Quick summary of the tax law changes
by Mauldin & Jenkins, LLC
On January 2, 2013 President Obama signed into law “The American Taxpayer Relief Act of 2012” The good news is we now have certainty for the 2012 and 2013 tax law. The bad news is spending cuts have been postponed for at least two more months.
Here is a quick summary of the tax law changes
For 2013, the income tax rates for individuals will stay the same except for an increase to 39.6% (up from 35%) for individuals with taxable income exceeding $400,000 a year ($450,000 for joint filers; $425,000 for heads of household);
The two percentage point reduction in payroll taxes will be allowed to expire at the end of 2012;
For 2013, dividends and long term capital gains are taxed at 20% (up from 15%) for individuals with taxable income exceeding $400,000 for single filers ($450,000 for joint filers);
For 2013, the deduction for personal exemptions will phase out for taxpayers with adjusted gross income exceeding $250,000 for single filers ($300,000 for joint filers);
For 2013, there is a phase out of itemized deductions for taxpayers with adjusted gross income exceeding $250,000 ($300,000 for joint filers). The total amount of your itemized deductions is reduced by 3% of the amount by which your adjusted gross income exceeds this threshold with the total reduction not to exceed 80% of your otherwise allowable itemized deductions;
The so called “alternative minimum tax patch” for individuals was permanently extended resulting in an estimated 30 million taxpayers escaping being subject to the AMT in 2012. For 2012 the exemption amount increases from $37,750 to $50,600 for single filers (from $45,000 to $78,750 for joint filers). For 2013 and later years, the exemption amount will be adjusted for inflation;
For 2013, the estate and gift tax exemption will remain at 5 million (indexed for inflation, the 2012 amount is $5,120,000 and the 2013 amount will be announced in January) and the top rate is permanently increased from 35% to 40%;
Most of the other expired individual tax credits and deductions that expired in 2011 or 2012 were extended;
Almost all of the business tax provisions that either expired in 2011 or 2012 were also extended. This includes bonus depreciation and Section 179 expensing of depreciable property with the same limits as 2012.
Most of the business tax credits that had expired at the end of 2011 or 2012 were extended including the R&D credit and various energy and depressed area incentive credits.
Please note that for individuals, the phase out of deductions as well as the new healthcare surtax is based upon adjusted gross income whereas the new 39.6% ordinary income tax rate and the 20% long term capital gains and dividend rate is based upon your taxable income.
So to summarize the rate changes, phase out of itemized deductions and the healthcare surtax, these all take effect in 2013 except for the alternative minimum tax patch which is effective in 2012 and later years.
Adjusted Gross Income under $200,000 for single filers or $250,000 for joint filers
For 2013 your tax rates should not change except for the inflation adjustments and the AMT patch (which is subject to a phase-out).
Adjusted Gross Income over $200,000 for single filers or $250,000 for joint filers
For 2013, you will be subject to the new 3.8% healthcare surtax on net investment income, to the extent your AGI is over $200,000/$250,000. For earned income there is an additional healthcare surtax of .9% that goes into effect if your AGI exceeds $200,000/$250,000. This healthcare surtax was already scheduled to go into effect in 2013 and is not part of the new tax bill.
Adjusted Gross Income over $300,000 for single or $350,000 for joint filers
For 2013, in addition to the 3.8% or .9% healthcare surtax, you will be subject to the phased out itemized deductions and personal exemptions to the extent your AGI exceeds $300,000/$350,000
Taxable income over $400,000 for single or $450,000 for joint filers
For 2013, in addition to the new 3.8% or .9% healthcare surtax and the phase out of itemized deductions and personal exemptions, you will be subject to the new 39.6% tax rate on taxable income exceeding $400,000/$450,000. If you are subject to the 39.6% rate on ordinary income, you will also be subject to the 20% rate on long term capital gains and dividends.
What does all this mean for this upcoming filing season?
The actual transmittal and processing of 2012 tax returns will be delayed. The IRS will now be revising the 2012 tax forms and 2012 software based upon the new tax law changes which is normally done in November. Refunds will be delayed. However we will still be preparing returns as scheduled so we ask that you please get us the information needed to prepare your return as quickly as possible even though the final processing may be delayed depending on how quickly the IRS can get their forms and software updated.
As always, please contact your client executive if you have any questions. We also have an email address for responding to tax questions at email@example.com
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