The IRS has updated income-tax withholding tables for 2013 in light of the American Taxpayer Relief Act of 2012, signed into law Jan. 2. Also, because the payroll tax holiday hasn’t been extended, employers must withhold Social Security tax at the rate of 6.2% rather than at the 4.2% rate that applied in 2011 and 2012.

According to the IRS, employers should start using the revised withholding tables and withholding the correct amount of Social Security tax “as soon as possible in 2013, but not later than Feb. 15, 2013.”

Employees don’t have to do anything, but you may want to revise your W-4 if you get married or divorced, have a child or buy a home. Revising your W-4 also may be a good idea if you hold multiple jobs or if when you file your 2012 return you have a large balance due or receive a large refund.

CC image courtesy of 401(K) 2013 on Flickr

On Jan. 2, Congress passed the American Tax Relief Act to address the fiscal cliff. The act makes permanent 2012 income tax rates for most taxpayers, as well as alternative minimum tax relief. It also extends many other breaks for individuals and businesses. However, the fiscal cliff deal does result in some tax increases; here are three of the most significant:

1. Payroll taxes. The act doesn’t extend payroll tax relief. So taxpayers with earned income will see a Social Security tax rate increase of two percentage points in 2013.

2. Income taxes. Beginning in 2013, taxpayers with taxable income that exceeds $400,000 (singles), $425,000 (heads of households) or $450,000 (married filing jointly) will face a marginal tax rate of 39.6% (up from 35%) and a long-term capital gains rate of 20% (up from 15%).

3. Estate taxes. While the $5 million (indexed for inflation) estate tax exemption has been made permanent, the top estate tax rate increases from 35% to 40% beginning in 2013.

 CC image courtesy of katerha on Flickr

To take a 2012 charitable donation deduction, the gift must be made by Dec. 31, 2012. According to the IRS, a donation generally is “made” at the time of its “unconditional delivery.” But what does this mean? Is it the date you, for example, write a check or make an online gift via your credit card? Or is it the date the charity actually receives the funds — or perhaps the date of the charity’s acknowledgment of your gift?

The delivery date depends in part on what you donate and how you donate it. Here are a few examples for common donations:

Check. The date you mail it.

Credit card. The date you make the charge.

Pay-by-phone account. The date the financial institution pays the amount.

Stock certificate. The date you mail the properly endorsed stock certificate to the charity.

Many additional rules apply to the charitable donation deduction, so please contact us if you have questions about the deductibility of a gift you’ve made or are considering making.

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If you own highly appreciated assets you’ve held long term, it may make sense to recognize gains now rather than risk paying tax at a higher rate next year:

1. The 15% long-term capital gains rate is scheduled to return to 20%.

2. Higher-income taxpayers will be subject to a new 3.8% Medicare tax on some or all of their net investment income.

As Congress and the President negotiate on how to address the fiscal cliff, it’s still unclear whether the 15% rate will be extended — especially for higher-income taxpayers.

Because a final deal in Washington may not be reached until the very end of the year — or even after Jan. 1 — you can’t necessarily afford to take a wait-and-see attitude. And the new 3.8% Medicare tax will go into effect regardless of what happens with the fiscal cliff. If you have questions about the potential tax impact on your investments, please contact us.

Image courtesy of www.freedigitalphotos.net.