Call Us Today: (201) 947-8081 or (646) 688-2807

Plan for the Return of Some Tax Break Phase-Outs

Tax Phase out

Are you familiar with PEP and Pease? Though they sound like a pop duo, the terms refer to tax rules known as phase-outs that can impact how much federal income tax you owe.

Phase-outs are reductions in the amount of deductions, credits, and other breaks you can claim on your tax return. Though generally based on adjusted gross income, phase-outs vary in rate, amount, and how they’re calculated.

 Here’s an overview of PEP and Pease, two tax breaks that are once again subject to phase-out this year.

 * Personal exemption phase-out (PEP). If you’re married filing jointly for 2013 and your income exceeds $300,000, the PEP will reduce the amount you claim for yourself, your spouse, and your dependents.

The personal exemption for 2013 is $3,900. But when PEP applies and your income increases, your deduction is reduced accordingly.

 * Itemized deduction phase-out. You probably already know that some itemized deductions are limited. For instance, to claim a deduction for medical expenses, your out-of-pocket costs for this year have to exceed 10% of adjusted gross income (AGI). This threshold remains at 7.5% of AGI if you are 65 or older. Miscellaneous itemized deductions, such as unreimbursed employee business expenses, are limited to amounts over 2% of AGI.

 * There’s also an additional phase-out called the Pease provision that limits the amount of total itemized deductions – after the above reductions. For 2013, Pease kicks in when your income exceeds $300,000 ($150,000 if you’re married filing separately).

 Other phase-outs limit the amount and deductibility of IRA contributions; the education, adoption, and childcare credits; and the alternative minimum tax exemption. Please call for a review of how phase-outs affect you and what you might be able to do to avoid them.

For assistance with this or other tax or accounting matters please contact us at 201-947-8081 or 646-688-2807, or email us at info@bergencountycpa.com.

Comments are closed.

Latest Articles

Our Location

1330 Ave of the Americas (53rd - 54th Streets), NYC, NY 10019
15-07 Alden Terrace, Fair Lawn, NJ 07410
One Bridge Plaza, Fort Lee, NJ 07024