A Quick Summary of New Tax Law Signed to Avoid Fiscal Cliff

The American Taxpayer Relief Act of 2012 was signed by the President on January 2, 2013. The following is a quick summary of some of the more important provisions.

Payroll taxes. The most visible tax change in the new tax law is the 2% increase in the payroll tax. Everyone who draws a paycheck or has self-employment income will pay more in 2013. If you have $40,000 in wages in 2013, you will pay an additional $800 of payroll taxes over what you paid in 2012 on the same amount of wages.

Tax rates. The new law keeps the income tax rates the same as they were in 2012 for most taxpayers and makes them permanent. The new 39.6% tax rate will apply to single taxpayers making over $400,000 and couples making over $450,000.
Itemized deductions. The law puts limitations on the itemized deductions and personal exemptions for singles making over $250,000 and married couples making over $300,000.

Long-term capital gains. The long-term capital gains rate will be 20% for singles making over $400,000 and couples making over $450,000. The prior 15% and zero rates will continue to apply to those in the lower brackets as they did in 2012.

Tax-free distributions to charity. The tax-free distribution to charity from an IRA by a taxpayer age 70½ or older is extended through 2013. Special rules apply to December 2012 and January 2013 distributions if the transfer is made to the charity by January 31, 2013.

Education. A number of education tax incentives were extended or made permanent in the new tax law.

Child tax credit. The new law makes permanent the $1,000 child tax credit.

The alternative minimum tax (AMT) has been permanently patched with a 2012 exemption amount of $50,600 for unmarried taxpayers and $78,750 for married taxpayers. The exemption amount will be adjusted annually for inflation.

Depreciation. On the business front, the 50% bonus depreciation and the $500,000 business expensing option are extended through 2013. There are also numerous business tax incentives extended through 2013.

There is much more in the new tax law. Please contact us for a review of your tax considerations under the American Taxpayer Relief Act of 2012.