This is Part 2 of the American Taxpayer Relief Act summary. To read Part 1, click here. The majority of this summary deals with the capital gains tax rates, the payroll tax cut and charitable distributions of your IRA.
Capital gains and qualified dividends rates. The new law retains the 0% tax rate on long-term capital gains and qualified dividends, modifies the 15% rate, and establishes a new 20% rate. Beginning in 2013, the rate will be 0% if income falls below the 25% tax bracket; 15% if income falls at or above the 25% tax bracket but below the new 39.6% rate; and 20% if income falls in the 39.6% tax bracket. It should be noted that the 20% top rate does not include the new 3.8% surtax on investment-type income and gains for tax years beginning after 2012, which applies on investment income above $200,000 (single) and $250,000 (joint filers) in adjusted gross income. So actually, the top rate for capital gains and dividends beginning in 2013 will be 23.8% if income falls in the 39.6% tax bracket. For lower income levels, the tax will be 0%, 15%, or 18.8%.
Payroll tax cut is no more. The 2% payroll tax cut was allowed to expire at the end of 2012. The expiring tax holiday for payroll taxes was not addressed, meaning that the reduced 4.2% tax rate for the employees’ portion of the Social Security payroll tax has expired and the rate has returned to 6.2%. This will be a 2% tax rate increase that employees will immediately see on their paychecks.
Extension of the IRA Charitable Rollover. In the American Taxpayer Relief Act of 2012, the IRA charitable rollover provision has been extended until Dec. 31, 2013. The IRA charitable rollover provision allows tax-free distributions to eligible charities from an IRA held by someone age 70 or older, of up to $100,000 per taxpayer per year. The extension is retroactive to Jan. 1, 2012 and allows donors to make distributions directly to eligible charities before Feb. 1, 2013 and elect to have such distributions treated as qualified charitable distributions in 2012. Previous legislation allowing IRA charitable rollover gifts expired on Jan. 1, 2012.
I hope this information is helpful in helping you to understand the law changes that will affect us in 2013. If you would like more details about these provisions or any other aspect of the new law, please do not hesitate to call our offices to schedule a free attorney consultation at 888.222.1328.
Contributed by MH Arrowhead, Prescott and Flagstaff Estate Planning Attorney and Partner David T. Eastman.
Why Choose Morris Hall:
You have a number of options when it comes to estate planning, so why pick Morris Hall? First off, estate planning and asset protection are a very complicated endeavor and you should only trust someone who focuses exclusively on those matters. Also, MH is a proud member of The American Academy of Estate Planning Attorneys (AAEPA) which provides us additional support, advanced training, tools and information that is not available to others – which means that we can better protect your assets and your loved ones. We are one of only two firms in Arizona that belong to the AAEPA and are the only firm in New Mexico that has been granted membership. If you have assets and loved ones that you want to protect, you are in good hands with MH. Contact us today at 888.222.1328 to schedule an appointment!
This blog should be used for informational purposes only. It does not create an attorney-client relationship with any reader and should not be construed as legal advice. If you need legal advice, please contact an attorney in your community who can assess the specifics of your situation.
- Planning for your frequent flyer miles.How Anthony Bourdain did it. - July 11, 2018
- Traveling – Plan for Your Destination! - June 27, 2016
- Happy 100th Birthday to the Federal Estate Tax - June 22, 2016