Yesterday Congress approved and the President signed the American Taxpayer Relief Act of 2012. The document is 154 pages long and it will take some time to completely analyze all its provisions. Here's what I know so far -
Income tax rates made permanent. For 2013 and beyond, the top individual income tax will increase from 35% to 39.6% for taxpayers with taxable income of $400,000 or more. Taxpayers with income below that threshold will not see an increase in tax rates.
Capital gain rates. Beginning in 2013, the maximum capital gains tax will increase from 15% to 20% for taxpayers with taxable income of $400,000 or more.
Payroll tax holiday. The 2% reduction in Social Security tax for employees and self-employed individuals expired at the end of 2012 and was not extended for 2013. An employee’s Social Security withholding will increase from 4.2% to 6.2%, with a corresponding increase in self-employment tax.
The Alternative Minimum Tax was permanently patched. For 2012, the AMT exemption amounts will be $50,600 for individuals and $78,750 for married couples. The bill also allows nonrefundable personal credits to offset AMT.
The following deductions and exclusions were extended -
The $1000 Child Tax Credit was extended permanently.
The Earned Income Credit was extended for five years.
The American Opportunity Credit was extended for five years.
You will still be able to deduct either state income tax or state sales tax if you itemize yours deductions. This option was extended through 2013.
The $250 educator income adjustmentfor primary and secondary teachers was extended through 2013.
The exclusion from income for qualified principal residence indebtedness was extended through 2013.
The deduction for mortgage insurance premiums as mortgage interest was extended through 2013.
The provision allowing tax-free distributions from IRAs for charitable purposes was extended through 2013.
Beginning in 2013, itemized deductions and personal exemptions will begin to phase out for taxpayer with adjusted gross income of $250,000 or more for Singles, $275,000 or more for Heads of Household, or $300,000 or more for married couples.
Beginning in 2013, the estate tax rate will increase from 35% to 40% for estates that exceed $5 million in value.
As more information becomes available about all the provisions of this bill it will be posted here, so be sure to check back regularly.
Income tax rates made permanent. For 2013 and beyond, the top individual income tax will increase from 35% to 39.6% for taxpayers with taxable income of $400,000 or more. Taxpayers with income below that threshold will not see an increase in tax rates.
Capital gain rates. Beginning in 2013, the maximum capital gains tax will increase from 15% to 20% for taxpayers with taxable income of $400,000 or more.
Payroll tax holiday. The 2% reduction in Social Security tax for employees and self-employed individuals expired at the end of 2012 and was not extended for 2013. An employee’s Social Security withholding will increase from 4.2% to 6.2%, with a corresponding increase in self-employment tax.
The Alternative Minimum Tax was permanently patched. For 2012, the AMT exemption amounts will be $50,600 for individuals and $78,750 for married couples. The bill also allows nonrefundable personal credits to offset AMT.
The following deductions and exclusions were extended -
The $1000 Child Tax Credit was extended permanently.
The Earned Income Credit was extended for five years.
The American Opportunity Credit was extended for five years.
You will still be able to deduct either state income tax or state sales tax if you itemize yours deductions. This option was extended through 2013.
The $250 educator income adjustmentfor primary and secondary teachers was extended through 2013.
The exclusion from income for qualified principal residence indebtedness was extended through 2013.
The deduction for mortgage insurance premiums as mortgage interest was extended through 2013.
The provision allowing tax-free distributions from IRAs for charitable purposes was extended through 2013.
Beginning in 2013, itemized deductions and personal exemptions will begin to phase out for taxpayer with adjusted gross income of $250,000 or more for Singles, $275,000 or more for Heads of Household, or $300,000 or more for married couples.
Beginning in 2013, the estate tax rate will increase from 35% to 40% for estates that exceed $5 million in value.
As more information becomes available about all the provisions of this bill it will be posted here, so be sure to check back regularly.
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