A Summary of the 2012 American Taxpayer Relief Act

The “Fiscal Cliff” was avoided by the passage of the American Taxpayer Relief Act of 2012 on January 2, 2013. Many provisions within this bill provide relief to American taxpayers (individuals and business) starting with the 2012 tax year. Below is a summary of several of the key provisions in this bill. Please consult with your tax preparer as soon as possible to determine which of these provisions will affect or benefit you.

Tax Rate Increases for Higher Income Taxpayers
For tax years beginning after 2012, the income tax rates for most individuals will stay at 10%, 15%, 25%, 28%, 33% and 35%. However, a 39.6% rate applying 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.

Capital Gain and Dividend Rate Increases For Higher-Income Taxpayers
For tax years beginning after 2012, the 2012 Taxpayer Relief Act raises the top rate for capital gains and dividends to 20% (up from 15%) for taxpayers with incomes exceeding $400,000 ($450,000 for married taxpayers).

Reinstatement of Personal Exemption Phaseouts For High Income Taxpayers
For tax years beginning after 2012, the Personal Exemption Phaseout, which had previously been suspended, is reinstated with a starting threshold of $300,000 for joint filers and a surviving spouse; $275,000 for heads of household; $250,000 for single filers; and $150,000.

Establishment of Permanent AMT Relief
The 2012 Taxpayer Relief Act provides permanent alternative minimum tax (AMT) relief.

Retention of Estate Tax Exemption Amounts With Slight Rate Increases
The 2012 Taxpayer Relief Act made permanent the exemption level at $5,000,000 (as indexed for inflation). The one change is starting in 2013, the estate tax rate moves to 40%, from 35% in 2012. The 2012 Taxpayer Relief Act also 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.

Modification of Depreciation Provisions

  • Increased the expensing limitations (Sec. 179 depreciation) up to $500,000 based on the first $2,000,000 of purchases.
  • The act also extends and modifies the 50% bonus depreciation provisions for one year so that it applies to qualified property placed in service before 2014. 

In addition to the new provisions in the American Taxpayer Relief Act of 2012, it is very important to discuss the impact of the 2010 Health Care legislation on your business and personal tax situation. Many provisions of this bill are starting to kick in effective January 1, 2013.

With so many changes occurring in 2013, I highly recommend that you consult with your tax professional as soon as possible to understand all the ramifications and opportunities for your business and personal tax situation.

Have a wonderful 2013.

Sincerely,

Kevin M. Hubley

Kevin Hubley is a partner at Guza, Newberg, & Hubley, PLLP. If you are interested in speaking with Kevin, you can contact him here.

 

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