The latest prediction from the Bipartisan Policy Center is that the U.S. will reach its debt ceiling within a few weeks after the next Presidential election. While it's certainly possible that the drama that led to the Budget Control Act of 2011 will recur, there is agreement on both sides of the political divide that in order to reduce the budget deficit and grow the national debt more slowly, a combination of spending cuts and tax increases is needed. President Obama has proposed increasing tax rates for families with income in excess of $250,000, including a new minimum tax on income in excess of $1,000,000. Republican presidential nominee Mitt Romney favors a Simpson-Bowles type plan that includes reducing all tax rates, but eliminating most deductions.

Absent new legislation, tax rates will increase for all taxpayers and certain deductions will be curtailed for some taxpayers (note: both houses of Congress have recently passed separate tax bills, but it's unlikely that any compromise will be reached in committee before the next election). What follows is a summary of the most common changes scheduled to take effect this year and in 2013.

Alternative Minimum Tax

Under current law, the alternative minimum tax exemption amount has been reduced to $45,000 (reduced from $74,450 in 2011) for married couples filing a joint income tax return and $33,750 for singles and heads of household (reduced from $48,450 in 2011).

The Tax Policy Center estimates that 31 million taxpayers will owe alternative minimum tax in 2012 if the 2011 exemption amounts are not retroactively restored.

Income Tax Rates

There are currently 6 income tax brackets ranging from 10% to 35%. In 2013, the 10% and 25% brackets are scheduled to be eliminated and other rate brackets are scheduled to rise (the top marginal rate is scheduled to be increased to 39.6%). The 15% rate bracket amount for joint filers is scheduled to be reduced from 200% of the single amount to 167%.

Qualified Dividends

Qualified dividends are currently taxed as long-term capital gains (i.e. subject to a maximum tax rate of 15%). All dividends are scheduled to be taxed as ordinary income (i.e. subject to a maximum tax rate of 39.6%) beginning in 2013.

Long-Term Capital Gains

The top long-term capital gains rate is scheduled to increase to 20% (from 15%) in 2013.

Itemized Deduction Phase-out

Taxpayers with adjusted gross income in excess of $177,000 are scheduled to lose the benefit of a portion of their itemized deductions beginning in 2013.  

Personal Exemption Phase-out

Married taxpayers with adjusted gross income in excess of $265,550 filing a joint income tax return ($221,300 for heads of household; $177,000 for single filers) are schedule to lose the benefit of a portion of their personal exemptions in 2013.

Estate Tax Rate and Exemption Amount

The top estate tax rate is scheduled to increase to 55% (from 35%) in 2013 and the exemption amount is scheduled to decrease to $1,000,000 (from $5,120,000).

Payroll Tax Cut

The employee social security tax rate is scheduled to increase to 6.2% (from 4.2%) in 2013, and the social security self-employment tax rate is scheduled to increase to 12.4% (from 10.4%).

Depreciation/Expensing of Business Assets

The 50% bonus depreciation provision is scheduled to expire at the end of 2012, and the IRC Section 179 maximum deduction is scheduled to decrease to $25,000 (from $125,000).

Affordable Care Act Tax Provisions

A new 3.8% tax on "net investment income" takes effect in 2013. The tax will affect joint filers with "modified adjusted gross income" in excess of $250,000 ($200,000 in the case of unmarried single filers). The employee share of the Medicare tax will increase to 2.35% (from 1.45%).  

The net effect of any tax law changes will, of course, depend on your individual circumstances. It is crucial that you begin to plan before the end of the year.