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We're also coming to 2013 with expanded services to assist our clients even more than ever. Here's to you in 2013 — a year heaped with thriving prosperity!
Fiscal Cliff Fallout.
We dove in, scoured every word of the new post-cliff tax laws so you don’t have to. Here's the scoop.
On the very first day of 2013, Congress rang in the year by passing the American Taxpayer Relief Act of 2012 (HR 8). This creates important planning opportunities for you — business-wise and as an individual.
What did the Act do?
Single filers with incomes over $250,000 ($300,000 for joint filers) will see their itemized deductions phased out under the new rules. Those considered "wealthier" taxpayers would also pay a top capital gains and dividend rate of 20%.
Just to give you some main highlights, the new Act also:
permanently indexes the alternative minimum tax for inflation
continues Medicare payment reimbursement rates for physicians
extends unemployment insurance benefits for 1 year
the temporary 2% payroll tax reduction expires, and the Medicare contribution taxes come into effect for 2013.
What does this mean for you?
We've discovered key opportunities (as well as issues) for 2013, which we will actively strategize with you to plan for and take advantage of. If you don't care about the nitty-gritty numbers and figures, skip down to the now what? paragraph at the bottom.
Pass-through entities (S-Corporations, Partnerships, and LLC’s) need to address the higher individual tax rates
The Act provides for 50% bonus depreciation for qualified property placed in service in 2013
The Act enhances or extends several expensing provisions. These include small business expensing, 15-year recovery period for qualified leasehold, and retail improvements and restaurant property
The Act retroactively extends the Research Tax Credit through 2013 (FYI — the new law does not make the credit permanent)
The recognition period for S-Corporation Built-In Gains tax has been reduced to 5 years.
The Work Opportunity Tax Credit has been retroactively extended
The Act does not extend the 2% cut in payroll and self-employment taxes
Ordinary income tax rates of 10%, 15%, 25%, 28%, 33%, 35%, and 39.6% on income over $400,000 for singles and $450,000 for married filing jointly
Capital gain tax rates 0%, 15%, and 20% on income over $400,000 for singles and $450,000 for married filing jointly — with additional special purpose rates (e.g., collectibles 28%)
Qualified dividends will be taxed at capital gain tax rates
Phase-out of personal exemptions and up to 80% of itemized deductions for income over $250,000 for singles and $300,000 for those married filing jointly
There will be no current change in tax treatment of tax-exempt municipal obligations
Tax-free distributions from individual retirement plans for charitable purposes (Sec. 408 (d)) will be allowed through 2013
Top gift, estate, and generation-skipping transfer tax rates are permanently increased to 40%
Gift, estate, and generation–skipping transfer tax exclusions and exemptions are permanently set at $5,000,000, with portability for estate tax and inflation adjustments
Dang it! More tax hikes… New Medicare taxes
0.9% additional employee Medical Hospital Insurance portion of employment tax on wages of high-earners
0.9% additional Medical Hospital Insurance portion of self-employment tax on self-employment income of high-earners
New 3.8 % Medicare contribution tax on individual net investment income to the extent modified adjusted gross income (AGI) exceeds threshold amounts, and accumulated net investment income of certain trusts and estates
Individual modified AGI thresholds ($250,000 married filing jointly, $125,000 married filing separately, $200,000 for all other individuals) and the highest marginal tax bracket for trusts and estates
Things we need to address with each of our clients individually
Clients who are affected by the increases in ordinary income, qualified dividend and capital gain tax rates, as well as the new Medicare Taxes should review and make appropriate revisions to their 2013 Estimated Tax payments
We need to evaluate effect of new 3.8% Medicare Tax on capital gain, dividends, interest and especially passive income
In addition, we need to consider the impact of California passing Proposition 30, which created retroactive tax increases back to January 1, 2012.
Keep in mind that the debt ceiling has not been increased and the scheduled sequestration has been extended. It would not be remotely surprising to see some of the prior legislative proposals reappear in further tax reform.
If any of this info made your head spin, it's okay. That's what we're here for — to make sense of it for you and guide you to maximized profits and protection. Let’s take a proactive —not reactive approach. The tax world is erratic. It will continue to change — but change is opportunity! The KSJG Tax Department is ready to work with you to address and plan for these and future changes as they happen. Talk to you soon.
The information contained herein is for general information only and based on authorities that are subject to change. It is not intended and should not be construed as legal, accounting or tax advice. Your individual circumstances may vary from any examples provided and there is no guarantee that any particular tax strategy or exemption will be applicable to you. Contact KSJG or other tax professionals prior to taking any action based upon this information.