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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
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.
Last Updated by Tax on 2013-11-20 03:57:34 PM