By Steve Cardinal, CPA
The American Taxpayer Relief Act, which Congress passed and President Obama signed in the first days of 2013, has many provisions.
The following is intended to provide an overview of the act.
â€¢ Tax rates : Congress made the Bush-era tax cuts “permanent” by adopting the 10, 15, 25, 28, 33, 35 rate classes previously enacted. An additional rate of 39.6 percent will begin at $400,000 for single (S) individuals, $450,000 for married couples filing joint returns (MFJ), and $425,000 for heads of households (HOH).
â€¢ Capital gains: The new law increases the tax on capital gains to 20 percent for taxpayers who have reached the above thresholds ($400,000 (S); $425,000 (HOH) and $450,000 (MFJ))
â€¢ Payroll tax cut: The tax act did not extend the holiday on employee payroll taxes. Beginning Jan. 1, the employee portion will return to 6.2 percent.
â€¢ AMT: A permanent “patch” increased income exclusions for the alternative minimum tax and future exclusion amounts will be tied to inflation.
â€¢ Child tax credit and related incentives: The American Taxpayer Relief Act makes permanent the $1,000 child tax credit along with several other Bush-era incentives.
â€¢ Education incentives: Several educational credits and deductions are extended. These include the American Opportunity Tax Credit, the above-the-line higher education tuition deduction, the teachers’ classroom expense deduction and others.
â€¢ Charitable giving: Distributions made from an IRA to a charity will remain tax-free through 2013. A related provision allows distributions made in January of 2013 to be re-characterized as made on December 31st, 2012.
â€¢ Federal estate tax: Relevant to family wealth planning, the new law increases the top estate tax from 35 to 40 percent effective January 1st, 2013. The $5,000,000 estate and gift tax exclusion will continue indexed for inflation. For 2012 the limit was $5,120,000.
â€¢ Bonus depreciation/small business expensing : The new law extended 50 percent bonus depreciation through 2013 and set Code Sec. 179 small business expensing allowances at $500,000 and investment limits at $2 million for both 2012 and 2013.
â€¢ Tax extenders: Multiple tax benefits were extended through 2013. Most notably the research and development credit and the work opportunity tax credit.
Cardinal is a tax partner at Teal, Becker & Chiaramonte, an accounting and advisory firm in Albany. He can be reached at 518-456-6663 or email@example.com.