There are two major influences on the 2013 tax year that has cast a great deal of uncertainty upon most taxpayer’s positions for 2013 and the related 2012 year-end planning: the fate of the ‘Bush-Era’ tax cuts and the impact of the further implementation of the “Obamacare” rules. It is unclear at this point if congress is going to continue with the Bush Era tax cuts in whole, in part or at all. The fate of Obamacare rules are unclear until we hear the decision of the Supreme Court and analyze the result of that pending decision. Below are some of the largest of the uncertainties we currently face:
- Ordinary income tax rate increase – without action from congress, the highest marginal income tax rate would increase from 35% to 39.6%. All other rates for taxpayers that are not in the top bracket would increase also.
- 3.8% tax on unearned income – this provision is part of the Obamacare act. It would impact interest, dividends, capital gains and possibly pass-thru income. This only applies to taxpayers with an AGI over $250K. In very limited circumstances it can pertain to the sale of a personal residence.
- Capital gains/Dividends rate sunset – Right now qualified dividends and capital gains are taxed at a maximum rate of 15%. Without action from Congress, this provision will sunset in 2013 and capital gains will revert to the 20% rate (However, there are some in congress that would like to see this rate event higher). The dividends rate would revert to the highest marginal for ordinary income tax rate.
- AMT patch – the higher exemptions for Alternative Minimum Tax will expire at the end of 2012 if Congress does not act. This will impact a large percentage of taxpayers.
- Marriage penalty relief sunset – Married couples that do not itemized would not be getting the same standard deduction as two single individuals.
- Child tax credit – The credit will go from $1,000 to $500 per child for those who qualify starting in 2013.
- Cancellation of mortgage indebtedness exclusion for personal residence – once this provision sunsets, we will have to rely on other exclusions – for example, the taxpayer insolvency argument.
- Other expiring provisions:
- Payroll tax cut
- 100% bonus depreciation
- Increased section 179 deductions
- State & local sales tax deduction
- Teacher expense deduction
- Charitable contribution of IRA proceeds
- MIP deduction (mortgage insurance premiums)
The items listed above are a few of the more popular tax provisions that affect a great deal of taxpayers. However, there are many other items that are expiring at the end of 2012 not mentioned above. This was meant to highlight the items that will affect the largest percentage of taxpayers.
Contributed by MH Accounting’s Bob Maurer
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