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
