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A brief summary of the American Taxpayer Relief Act

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A brief summary of the American Taxpayer Relief Act

What will happen with your taxes in 2013? We finally have an answer! Congress passed the American Taxpayer Relief Act on January 1, 2013, just hours after going over the dreaded “fiscal cliff.” The President is expected to quickly sign the bill into law. Below are some of the more noteworthy provisions of the act.

Major provisions of the American Taxpayer Relief Act- 

Individual

  • A top income tax rate of 39.6% for individuals making in excess of $400,000 per year. ($450,000 for joint filers and $425,000 for heads of household)
  • The two percentage point reduction in the Social Security tax will not be renewed. This will affect wage earning and self-employed individuals at all income levels.
  • The bill also includes a higher exemption amount for the Alternative Minimum Tax, referred to as the “AMT Patch.”
  • Dividends and capital gains will be taxed at 20% (previously 15%) for those making over $400,000 ($450,000 joint).
  • Personal exemptions will phase out by 2% for each $2,500 of adjusted gross income above certain limits. The thresholds are: $250,000 single, $300,000 joint and $275,000 for heads of household.
  • Itemized deductions will be limited by 3% of the amount that income exceeds certain limits, not to exceed 80% of total itemized deductions. The limits are: $250,000 single, $300,000 joint and $275,000 for heads of household.
  • The estate tax will have a $5,000,000 exemption with a maximum tax rate of 40%.
  • College tuition, child tax, and various energy credits have been extended.

Business

  • The Section 179 deduction that allows immediate expensing of certain major assets was increased to $500,000 for 2013 and 2014.
  • Various business tax credits have been extended

As always, feel free to call with questions.

Jonathan Majkut, CPA

Majkut CPAs LTD


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