Earlier this week, President Obama released his federal budget proposal for fiscal year 2013 which begins on October 1, 2012. Included in the proposal are over 130 proposed tax changes for both businesses and individuals. The following are some of the highlights of the proposed tax changes.
Business tax highlights
- The current payroll tax cut reducing employee social security contributions from 6.2% down to 4.2% is set to expire February 29, 2012. The proposal includes extending the payroll tax cut for the rest of 2012.
- Qualified employers would be provided a tax credit for increase in wage expense, whether driven by new hires, increased wages, or both. The credit would be equal to 10% of the increase in employer’s 2012 eligible wages over the prior year. The maximum amount of the increase in eligible wages would be $5 million per employer for a maximum credit of $500,000. The credit would be effective for wages paid during the one-year period beginning January 1, 2012.
- The 100% bonus depreciation deduction would be extended through 2012.
- The use of last-in, first-out (LIFO) inventory method would be repealed for tax years beginning after December 31, 2013. The recapture of the LIFO reserve would be recognized ratably over 10 years.
- Carried interest would be taxed as ordinary income rather than favorable capital gains rates.
- The creation of a new credit equal to 20% of eligible expenses paid or incurred in connection with insourcing a US trade or business. Insourcing would mean reducing or eliminating a trade or business currently conducted outside the US.
Individual tax highlights
- For 2013, the reinstatement of the reduction of itemized deductions and phase-out of personal exemptions for high income taxpayers.
- For 2013, the expiration of the qualified dividend tax rates making dividend income taxed as ordinary income.
- For 2013, an increase to the long-term capital gain tax rate to 20%.
Have a question about proposed tax law changes and its impact on your specific situation? Post a comment below or contact a member of our Tax Planning and Preparation Group at 440-449-6800.