Information provided by Dean Dorton Allen Ford
LEXINGTON, Ky. (Jan. 3, 2013) — Late Tuesday night, the House passed the Senate’s version of the American Taxpayer Relief Act, which allowed the government to avoid falling off the so-called fiscal cliff. Dean Dorton Allen Ford has provided this summary of some of the bill’s key provisions, and will provide additional analysis in the near future.
– For single filers with taxable income of more than $400,000 a year and joint filers with taxable income of more than $450,000, both adjusted for inflation, the top income tax rate increases from 35 percent to 39.6 percent and the top rate on long-term capital gains and qualified dividends rises from 15 percent to 20 percent. For filers below these thresholds, rates will remain the same as in 2012.
– The previously enacted additional 0.9 percent Medicare tax on wages over $200,000 for single filers, $250,000 for joint filers remains intact and is effective Jan. 1, 2013.
– The 3.8 percent tax on net investment income is retained with the result that the highest Federal tax rate on net investment income will be: a) 23.8 percent for long-term capital gains and qualified dividends; and b) 43.4 percent for ordinary income.
– The 2 percent reduction in payroll taxes was not reinstated. The employee’s share of FICA will return to 6.2 percent effective Jan. 1, 2013. This provision will affect all wage earners and self-employed individuals.
– The higher exemption for the alternative minimum tax (AMT) was made permanent and will be adjusted for inflation. This provision prevents an estimated 30 million taxpayers from being subject to the AMT and reduces the AMT payable for many others.
– The estate, gift, and goods and services tax (GST) exemption is made permanent at $5 million (adjusted for inflation). The maximum rate is increased from 35 percent to 40 percent.
– The increased limits for section 179 expensing, 50 percent bonus depreciation, the domestic production deduction, the research and development credit, and 15-year depreciation for qualified leasehold, restaurant, and retail improvements are all extended through the end of 2013.
– For S corporations, provisions relating to charitable contributions of appreciated property and reduction of the built-in gains tax period from 10 years to 5 years are reinstated for 2012 and 2013.
– A new provision permits 401(k) plan participants to convert their plan to a Roth plan by paying tax on the current balance, providing a temporary revenue boost but reducing revenues in the future.
– The phase-out of the personal exemption and the reduction in itemized deductions from the pre-Bush tax cut era are revived for single filers with an adjusted gross income of $250,000 or more ($300,000 for joint filers).
– The doubled child tax credit of $1,000, the American Opportunity Tax Credit (education), and various other individual tax deduction and credit provisions are retained at least through 2013, some for longer periods.
– Unemployment benefits for the long-term unemployed are extended through the end of 2013.
– Across the board Federal spending cuts were postponed for 2 months until March 1, 2013.
– No action was taken on the debt ceiling, which is expected to be reached in late February.
– Congress denied itself a cost-of-living adjustment in pay for 2013 – wise, given this mess.
For more information or tax advice, visit ddafcpa.com.