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Greetings!
Welcome to 2013! Lots of new changes all over the place. You'll notice a new look at the firm - lots more about that over at the Butler and Company Blog. You'll also see it in your tax organizer, which will be going out early next week.
On January 1st, just as we were about to take a nosedive off the fiscal cliff, Congress and President Obama came to an agreement on how to deal with the revenue aspect of the fiscal cliff by passing the American Taxpayer Relief Act. Spending cuts, which were scheduled to automatically kick in on January 1, 2013, were deferred until March 1, 2013 in hopes of having a more calculated plan than across the board cuts. While some of the new laws that were included in the American Taxpayer Relief Act may not impact you in a positive way, at least we have certainty with the tax law as it stands. Here are some of the highlights:
* The existing tax rate brackets (10%, 15%, 25%, 28%, 33% and 35%) are now permanent - however, if you are a married couple that makes more than $450,000 of taxable income (or single with more than $400,000), you are subject to a 39.6% rate (which was the old top tax rates, pre-2001).
* Alternative Minimum Tax - the AMT patch was made and then permanently indexed for inflation. This permanent fix will keep many middle income taxpayers from getting into an AMT trap. Had this not passed, many taxpayers could have paid an additional $8,400 in tax.
* Qualified Dividends and Long Term Capital Gains - we get to keep the 0%/15% tax rates...kinda. If you are in the 10% or 15% tax bracket, you pay 0% on long-term capital gains and qualified dividends. If you are in the 25% - 35% bracket, you pay 15%. If you are in the new 39.6% bracket, you pay 20%.
* Estate Taxes - the exemption on estates and gifts is permanently $5,000,000 (as indexed for inflation). This comes with an increase in the rate on taxable estates and gifts to 40% (up from 35%).
* Personal/Dependent Exemptions and Itemized Deductions - The phase out (reduced benefit) of your exemptions and itemized deductions is back if your income exceeds $250,000 for single taxpayers and $300,000 for married taxpayers. As you make more, you will receive less benefit for the exemptions and deductions (charity, mortgage deduction, taxes, etc.)
* The American Opportunity Tax Credit for higher education has been reinstated.
* 50% bonus depreciation for business fixed assets has been extended through the end of 2013, along with the higher Sec. 179 deduction (up to $500,000).
* Some miscellaneous extended individual provisions - renewal of sales tax as an itemized deduction, $250 teacher deduction, mortgage insurance premiums as an itemized deduction and the tax-free charitable IRA distribution.
For those of you who receive a wage, you'll notice that your first paycheck in 2013 will be a bit smaller. The 2% reduction in employee Social Security withholding was not extended as part of the bill. This means you will be paying 6.2% of your wages to Social Security, rather than 4.2% you have been paying for the last two years. Self-employed individuals will also see an increase in their self-employment tax of 2%.
Your faithful CPA butlers are more than happy to talk to you more about how this Act will affect your personal and business finances. Feel free to call or e-mail us to schedule an appointment, or we can discuss during your tax interview that will be coming up soon!
Thanks,
Rob and Jason
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