
cannot be claimed as dependents on another return. This can be
important when married students are still supported by their
An individual who files a joint return is not subject to the "kiddie
Joint filers are both responsible for the tax on their joint
return. Thus, nontax factors should be considered (i.e.,
questionable business transactions). In addition, divorced
taxpayers will each be liable for tax, interest, and penalties
due on a joint return filed before the divorce.
Finally, monthly Medicare premiums can increase substantially
for a couple filing jointly versus filing separately,
especially for a lower-income spouse.
The implications of filing a
separate return include (among others):
If one spouse itemizes deductions, the other must also, even
if total deductions are less than the standard deduction.
Taxpayers can generally only deduct expenses they actually
paid versus those paid by either.
Credits for child care, adoption, education, and earned income
are generally not available.
If separate filers lived with their spouse during any part of
the year, a greater percentage of social security benefits may
be taxable because the income threshold for determining the
taxable amount is reduced to zero.
The exclusion of gain on the sale of a principal residence is
limited to $250,000 (each) for separate filers versus $500,000
for a joint return.
The $25,000 passive loss exception for actively managed rental
real estate may be totally or partially lost. Also, one
spouse's passive income cannot be offset by the other spouse's
The limit on the capital loss deduction on a separate return
is $1,500 (each).
No exclusion is allowed for interest income from Series EE
bonds used for higher education expenses.
The deduction for interest on qualified education loans is not
Taxpayers filing separate federal returns typically must also
file separate returns for state income tax purposes.
There you have it: the implications for married taxpayers
filing jointly or separately. Please contact us to discuss the
most advantageous filing status or any other tax compliance or
Retirement Contribution and
Other Limitations for 2013
IRS has announced cost-of-living adjustments affecting the
dollar limitations for retirement plans, deductions, and other
Several of the limitations
are higher for 2013 because the increase in the cost-of-living
index met the statutory threshold. However, some
limitations did not meet that threshold and remain unchanged
The elective deferral
(contribution) limit for employees who participate in 401(k),
403(b), most 457 plans, and the federal government's Thrift
Savings Plan increased from $17,000 in 2012 to $17,500 in
2013. The catch-up contribution limit for those age 50 and
over remains unchanged at $5,500.
The contribution limit for
both Roth and traditional IRAs has increased $500 from 2012.
You can contribute up to $5,500 ($6,500 if you are age 50 or
older by year-end) to your IRA in 2013 if certain conditions
are met (i.e., sufficient earned income). For married couples,
the combined contribution limits are $11,000 ($5,500 each) and
$13,000 ($6,500 each if both are age 50 by year-end) when a
joint return is filed, provided one or both spouses had at
least that much earned income.
Keep in mind that contributions
to traditional IRAs may be tax-deductible, subject to specific
limitations that increase for 2013. When you establish and
contribute to a Roth IRA, contributions are not deductible,
but withdrawals are tax-free when specific requirements are
satisfied. In addition, there are no mandatory distribution
rules at age 70 1/2 with a Roth IRA, and you can continue to
make contributions past age 70 1/2 if you meet the earned
The 2013 limitation for
SIMPLE retirement accounts increased $500 to $12,000.
However, the SIMPLE catch-up contribution for those age 50 by
year-end is unchanged from 2012 at $2,500.
The 2013 contribution limit for
profit-sharing, SEP, and money purchase pension plans is the
lesser of (1) 25% of the employee's compensation-limited to
$255,000, an increase of $5,000 from 2012 or (2)
$51,000, an increase of $1,000 from 2012.
The social security wage base,
for computing the social security tax (OASDI), increases to
$113,700 in 2013, up from $110,100 for 2012. The
additional $3,600 for 2013 represents an increase of 3.3% in
the wage base.
Finally, the annual exclusion
for gifts increased by $1,000 and is $14,000 in 2013.
To read this or any other past
article online please
click here and then scroll down to our newsletter archive.
Do Me A Quick Favor And Give Me An
Online REVIEW on Google+ Local?
you are a local business like I am, more and more people FIND
you by going online and searching. To help me be found
the same way by good customers like you would you take 2
minutes and give me a Review on my Google+ Local listing?
click here and it will take you to my listing. From
there just click on the blue Write a Review button.
Thank you in advance for your help!
If you have any questions about giving us a Review or have an accounting or
investments question about yourself or your business, please give me a call at
704-552-8689. I can help guide you in the right
To read other articles like
click here or go to
and click on the News link.
As always you can call our offices if you have any
questions about these or any other accounting, tax,
financial planning or Quickbooks related issues, at
W. Edward Newton Jr.,
Certified Public Accountant