This is a follow-up to the “2012 Tax Planning for Fiscal Cliff” article published in CMDA’s On Law newsletter (December 2012) and on our website.
On January 1, 2013 Congress passed the American Tax Relief Act extending many of the individual and business tax breaks reviewed in the article. As a supplement to the Article, below is a list of some of the significant tax changes.
Individual Income Taxes
Federal income tax rates for most individuals will continue at 10 %, 15 %, 25 %, 28 %, 33% and 35 %, as was applicable in 2012, however, a rate of 39.6 % will be added in 2013 for married couples with income that exceeds $450,000.
Withholding Taxes for Social Security. The employee’s share of withholding taxes for social security was increased from 4.2 % to 6.2%.
Discharge of Home Mortgage Debt. Mortgage debt on a qualified principal residence which is released or discharged before 2014, up to $2,000,000, is not subject to income tax.
Qualified Dividends. The tax on Qualified Dividends will be increased to 20% (up from 15%), for taxpayers with income in excess of $450,000 for married individuals. Taxpayers with income less than $450,000 will be subject to a 15 % tax rate on capital gains and dividends. As a reminder, the 3.8% Medicare Contribution Tax is applicable for married couples with adjusted gross income of $250,000 or more, will apply so the effective tax rate will be 23.8% and 18.8%.
Estate and Gift Taxes
The new Act continues with the $5,000,000 exemption amount for estate taxes, gift taxes and generation skipping taxes which is the same exemption amount that was in effect in 2012. The top tax rate for estate and gift taxes is increased to 40 % (up from 35%) beginning in 2013.
The first year bonus depreciation is extended for an additional year, which allows 50% first year bonus depreciation for qualified property acquired and placed into service before January 1, 2014.
Section 179 allows a business to deduct as an expense, rather than depreciate, the cost of new or used tangible personal property placed into service during the year. In 2012, the amount allowed to be expensed was $139,000, which under the new Act was increased to $500,000.
Also, the Act allows certain qualified property to be depreciated over 15 years. Qualified property includes qualified leasehold improvements, qualified restaurant property and qualified retail improvement property.
Christopher G. Schultz is a partner in our Livonia office where he concentrates his practice on corporate and business law, commercial litigation and estate planning. Additionally, Mr. Schultz is a Certified Public Accountant. He can be reached at (734) 261-2400 or firstname.lastname@example.org.