Dear Clients and Friends:<\/p>\n
\u00a0After weeks, indeed months of proposals and counter-proposals, seemingly endless negotiations and down-to-the-wire drama, Congress has passed legislation to avert the tax side of the so-called \u201cfiscal cliff.\u201d The American Taxpayer Relief Act permanently extends the Bush-era tax cuts for lower and moderate income taxpayers, permanently \u201cpatches\u201d the alternative minimum tax (AMT), provides for a permanent 40 percent federal estate tax rate, renews many individual, business and energy tax extenders, and more. In one immediately noticeable effect, the American Taxpayer Relief Act does not extend the 2012 employee-side payroll tax holiday.<\/p>\n
\u00a0The American Taxpayer Relief Act is intended to bring some certainty to the Tax Code. At the same time, it sets stage for comprehensive tax reform, possibly in 2013. Moreover, it creates important planning opportunities for taxpayers, which we can discuss in detail.<\/p>\n
\u00a0Individuals<\/strong><\/p>\n \u00a0Unlike the two-year extension of the Bush-era tax cuts enacted in 2010, the debate in 2012 took place in a very different political and economic climate. If Congress did nothing, tax rates were scheduled to increase for all taxpayers at all income levels after 2012. \u00a0President Obama made it clear that he would veto any bill that extended the Bush-era tax cuts for higher income individuals. The President\u2019s veto threat gained weight after his re-election. \u00a0Both the White House and the GOP realized that going over the fiscal cliff would jeopardize the economic recovery, and the American Taxpayer Relief Act is, for the moment, their best compromise.<\/p>\n \u00a0Tax rates.<\/em><\/strong>\u00a0\u00a0The American Taxpayer Relief Act extends permanently the Bush-era income tax rates for all taxpayers except for taxpayers with taxable income above certain thresholds:<\/p>\n $400,000 for single individuals, $450,000 for married couples filing joint returns, and $425,000 for heads of households. \u00a0For 2013 and beyond, the federal income tax rates are 10, 15, 25, 28, 33, 35, and 39.6 percent. \u00a0In comparison, the top rate before 2013 was 35 percent. \u00a0The IRS is expected to issue revised income tax withholding tables to reflect the 2013 rates as quickly as possible and provide guidance to employers and self-employed individuals.<\/p>\n \u00a0Additionally, the new law revives the Pease limitation on itemized deductions and personal exemption phaseout (PEP) after 2012 for higher income individuals but at revised thresholds. The new thresholds for being subject to both the Pease limitation and PEP after 2012 are $300,000 for married couples and surviving spouses, $275,000 for heads of households, $250,000 for unmarried taxpayers; and $150,000 for married couples filing separate returns.<\/p>\n \u00a0Capital gains.<\/em><\/strong>\u00a0\u00a0The taxpayer-friendly Bush-era capital gains and dividend tax rates are modified by the American Taxpayer Relief Act. Generally, the new law increases the top rate for qualified capital gains and dividends to 20 percent (the Bush-era top rate was 15 percent). The 20 percent rate will apply to the extent that a taxpayer\u2019s income exceeds the $400,000\/$425,000\/$450,000 thresholds discussed above. The 15 percent Bush-era tax rate will continue to apply to all other taxpayers (in some cases zero percent for qualified taxpayers within the 15-percent-or-lower income tax bracket).<\/p>\n \u00a0Payroll tax cut.<\/em><\/strong>\u00a0\u00a0The employee-side payroll tax holiday is not extended. Before 2013, the employee-share of OASDI taxes was reduced by two percentage points from 6.2 percent to 4.2 percent up the Social Security wage base (with a similar tax break for self-employed individuals). \u00a0For 2013, two percent reduction is no longer available and the employee-share of OASDI taxes reverts to 6.2 percent. The employer-share of OASDI taxes remains at 6.2 percent. In 2012, the payroll tax holiday could save a taxpayer up to $2,202 (taxpayers earning at or above the Social Security wage base for 2012). \u00a0As a result of the expiration of the payroll tax holiday, everyone who receives a paycheck or self-employment income will see an increase in taxes in 2013.<\/p>\n \u00a0AMT.\u00a0<\/em><\/strong>In recent years, Congress routinely \u201cpatched\u201d the AMT to prevent its encroachment on middle income taxpayers. The American Taxpayer Relief Act patches permanently the AMT by giving taxpayers higher exemption amounts and other targeted relief. This relief is available beginning in 2012 and going forward. The permanent patch is expected to provide some certainty to planning for the AMT. No single factor automatically triggers AMT liability but some common factors are itemized deductions for state and local income taxes; itemized deductions for miscellaneous expenditures, itemized deductions on home equity loan interest (not including interest on a loan to build, buy or improve a residence); and changes in income from installment sales. Our office can help you gauge if you may be liable for the AMT in 2013 or future years.<\/p>\n \u00a0Child tax credit and related incentives.<\/em><\/strong>\u00a0\u00a0The popular $1,000 child tax credit was scheduled to revert to $500 per qualifying child after 2012. \u00a0Additional enhancements to the child tax credit also were scheduled to expire after 2012. \u00a0The American Taxpayer Relief Act makes permanent the $1,000 child tax credit. Most of the Bush-era enhancements are also made permanent or extended. Along with the child tax credit, the new law makes permanent the enhanced adoption credit\/and income exclusion; the enhanced child and dependent care credit and the Bush-era credit for employer-provided child care facilities and services.<\/p>\n \u00a0Education incentives. \u00a0<\/em><\/strong>A number of popular education tax incentives are extended or made permanent by the American Taxpayer Relief Act. \u00a0The American Opportunity Tax Credit (an enhanced version of the Hope education credit) is extended through 2017. \u00a0Enhancements to Coverdell education savings accounts, such as the $2,000 maximum contribution, are made permanent. \u00a0The student loan interest deduction is made more attractive by the permanent suspension of its 60-month rules (which had been scheduled to return after 2012). The new law also extends permanently the exclusion from income and employment taxes of employer-provided education assistance up to $5,250 and the exclusion from income for certain military scholarship programs. \u00a0Additionally, the above-the-line higher education tuition deduction is extended through 2013 as is the teachers\u2019 classroom expense deduction.