Snyder and Associates


Tax Byte

Fiscal Cliff Tax Law Changes

In the early morning hours today, the House passed a bill that it received from the Senate and pulled the country back from the "Fiscal Cliff". The President is expected to sign the bill.  In the spirit of true political compromise, none of them are happy with the bill, but it at least sets the rules for 2012, and gives us some guidance for 2013 and beyond.  We will be digesting the details over the next few weeks and providing you more information, but here are some key provision:
Immediate Provisions:
  1. The 2% Social Security temporary tax reduction for employees was NOT reinstated; thus for any payroll checks dated in 2013 the employee's Social Security tax deduction needs to be calculated as 6.2% of the FICA taxable gross.  Watch this carefully, especially for January payrolls, as your software could still reflect the 4.2% rate.  If it does, you will need to override the tax calculated and use the 6.2% rate;
  2. The Alternative Minimum Tax (AMT) exemption has been permanently (yea!) set at $78,750 (joint filers) and $50,600 (single & head of household filers) and will be adjusted for inflation in future years. This amount is higher than the "best case" assumed rate we used for the tax planners we have been preparing recently, which used the 2011 amount.  If we have shared these numbers with you, the final AMT should be under our projected amounts;
  3. Estate and Gift tax exemption amount remains at $5,000,000 and will be adjusted for inflation;
  4. For equipment purchases used in business, the Sec. 179 and Bonus depreciation provisions have been continued at the higher levels, at least through the end of 2013.  The Act made modications to these provisions - we will provide more details later.
Future Provisions:
There are many provisions affecting 2013 tax returns, and we will be discussing those in more detail as we go through the year. The preliminary information begs more questions then it answers, but here are highlights of a few key provisions:
  1. The current tax brackets ranging from 10% - 35% stay in place, however for taxpayers with income over $400,000 (single) and $450,000 (joint), a new maximum 39.6% rate will apply;
  2. Personal exemptions and itemized deductions will be phased out for taxpayers with income above $250,000 (single) and $300,000 (joint);
  3. The tax rate on capital gains AND dividends has been permenantly fixed, but at several levels, thus making it a complex calculation.  When combined with the surtax already imposed by the Health Care Act, the long term capital gain/dividend tax rates range from 0% to 23.8%....more details to follow;
  4. Several credits (including the child tax and tuition credits) have been permanently extended now to be allowed against the AMT;
  5. Several expired deductions, including mortgage insurance premiums & the teacher's expense deduction, have been reinstated for 2012 and extended through 2013.
This barely scratches the surface, but we hope is enough to be of some use.  If you want more information, google "American Taxpayer Relief Act of 2012" (we're still looking for the "relief" provisions though).

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