Saturday, January 12, 2013

2012 American Taxpayer Relief Act Overview


The recently enacted 2012 American Taxpayer Relief Act is a sweeping tax package affecting many individual and business tax provisions.  Here's a look at some key elements of the package:


Individual Tax Rates 

For tax years beginning after 2012, the 10%, 15%, 25%, 28%, 33% and 35% tax brackets from the Bush tax cuts will remain in place and are made permanent. However, there will be a new 39.6% rate, which will begin at the following thresholds: $400,000 (single), $425,000 (head of household), $450,000 (joint filers and qualifying widow(er)s), and $225,000 (married filing separately).

Estate tax

The new law permanently sets the exemption level at $5,000,000 (as indexed for inflation), and continues the portability feature that allows the estate of the first spouse to die to transfer his or her unused exclusion to the surviving spouse.  It also permanently increases the top estate, gift, and GST rate from 35% to 40%. All changes are effective for individuals dying and gifts made after 2012.

Capital gains and qualified dividends rates

Beginning in 2013, the rate will be 0% if income falls below the 25% tax bracket; 15% if income falls at or above the 25% tax bracket but below the new 39.6% rate; and 20% if income falls in the 39.6% tax bracket. It should be noted that the 20% top rate does not include the new 3.8% surtax on investment-type income and gains for tax years beginning after 2012, which applies on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income.

Personal exemption phaseout

Beginning in 2013, personal exemptions will be phased out (i.e., reduced) for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers). Taxpayers claim exemptions for themselves, their spouses and their dependents. Last year, each exemption was worth $3,800.

Itemized deduction limitation

Beginning in 2013, itemized deductions will be limited for adjusted gross income over $250,000 (single), $275,000 (head of household) and $300,000 (joint filers).

AMT relief

The new law provides permanent alternative minimum tax (AMT) relief.  Retroactively effective for tax years beginning after 2011, the new law permanently increases the individual AMT exemption amounts to $50,600 for unmarried taxpayers, $78,750 for joint filers and $39,375 for married persons filing separately. In addition, for tax years beginning after 2012, it indexes these exemption amounts for inflation.

Cost recovery

The new law extends the $500,000 Section 179 expensing limitation for eligible property placed in service in 2012 and 2013.  It also extends and modifies the 50% bonus depreciation provisions with respect to eligible property placed in service after Dec. 31, 2012, in tax years ending after that date.

Payroll tax cut is no more

The 2% temporary payroll tax cut was allowed to expire at the end of 2012.

Business Credits Extended

Credits extended through 2013 include:  Research tax Credit, Work Opportunity Tax Credit


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