The American Taxpayer Relief Act: What You Need to Know

The American Taxpayer Relief Act: What You Need to Know

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By L. Michael Gracik, Jr., CPA | Managing Partner

To avert some of the tax consequences of the so called “fiscal cliff”, the President signed into law The American Taxpayer Relief Act of 2012 (the Act) on January 2, 2013.  The Act provides certain extensions of tax relief and provides tax increases for certain taxpayers beginning in 2013. Some of the highlights of the Act:

  • Raises the 2013 top individual tax rate to 39.6% for married couples with taxable income exceeding $450,000; single taxpayers exceeding $400,000. These amounts will be indexed for inflation.
  • Raises the 2013 long-term capital gains and qualifying dividends tax rate to 20% (from 15%) for individual taxpayers in the 39.6% tax bracket for regular and alternative minimum tax.
  • Permanently extends Bush-era tax cuts from 2001 and 2003 for all other taxpayers.
  • Reinstates in 2013 the phaseout of personal exemptions and overall limitation on itemized deductions for married couples filing jointly earning over $300,000 and single taxpayers earning over $250,000.
  • Raises the maximum estate tax rate to 40% but keeps the exemption amount at $5 million, adjusted for inflation.
  • Extends for 5 years (through 2018) the American Opportunity Tax Credit to pay for higher education, and special relief for families with 3 or more children for the refundable portion of the child tax credit and increased percentage for the earned income tax credit.
  • Patches the AMT for 2012 and adjusts the exemption amount for inflation going forward.
  • Extends through 2013 the following individual tax benefits: above the line deduction for teacher expenses, relief from cancellation of debt income for principal residences, parity for employer-provided mass transit benefits, deduction for mortgage insurance premiums as interest, election to deduct state and local sales taxes in lieu of income taxes, above the line deduction for qualified education expenses, tax-free distributions from IRA accounts for charitable purposes.
  • Extends through 2013 certain business tax provisions that expired at the end of 2011 including: the research credit, the new markets tax credit, railroad track maintenance credit, mine rescue team training credit, work opportunity credit, the Section 179 asset expensing at $500,000, Section 1202 stock exclusion at 100%, and empowerment zone incentives.
  • Extends 50% bonus depreciation through 2013.
  • Extends through 2013 the 15 year depreciable life for qualified leasehold improvements and restaurant property
  • Extends through 2013 certain energy tax incentives that expired at the end of 2011 including: energy efficient credit for existing homes, alternative fuel vehicle refueling property credit, biodiesel and renewable diesel incentives, wind credit, energy efficient credit for new homes, and credit for manufacture of energy efficient appliances.

The Act contained no adjustments to the tax law changes from the 2010 Patient Protection and Affordable Care Act, that are effective in 2013, such as the 0.9% surtax on earned income and 3.8% surtax on investment income for certain individual taxpayers.

Should you have questions about how the new Act will impact your specific situation, please contact your Keiter professional for additional insights.

About the Author

Mike works closely with his clients to identify tax planning and savings opportunities specific to their business and industry. His clients include closely-held businesses in the real estate, home building, manufacturing, construction, retail and wholesale industries. He also serves many estates, trusts and foundations. Read more of Mike’s insights on our blog.

More Insights from Michael Gracik, Jr., CPA

The information contained within this article is provided for informational purposes only and is current as of the date published. Online readers are advised not to act upon this information without seeking the service of a professional accountant, as this article is not a substitute for obtaining accounting, tax, or financial advice from a professional accountant.


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