Thursday, January 3, 2013

American Taxpayer Relief Act- Where Things Stand

Whether living in the metro Phoenix area or the Sun City Peoria area, most of my clients are interested in the following highlights: All the individual "Bush era" tax rates are retained with the addition of a new top rate of 39.6% imposed on income over $450,000 for married taxpayers filing jointly or $400,000 for single taxpayers. The capital gains and dividend rate has increased to 20% for those taxpayers in the top bracket and remains at 15% for the middle brackets and zero for taxpayers in the 10% and 15% brackets. The estate and gift tax exclusion amount remains unified at $5 million indexed for inflation (in 2012 it was $5.12 Million) but the top rate increases from 35% to 40% effective January 1, 2013. Also, the "portability" election, allowing the surviving spouse to utilize the deceased spouse's unused exemption, has been made permanent. The threshold amount for the extra income taxes passed as part of the Healthcare Reform Legislation did not change. The employee portion of the Medicare tax, normally 1.45% of covered wages, increased by 0.9% on wages exceeding $250,000 for married taxpayers filing jointly. There is an additional Medicare tax on investment income on individuals with modified adjusted gross income greater than $250,000 for married taxpayers filing jointly. The 3.8% tax is on the lesser of the taxpayer's net investment income or the excess of the taxpayer's modified adjusted gross income in excess of $250,000 for married taxpayers filing jointly. Net investment income includes interest, dividends, annuities, royalties, rents, capital gain and passive activity trade or business income.

Wednesday, January 2, 2013

Estate Tax Exclusion Extended

It appears that the fiscal cliff has been avoided and that has included the Estate Tax Exclusion to be left at the $5 Million, indexed at inflation, so it should be something more than the the $5.12 Million set in 2012. The top estate and gift tax rate was increased to 40% though. Information about the new law is coming in as it is being analyzed. Further, the Bush tax cuts were continued for individuals earning $400,000 or couples earning $450,000. I have not heard reports as to whether the law is permanent or set for several years, like the prior law. Also, we are still waiting to hear if the income cap for additional 3.8% tax for the health care law is still $250,000 or the $400,000/$450,000 applicable to the extension of the Bush tax cuts.