Latest Tax News For Businesses and Individuals
Right now, the only thing that congress and the executive branch can agree on is to disagree. Based on that, 2012 and 2013 will have a lot of uncertainty. Here are some highlights about the tax law that we know now or expect for 2012 and 2013:
Expiring (as in gone) provisions after December 31, 2012:
- The 2% Social Security payroll tax cut – expect net checks in 20132 to decrease as Social Security increases back up to 6.2% of wages up to $113,700 (yes the dollar limit is up too!).
- The tuition deduction expired after 2011 (not available for 2012) but the education credit is still available for 2012 and beyond.
- Mortgage insurance (PMI) is not deductible in 2012.
- The 50% bonus depreciation on business assets expires after 12/31/2012.
- The estate tax exemption of $5.12 million will decrease to the $1 million level. The default will rise to 55% of estates over $1 million.
Surprises (?) for 2012:
- California proposition 30 retroactively to January 1, 2012 added up to 3% to the top California tax brackets – (but don’t forget the 1% mental health tax on millionaires) bringing the CA top rate to 13.3% – the highest in the country.
- The Alternative Minimum Tax (AMT) is a real surprise this year affecting 10 times as many taxpayers (30 million+) as 2011 pending congress “fixing” the floor.
- Taxpayers who use the Earned Income Credit (EIC) may face a more difficult time claiming the credit as the IRS has increased documentation to include an 80 question compliance form.
New for 2013:
- The Patient Protection and Affordable Care Act (PPACA) has added some new areas to be interested in:
- Employees with wages over $250,000 (married filing joint) or $200,000 (single, HOH) will see an increase in their Medicare tax withheld by 9 10ths of one percent (0.9%) – the employer is responsible for withholding.
- Investment income will now be subject to a 3.8% Medicare tax. This includes:
- Interest, dividends, net rents, passive activity income.
- But not retirement income.
- Contributions to FSA accounts are capped at $2,500.
- In 2013 the threshold for the medical deduction increases from 7.5% of AGI to 10% for taxpayers under 65 years old.
Additional Changes for 2013:
- Bush Tax Cuts will Lapse (right now for everyone)!
- The capital gains rate of 15 % increases to 20% (or 23.8% if the Medicare tax applies).
- The 0% and 15% maximum rate for qualified dividends for 2012 will be gone in 2013.
- The 10% tax bracket is eliminated (the lowest bracket will be 15%).
- The top rate increases form 35% to 39.6% (or 42.4% if the Medicare tax applies).
- The phase out of the personal exemption returns for high income taxpayers.
- The 3% reduction of itemized deductions for high income taxpayers is also back.
- Child credit for children under 17 years old decreases from $1,000 in 2012 to $500 in 2013 and is no longer refundable in 2013.
- The dependent care credit is reduced to 20-30% of $2,400 (of $4,800 for 2 or more children).
- The annual gift exclusion goes up from $13,000 in 2012 to $14,000 per donor per done per year in 2013 (finally some good news).
- Section 179 depreciation for business assets drops from $139,000 all the way back to $25,000 (and is eliminated for real estate (LHI)).
- The mileage rates for 2013: Business = $0.565/mile; charity = $0.14/mile; medical = $0.24/mile.
- All retirement contribution limits increase by $500 for 2013 (IRAs, SIMPLE’s, 401k).
If you have any questions, please do not hesitate to contact us.
As we learn more about the changing tax picture, we will keep you updated.