The American Taxpayer Relief Act of 2012 – George Mentz JD MBA CWM QFP
Happy New Year and Welcome to 2013. On January 1, 2013, new legislation was retroactively passed the U.S. Senate, and then later in the House of Representatives. The American Taxpayer Relief Act of 2012 (ATRA) would permanently extend a number of major tax laws and temporarily extends many others. Here are the fundamentals.
Federal Tax rates
The top federal income tax rate on working families and small business will increase to 39.6% beginning in 2013 for individuals with income that exceeds $400,000 ($450,000 for married couples filing joint returns). For most other individuals, the ATRA Law permanently extends the lower income tax rates that have existed since President Bush put the tax relief for working families in place. That means most taxpayers will continue to pay tax according to the typical 6 tax brackets (10%, 15%, 25%, 28%, 33%, and 35%) that were used for 2012.
The new taxes implemented on dividends and capital gains were reversed at the last minute. The lower tax rates that applied to long-term capital gain and qualifying dividends have been extended for most individuals as well. If you’re in the 10% or 15% marginal income tax bracket, a special 0% rate generally applies. If the Congress had not acted, the dividend and capital gains tax rates on the poor would have doubled. If you are in the 25%, 28%, 33%, or 35% tax brackets, a 15% maximum rate will generally apply for capital gains. . Beginning in 2013, however, those who pay tax at the higher 39.6% federal income tax rate (i.e., individuals with income that exceeds $400,000, or married couples filing jointly with income that exceeds $450,000) will be subject to a maximum rate of 20% for long-term capital gain and qualifying dividends.
The ATRA American Taxpayer Relief Act permanently extends AMT Alternative Minimum Tax relief increasing the AMT exemption amounts for 2012, and providing that the exemption amounts will be indexed for inflation going forward. The Act also extends provisions allowing nonrefundable personal income tax credits to be used for offsetting AMT liability.
Wealth Phaseout s and Limits on Deductions and Exemptions
Over the years, itemized deductions personal exemptions were limited for higher-income individuals and families. For the last 2 years, the limits have not been operative.
The new laws provides that personal and dependency exemptions will be phased out for those families earning an amount over about 250 thousand dollars per year. Further, deductions will be limited. For both the personal and dependency exemptions phaseout and the itemized deduction limitation, the threshold is $250,000 for single families ($300,000 for married couples filing joint federal income tax returns).
Estate Taxation Relief
The ATRA Act makes the $5 million exemption amounts permanent for the estate tax, the gift tax, and the generation-skipping transfer tax–the same exemptions that were in effect for 2011 and 2012. The top tax rate, however, is expanded to 40% beginning in 2013.
The Act also permanently extends the “portability” provision in effect for 2011 and 2012 that allows the executor of a deceased individual’s estate to transfer any unused exemption amount to the individual’s surviving spouse.
Other Provisions and Temporary Rules
• Exclusion of qualified mortgage debt forgiveness from income provisions extended through 2013
• Section 179 expense limits extended through 2013
• “Marriage penalty” relief in the form of an increased standard deduction amount for married couples and expanded 15% federal income tax bracket
• Expanded tax credits relating to the dependent care tax credit, the adoption tax credit, and the child tax credit
• Rule changes and expansion of: Coverdell education savings accounts, employer-provided education assistance, and the student loan interest deduction
• Charitable IRA distributions (For age 70½ IRA holders- are able to exclude from income up to $100,000 in qualified distributions made to charitable organizations) extended through 2013
• Provisions relating to increased earned income tax credit amounts for people with 3 or more children are extended through 2017
• The $250 above-the-line tax deduction for educator classroom expenses.
• The option to deduct state and local sales tax in lieu of the itemized deductions for state and local income tax.
• The deduction for qualified higher education expenses are all extended through 2013
If you are seeking professional help, please consult with a CWM Chartered Wealth Manager or Accredited Financial Analyst and consult with a licensed professional before making any important decision.
About the Author: Dr. George Mentz is a world recognized consultant and award winning professor who has authored several revolutionary books. Prof. Mentz, an international lawyer, has been a keynote speaker globally in Asia, Arabia, USA, Mexico, Switzerland, and in the West Indies. Mentz can be contacted for speaking engagements at www.gmentz.com or www.managementconsultant.us or www.selfhelpbook.org Mentz is the founder of the American Academy of Financial Management and the US Academy of Business and Financial Management http://aafm.us
*No tax, insurance, investment or legal advice provided herein. Please consult with a licensed professional in your jurisdiction before making any important financial or legal decision.