<\/p>\n \u00a0Charitable giving. \u00a0<\/em><\/strong>Congress has long used the tax laws to encourage charitable giving. \u00a0The American Taxpayer Relief Act extends a popular charitable giving incentive through 2013: \u00a0tax-free IRA distributions to charity by individuals age 70 \u00bd and older up to maximum of $100,000 for qualified taxpayer per year. \u00a0A special transition rule allows individuals to recharacterize distributions made in January 2013 as made on December 31, 2012. \u00a0The new law also extends for businesses the enhanced deduction for charitable contributions of food inventory.<\/p>\n \u00a0Federal estate tax.<\/em><\/strong>\u00a0\u00a0Few issues have complicated family wealth planning in recent years as has the federal estate tax. \u00a0Recent laws have changed the maximum estate tax rate multiple times. Most recently, the 2010 Taxpayer Relief Act set the maximum estate tax rate at 35 percent with an inflation-adjusted exclusion of $5 million for estates of decedents dying before 2013. Effective January 1, 2013, the maximum federal estate tax will rise to 40 percent, but will continue to apply an inflation-adjusted exclusion of $5 million. The new law also makes permanent portability between spouses and some Bush-era technical enhancements to the estate tax.<\/p>\n \u00a0Businesses<\/strong><\/p>\n \u00a0The business tax incentives in the new law, while not receiving as much press as the individual tax provisions, are valuable. Two very popular incentives, bonus depreciation and small business expensing, are extended as are many business tax \u201cextenders.\u201d<\/p>\n \u00a0Bonus depreciation\/small business expensing.<\/em><\/strong>\u00a0\u00a0The new law renews 50 percent bonus depreciation through 2013 (2014 in the case of certain longer period production property and transportation property). Code Sec. 179 small business expensing is also extended through 2013 with a generous $500,000 expensing allowance and a $2 million investment limit. \u00a0Without the new law, the expensing allowance was scheduled to plummet to $25,000 with a $200,000 investment limit.<\/p>\n \u00a0Small business stock. \u00a0<\/em><\/strong>To encourage investment in small businesses, the tax laws in recent years have allowed noncorporate taxpayers to exclude a percentage of the gain realized from the sale or exchange of small business stock held for more than five years. \u00a0The American Taxpayer Relief Act extends the 100 percent exclusion from the sale or exchange of small business stock through 2013.<\/p>\n \u00a0Tax extenders.<\/em><\/strong>\u00a0\u00a0A host of business tax incentives are extended through 2013. \u00a0These include:<\/p>\n Research tax credit<\/p>\n Work Opportunity Tax Credit<\/p>\n New Markets Tax Credit<\/p>\n Employer wage credit for military reservists<\/p>\n Tax incentives for empowerment zones<\/p>\n Indian employment credit<\/p>\n Railroad track maintenance credit<\/p>\n Subpart F exceptions for active financing income<\/p>\n Look through rules for related controlled foreign corporation payments<\/p>\n \u00a0Energy<\/strong>\u00a0<\/p>\n For individuals and businesses, the new law extends some energy tax incentives. \u00a0The Code Sec. 25C, which rewards homeowners who make energy efficient improvements, with a tax credit is extended through 2013. \u00a0Businesses benefit from the extension of the Code Sec. 45 production tax credit for wind energy, credits for biofuels, credits for energy-efficient appliances, and many more.<\/p>\n \u00a0Looking ahead<\/strong><\/p>\n \u00a0The negotiations and passage of the new law are likely a dress rehearsal for comprehensive tax reform during President Obama\u2019s second term. \u00a0Both the President and the GOP have called for making the Tax Code more simple and fair for individuals and businesses. \u00a0The many proposals for tax reform include consolidation of the current individual income tax brackets, repeal of the AMT, moving the U.S. from a worldwide to territorial system of taxation, and a reduction in the corporate tax rate. Congress and the Obama administration also must tackle sequestration, which the American Taxpayer Relief Act delayed for two months. All this and more is expected to keep federal tax policy in the news in 2013. Our office will keep you posted of developments.<\/p>\n \u00a0If you have any questions about the American Taxpayer Relief Act, please contact our office. We can schedule an appointment to discuss how the changes in the new law may be able to maximize your tax savings.<\/p>\n \u00a0 Dear Clients and Friends: \u00a0After weeks, indeed months of proposals and counter-proposals, seemingly endless negotiations and down-to-the-wire drama, Congress has passed legislation to avert the tax side of the so-called \u201cfiscal cliff.\u201d The American Taxpayer Relief Act permanently extends the Bush-era tax cuts for lower and moderate income taxpayers, permanently \u201cpatches\u201d the alternative minimum tax […]<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[5,1],"tags":[],"class_list":["post-66","post","type-post","status-publish","format-standard","hentry","category-blog","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/posts\/66","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/comments?post=66"}],"version-history":[{"count":0,"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/posts\/66\/revisions"}],"wp:attachment":[{"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/media?parent=66"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/categories?post=66"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/bronswick.com\/2021\/wp-json\/wp\/v2\/tags?post=66"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}
\nSincerely yours,
\nBronswick Reicin Pollack<\/strong><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"