The American Taxpayer Relief Act (the Act) was approved by Congress on January 1. Below is a summary of some of the more important tax changes included in the Act.
If you have any questions about how this Act will impact you, your family or your business, we encourage you to call us at 440-449-6800.
Personal Tax Provisions
The income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35%, but now a 39.6% rate applies for income above $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately.
Capital Gain and Dividend Rates
The top rate for capital gains and dividends permanently rises to 20% for taxpayers with incomes exceeding $400,000 ($450,000 for married taxpayers). When combined with the new 3.8% Medicare surtax on investment income, the overall rate for higher-income taxpayers will be 23.8%.
Estate and Gift Tax
The Act permanently increases the top estate, gift and generation-skipping-transfer (GST) rate from 35% to 40% for individuals dying and gifts made after 2012. The exemption level will be permanently kept at $5,000,000 (indexed for inflation).
Retroactively effective for tax years beginning after 2011, the Act permanently increases the Alternative Minimum Tax (AMT) exemption amounts (and indexes for inflation) to $50,600 for unmarried taxpayers, $78,750 for joint filers and $39,375 for married persons filing separately.
The Personal Exemption Phaseout (PEP) is reinstated with a starting threshold for those making $300,000 for joint filers and a surviving spouse; $275,000 for heads of household; $250,000 for single filers; and $150,000 for married taxpayers filing separately. The total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 by which the taxpayer's AGI exceeds the applicable threshold.
The “Pease“ limitation on itemized deductions is reinstated with starting thresholds that are the same as the PEP listed above. For taxpayers subject to the “Pease” limitation, the total amount of their itemized deductions is reduced by 3% of the amount by which the taxpayer's adjusted gross income (AGI) exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions.
Plan provisions in an applicable retirement plan can allow participants to elect to transfer amounts to designated Roth accounts with the transfer being treated as a taxable qualified rollover contribution under Code Sec. 408A(e).
Business Tax Provisions
There were numerous business-specific extensions, which you can read about here, but the extensions applicable to most businesses are:
- Extension and modification of bonus depreciation.
- Extension of increased expensing limitations and treatment of certain real property as section 179 property.
- Extension and modification of research credit.
The Act contains a considerable list of additional extensions, including:
- Individual Tax
- Business Tax
- Energy Tax
- Unemployment Extensions
- Medicare and Health Extensions
- Agricultural Programs
Among these are extensions for child care and tuition credits. For a more complete list of these extensions, you can visit our blog or view the full text of the Act.
We look forward to continuing to Deliver on the Promise to our clients and contacts in 2013. If you have any questions about how this Act will impact you, your family or your business, we encourage you to call us at 440-449-6800.