The dreaded fiscal cliff was partially averted and many tax provisions previously in place under the

Bush-era tax cuts were made permanent through the passing of The American Taxpayer Relief Act of 2012 (the Act). The highlights of the Act are summarized by RiceVandenBerg Certified Public Accountants & Advisors. The following article is not an all inclusive summary of the Act, but rather a summary of the significant issues that may impact our clients. Key Points of the American Taxpayer Relief Act of 2012 Individual Income Tax Rates The top marginal federal income tax rate is increased to 39.6% from 35%. The top rate will apply to taxable income above $450,000 for married filing jointly taxpayers, $425,000 for head of household filers, and $400,000 for taxpayers filing as single. The 10%, 15%, 25%, 28%, 33%, and 35% marginal tax rates are all retained under the Act and thus the marginal tax rates on income below the $450,000, $425,000, and $400,000 threshold remain the same as in 2012. Qualified Dividend Income and Capital Gains Under the Act, qualified dividend income and capital gains for taxpayers who are in the new 39.6% tax bracket are subject to a maximum tax rate of 20%. The tax rate on qualified dividend income and capital gains remains at a maximum of 15% for taxpayers who are not in the 39.6% tax bracket. Limitations on Itemized Deductions and Personal Exemptions The Act permanently eliminates the limitation on personal exemptions and itemized deductions for married filing jointly taxpayers with taxable income under $300,000, head of household filers with taxable income under $275,000, and single filers with taxable income under $250,000. Itemized deductions and personal exemptions will be phased out for taxpayers above the $300,000, $275,000, and $250,000 threshold. Individual Tax Provisions Extended Several individual tax provisions scheduled to expire on December 31, 2011 were extended through 2012 and 2013. Two of the more notable provisions extended are the state and local sales tax deduction and the deduction for qualified tuition and related expenses. State and Local Sales Tax Deduction For individual taxpayers who itemize deductions, the Act extends the election to claim state and local sales tax in lieu of state and local income taxes. This is positive for taxpayers living in states without an income tax such as Florida. Deduction for Qualified Tuition and Related Expenses The maximum above the line deduction for qualified tuition and related expenses is $4,000 and is reduced to $2,000 for taxpayers with higher incomes. The deduction is subject to income thresholds and is reduced to zero for single filers with AGI above $80,000 and joint filers with AGI above $160,000.

Summary of The American Taxpayer Relief Act of 2012 Payroll Tax A significant item not addressed in the Act is the extension of the payroll tax cut for an employees portion of social security payroll tax. Employees who contribute to Social Security will see their payroll taxes on the first $113,700 of wages increase by 2% beginning on January 1, 2013. The 2% payroll tax cut expired on December 31, 2012 and was not renewed under the Act, thus an employees contribution percentage will increase from 4.2% to 6.2%. Business Tax Provisions Extended Several business tax provisions scheduled to expire at the end of 2011, 2012, and 2013 were extended through 2013 and beyond. The uncertainty surrounding the extension of the provisions has recently impaired capital investments by businesses. Two important tax provisions extended are 50% bonus depreciation and Section 179 expense. 50% Bonus Depreciation The availability of additional 50% bonus depreciation in the first year for qualifying assets is extended through the end of 2013. The Act also extends the 50% bonus deprecation through the end of 2014 for certain assets with longer production periods. Section 179 Expense The Section 179 expense limitation of $500,000 is retained through the end of 2013. Estate and Gift Tax The $5 million estate and gift tax exemption is made permanent. The exemption amount is indexed for inflation and is set at $5.2 million in 2012. The maximum rate for the estate tax is increased from 35% to 40% effective January 1, 2013. The estate tax portability election is made permanent which allows the executor of a deceased spouses estate to transfer any unused estate and gift tax exemption of the deceased spouse to the surviving spouse. Each taxpayers position is different and additional information should be considered in determining the impact of these changes. To learn more about the Act and the impact it may have on your current tax position, please contact Nate VandenBerg of RiceVandenBerg Certified Public Accountants & Advisors. Nate is a tax partner at RiceVandenBerg and can be reached at 954-233-1767 ext. 2 or nvandenberg@ricevandenberg.com
CIRCULAR 230 NOTICE: To comply with U.S. Treasury Department and IRS regulations, we are required to advise you that, unless expressly stated otherwise, any U.S. federal tax advice contained in this document are not intended or written to be used, and cannot be used, by any person for the purpose of (i) avoiding penalties under the U.S. Internal Revenue Code, or (ii) promoting, marketing or recommending to another party any transaction or matter addressed document.