highlights of the american taxpayer relief act of 2012

HIGHLIGHTS OF THE

AMERICAN TAXPAYER RELIEF ACT

OF 2012

BRUCE E. BELL, ESQ. SCHOENBERG, FINKEL, NEWMAN & ROSENBERG, LLC

222 S. RIVERSIDE PLAZA, SUITE 2100 CHICAGO, ILLINOIS 60606

(312) 648-2300 [email protected]

©Copyright 2013 Bruce E. Bell

All Rights Reserved

I. Basic Individual Income Tax Changes

A. Personal Tax Rates

1. 39.6% tax bracket established

2. New rate takes effect for taxable income in excess of certain thresholds

a. $400,000 for single filers b. $425,000 for heads of household

c. $450,000 for marrieds filing jointly

d. $225,000 for marrieds filing separately

3. Thresholds adjusted for inflation after 2013

B. Capital Gains/Dividends

1. 20% tax bracket established for capital gains and qualified dividends 2. New rate takes effect for taxable income that exceeds thresholds

which are the same as thresholds for new 39.6% tax bracket

C. Itemized Deduction Phaseout

1. Itemized deductions phased out for higher income taxpayers 2. Phaseout begins when adjusted gross income exceeds specified

thresholds




3. For affected taxpayers, itemized deductions reduced by lesser of (i)

3% of adjusted gross income over allowable threshold and (ii) 80% of itemized deductions

2

4. Thresholds adjusted for inflation after 2013

D. Personal Exemption Phaseout

1. Personal exemptions phased out for higher income taxpayers 2. Phaseout begins when adjusted gross income exceeds specified

thresholds




3. Personal exemptions reduced by 2% for each $2,500 by which

adjusted gross income exceeds threshold 4. Thresholds adjusted for inflation after 2013

E. Alternative Minimum Tax (AMT) Relief

1. AMT permanently established for individuals 2. AMT exemption amounts for 2012:

a. $50,600 for single filers and heads of household b. $78,750 for marrieds filing jointly

c. $39,375 for marrieds filing separately

3. Amounts adjusted for inflation after 2012

II. Other Income Tax Changes

A. For 2013 state and local sales taxes may be claimed as deduction in lieu of state and local income taxes

B. Employer-provided education expenses of up to $5,250 permanently extended

C. Exclusion from income of cancellation of indebtedness income of up to

$2,000,000 attributable to principal residence extended through 2013

3

D. Tax-free distribution for IRAs of up to $100,000 paid to public charities

extended through 2013

III. Business Tax Provisions

A. Taxpayers may continue to expense up to $500,000 with respect to not more than $2,000,000 of investments in eligible property in lieu of depreciation deduction for 2013

B. Bonus depreciation of 50% allowed through 2013 on qualifying property

IV. Estate and Gift Tax Changes

A. Permanent Transfer Tax Exemption

1. Exemption of $5,250,000 for estate, gift and generation-skipping taxes

2. Exemption indexed for inflation after 2013

B. Transfer Tax Rates – Top marginal tax rate is 40% C. Portability – Rule allowing surviving spouse to use deceased spouse’s unused

estate tax exemption made permanent

V. Other Tax Provisions Taking Effect in 2013

A. Additional Tax of .9% on earned income over specified thresholds

1. $200,000 for single filers and heads of household 2. $250,000 for marrieds filing jointly

3. $125,000 for marrieds filing separately

B. Additional tax of 3.8% on lesser of net investment income or modified

adjusted gross income over specified thresholds

1. $200,000 for single filers and heads of household 2. $250,000 for marrieds filing jointly

3. $125,000 for marrieds filing separately

4. $11,950 for estates and trusts

4

VI. Planning Opportunities

A. Allocate receipts attributable to capital gains over a period of years B. Review and update estate plans

C. Maximize retirement plan contributions

D. Reduce salaries and make S corporation distributions to minimize payroll tax

imposition

E. Shift investments to municipal bonds to limit impact of investment income tax F:\BEB\Speeches\Basic Individual Income Tax Changes.doc