Sunday, February 3, 2013

10 Things You Should Know About the American Taxpayer Relief Act of 2012

There is a tremendous amount of uncertainty and misunderstanding about the "Fiscal Cliff" and its impact on the American Taxpayer.  My agency, Carico Insurance, consults with Tax Attorneys, CPA's, Financial Advisors and other professionals to help sort through confusing topics like this for our Clients.  No one person can master all the intricacies of a document this complex, so we work with some of the brightest minds and trusted experts in their fields.  Please find below a few of the changes you should know about the "American Taxpayer Relief Act of 2012".

The information below came from Farmers Insurance Group's "Advanced Markets" team.

2013 started off with a lot of drama in Washington while we anxiously stood on the precipice of the “Fiscal Cliff.” The President signed the American Taxpayer Relief Act of 2012 which addresses many of the tax increases that were set to take place at the beginning of this year, at least temporarily addressing “Fiscal Cliff” fears. The Act does not impose new taxes on life insurance, annuities, pensions, retirement savings or employer-provided benefits. But because many Americans now face increased tax liability, these products may hold more appeal for those impacted by the new tax law. Here is a summary of some of the provisions of this Act:

1) The federal estate tax, gift tax and the federal generations skipping transfer (GST) tax will continue to have $5,000,000 exemptions, indexed for inflation.  The IRS has not yet announced the 2013 inflation adjustment. The highest estate tax rate will go up from 35% to 40%.  This is a permanent change to the law.

2)  The income tax rates for 2013 are:
                              Married Filing Jointly           Single
     10% Bracket    $0 - 17,850                            $0 - 8,925
     15% Bracket    $17,851 – 72,500                   $8,926 – 36,250
     25% Bracket    $72,501 – 146,400                  $36,251 – 87,850
     28% Bracket    $146,401 – 223,050                $87,851 – 183,250
     33% Bracket    $223,051 – 398,350                $183,251 – 398,350
     35% Bracket    $398,351 - 450,000                 $398,351 - 400,000
     39.6% Bracket $450,000 and up                    $400,000 and up [this is a new tax rate]

3) Payroll taxes will increase to 6.2%, reverting back to the levels of 2010.  Many of us will see a reduction in our paychecks as a result of this 2% increase in taxes.

4) There will also be a phase-out of the personal exemption for individuals earning more than $250,000 and couples earning more than $300,000.  Head of Household limit is $275,000.  Married Taxpayers filing separately is $150,000. These limits are to be indexed for inflation.

5) The phase-out on itemized deductions curtails how much may be deducted of otherwise allowable deductions.  This phase –out is applied to individuals earning more than $250,000 and couples earning more than $300,000.  The corresponding Head of Household limit is $275,000 and Married Taxpayers filing separately is $150,000. Above these thresholds, otherwise allowable itemized deductions will be reduced by 3% of the amount by which the income exceeds the threshold.

6)  Permanently indexes the Alternative Minimum Tax (AMT) for inflation.

7)  Dividend and Capital Gains Tax Rates for 2013 go from 15% to 20% for individuals earning $400,000 or more and couples earning $450,000 or more.  It will stay at 15% for everyone else. 

8) Extension for 5 years of the $1,000 child tax credit and the tax credit for higher education costs is extended through December 31, 2013 applying retroactively to the 2012 tax year.

9) Extension for 1 year of the accelerated "bonus" depreciation on business investments.

10) Extension of tax free distributions from individual retirement plans for charitable purposes.

The gift tax exclusion increases from $13,000 to $14,000.

Please call me with any questions I might assist with finding answers to:  
Terry Carico    (540) 797-5916

This material was prepared for educational purposes only and does not constitute tax, legal or accounting advice.  Neither Farmers Insurance nor any of its agents, employees or registered representatives are authorized to provide tax or legal advice.  This material was not written for, or intended for, and cannot be used by any taxpayer for, the purpose of avoiding any IRS penalty. Any discussion of taxes herein or related to this document is for general information purposes only and does not purport to be complete or cover every situation.  Tax laws are subject to interpretation and legislative change.  The actual tax results and the appropriateness of any product or arrangement for any specific taxpayer may vary depending on the facts and circumstances.  You should consult with and rely on your own independent legal and tax advisers regarding your particular set of facts and circumstances.


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