Brian Borawski CPA, PC

Archive for the ‘American Taxpayer Relief Act of 2012’ Category

This is part two in a series of article explaining the changes that happened when the American Taxpayer Relief Act of 2012 was enacted.  Like Individual Income Tax rates. the changes to the capital gains rate only changed for those who exceed a certain income threshold.  The news 20% rate applies to individuals making more than $400,000, couples who make more than $450,000 and head’s of household who make more than $425,000.  Anyone under those amounts will pay a capital gains rate based on their income that ranges from zero to 15%.  For a look at the new capitals gains rates, please click through to this article which provides the specific brackets.

This is the first in a series on the recent changes enacted as part of the American Taxpayer Relief Act of 2012.  The first thing we will look at is how income tax rates have changed.  The good news is, for most people, there are no changes other then the usual increases due to inflation.  Where things change is when your taxable income is $400,000 or more if you’re single, $450,000 if you’re married filing jointly and $425,000 if you’re a head of household.  For taxpayers that exceed that threshold, the tax rate goes from 35% to 39.6%. If you want to see exactly where you fall, please click through to this Forbes article which breaks down each of the tax brackets.

The other change the Act made was to extend the marriage penalty relief for another year.  Prior to 2001, there was the marriage penalty where two people who filed single would pay less tax than when those two filed married jointly.  For more than the last ten years, this penalty was alleviated by adjusting the marginal tax rates and the standard deduction to where two single filers would pay the same tax as a married couple under similar circumstances.  The Act made the marriage penalty relief permanent.

We have a new tax bill.  I’m going to cover each of these items in detail but I wanted to make sure everyone had a quick summary version they could refer too

Individual Income Tax Rates – If your single and make less than $400,000, married and make less than $450,000 or a head of household and you make less than $425,000, your marginal tax rates won’t change. If you make more than this, your new marginal tax rate will go up from 35% to 39.6%.

Capital Gains and Dividends Rate – The top rate on dividends and capital gains will go up from 15% to 20%.  This new rate will apply to those who saw their individual income tax rate increase.

AMT Relief – There’s a new and permanent AMT exemption amount.  If you’re single, it’s $50,600, if you’re married filing jointly it’s $78,750 and if you’re married filing seperately it’s $39,375.

Itemized Deduction Limitation – Called PEACE, the phaseout on itemized deductions is back.  At certain income levels, your itemized deductions begin to phase out.  This level is $300,000 for married couples and surviving spouses, $275,000 for head of households, $250,000 for unmarried tax payers and $150,000 for those married but filing seperately.

Personal Exemption Phaseout – Exemption phaseouts are back and the income limits are the same as the itemized deduction limit.

Federal Estate, Gift and GST Tax – The new maxmimum estate and gift tax is now 40% and the exclusion amount has been fixed at $5 million.

State and Local Sales Tax Deduction – The state and local sales tax deduction has been extended for 2013.

Child Tax Credit – The $1,000 child tax credit has been extended permanently.

Earned Income Tax Credit – Some of the more recent changes to the EIC have either been made permanent or extended through 2017.

Those are the bigger things but there were also quite a few other items that were either enacted or extended.  I’ll be touching on all of these things either by themselves or grouped up over the next few days.