Highlights of the Fiscal Cliff Tax Legislation
As you may already be aware, the President signed the “American Taxpayer Relief Act” (the Act) late Wednesday evening. The Act prevents many of the tax hikes that were scheduled to go into effect this year and retains many favorable tax breaks that were scheduled to expire, but it also increases income taxes for some high-income individuals and slightly increases transfer tax rates.
The Act's key changes follow:
Income taxes. The Act keeps the “Bush” tax rates intact for individuals with taxable income under $400,000 ($450,000 for married taxpayers, $425,000 for heads of household). Income above these levels will be taxed at a 39.6% rate.
AMT patch. The Act permanently patches the alternative minimum tax (AMT).
Capital gains and dividends. The Act raises the top rate for dividends and capital gains from 15% to 20% for taxpayers who will be subject to the new 39.6% bracket.
Deduction limitations for high-income individuals. The Act reinstates the “Pep and Pease” limitations on the personal exemption and itemized deductions for taxpayers exceeding certain income thresholds.
Transfer taxes. The Act prevents steep increases in estate, gift and generation-skipping transfer (GST) tax that were slated to occur for individuals dying and gifts made after 2012 by permanently keeping the exemption level at $5,000,000 (as indexed for inflation). However, the Act also permanently increases the top estate, gift and GST rate from 35% to 40%.
Individual extenders. The Act extends a host of individual provisions, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for State and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
Business tax extenders. Many key business tax breaks were extended including depreciation provisions, notably including bonus depreciation, and the research and work opportunity tax credits.
Other items. The Act extends unemployment insurance and many health and energy-related provisions, as well as extending farm legislation. It did not, however, extend the 2% FICA payroll tax cut.
As always, our goal is to keep you up to date on the latest changes to the tax laws that could affect you, your family and your business. Please contact us at 281-759-1120 for more information about any of these recent developments. We would be happy to provide further information.