The American Taxpayer Relief Act of 2012 passed by Congress on January 1, 2013 to avoid the so-called Fiscal Cliff, extends Bush era tax cuts. However, the benefits of those cuts for most American taxpayers will be offset by a 2% increase in payroll tax. Here are some specifics:
According to the Tax Policy Center, a nonpartisan research group based in Washington, less than 1% of American households will experience an income tax increase this year. The Bush era tax cuts were extended permanently for individuals making less than $400,000 annually and married couples earning less than $450,000 annually. Those making more will experience an increase in the top tax bracket from 35% to 39.6%.
“PEP,” the personal exemption phase-out and “Pease,” itemized deduction limits were extended. Individuals are capped at $250,000 and married couples at $300,000.
Tax rates for capital gains and dividends increased 20% for individuals earning more than $400,000 per year and married couples earning $450,000 plus.
AMT – The alternative minimum tax exemption increases to $50,600 for individuals and $78,750 for married taxpayers filing jointly, and is permanently adjusted for inflation.
Charitable IRA Rollover – The charitable IRA rollover has been extended for one year, meaning that those over the age of 70 1/2 with traditional IRAs can funnel their required minimum distributions to an IRS-approved charity. Those who waited until December 2012 to take their required minimum distribution have until the end of January to transfer those funds to a charity for 2012, but cannot make the contribution directly. They must contact the financial institution holding the IRA and request the donation.
Individual tax credits, including those for college tuition, child tax credit, and earned income tax credit, are extended for five years.
Estate and gift tax
Really good news concerning estate and gift tax exemptions. The individual federal estate tax exemption will remain at $5 million per individual, adjusted for inflation. On anything over that amount, a top tax rate of 40% applies. The gift tax annual exclusion limit is $14,000 for 2013, with a lifetime gift tax exclusion of $5 million.
As was expected, payroll taxes will increase 2% in 2013. This is a rate increase from 4.2% to 6.2% on the employee portion of Social Security contributions.
If you’d like to learn more about how the new tax laws will affect you, call our office today to schedule a time for us to sit down and talk. We normally charge $750 for a Family Wealth Planning Session, but because this planning is so important, I’ve made space for the next two people who mention this article to have a complete planning session at no charge. Call today and mention this article.