President Obama signed the American Taxpayer Relief Act into law on January 2, 2013. Read the highlights below for Individuals and Businesses.
Income tax rates – The income tax rates will remain the same as 2012 for all taxpayers with incomes less than $400,000 for individuals and $450,000 for couples. Earnings above these amounts will now be taxed at 39.6% instead of the current 35%.
Phase out of deductions – The phase-out of itemized deductions and personal exemptions have been reinstated starting in 2013 for incomes over $250,000 for individuals and $300,000 for couples.
Capital gains tax and dividends – The maximum long-term capital gain and dividend rates will increase to 20% if your income is more than $400,000 for individuals and $450,000 for couples. For all other taxpayers, the capital gain and dividend rates will remain the same as 2012 rates.
Alternative minimum tax – The Act permanently fixes the alternative minimum tax exemption and indexes it for inflation. This will impact more than 30 million taxpayers for 2012 and beyond.
Estate/gift tax – The estate/gift tax rate of 35% has been increased to 40% effective Jan. 1, 2013. However the lifetime exemption amount of $5,000,000 was made permanent and indexed for inflation. This means that the lifetime exclusion amount for 2013 will be $5,250,000.
Tuition and education – The American Opportunity tax credit for education was extended for five years. The above-the-line deduction for tuition was extended through 2013. The $250 deduction for teachers’ classroom expenses were extended through 2013.
State and local sales tax deduction – The option to deduct state and local sales tax in lieu of state and local income taxes was extended through 2013.
Charitable contribution from IRA – The Act extends the charitable contributions from your IRA for 2012 and 2013 for people over 70½. However, since 2012 already passed, the Act allows an individual to treat distributions taken in December 2012 and January 2013 (and given to the charity before Feb. 1, 2013) as deemed to have been contributed to the charity on Dec. 31, 2012.
Social Security payroll tax cut – The reduction of social security tax withholding has now expired. The former 2% reduced rate of 4.2% reverts back to the 6.2% rate effective Jan. 1, 2013.
Depreciation – The 50% bonus deprecation has been extended through 2013. The Sec. 179 deduction limits were increased to $500,000 with a $2,000,000 phase-out threshold. Qualified leasehold improvements are eligible for the Sec. 179 deduction (up to $125,000). They can be depreciated over 15 years, and are also eligible for 50% bonus deprecation. These changes were retroactively extended for 2012 and 2013.
Research Credit – The R&D credits were retroactively extended for 2012 and 2013.
Work Opportunity Tax Credit – This credit was extended through 2013.
We will continue to post any developments to the American Taxpayer Relief Act. Please contact us if you have any questions 417-881-0145.