How will the American Txpayer Relief Act affect You?

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On January 2, 2013, with the nation on the edge of the “fiscal cliff” (a combination of Bush-era tax cuts expiring and the imposition of scheduled spending cuts) President Obama signed the American Taxpayer Relief Act.  Although it helped to quell the “fiscal cliff” fears temporarily, it is only the beginning of the national debate over revenue and spending.

                Although the Act does increase taxes on high-earners and trusts, individual taxpayers will be most affected by many provision of the Act.  These provisions are “permanent,” in that they are not automatically scheduled to expire.  Let’s take a quick look at some of them…

Extend income tax relief for taxpayers below $400k (or $450k for married filing jointly)

                Taxpayers with income above this level will now be faced with a top marginal rate of 39.6%.  This is higher than the $200-250k originally proposed by the President, but lower than the $1 million put forth by many members of Congress.


Long Term Capital Gains and Qualified Dividend rates

                The rates for LTCG and dividends will go up to 20% for taxpayers above the $400-450k threshold.  However, they will now also be subject to a 3.8% Medicare surtax, making the new rate effectively 23.8%.


Personal Exemption Phase-Out

                The personal exemption phase-out is reinstituted for taxpayers with adjusted gross income above $250k (single) or $300k (married filing jointly).


Estate, Gift and Generation-Skipping Transfer (GST) taxes

                The new rate for these three taxes will be 40%.  This is higher than last year’s rate of 35%, but lower than the rate that was set to take effect of 55%.  The tax exemptions for these taxes are all the same and are indexed for inflation.  The 2013 exemption is expected to be $5.25 million.  The Act continues to allow surviving spouses to utilize their deceased spouse’s unused estate and gift tax exemptions, under the principle of “portability.”


State Death Taxes and the Payroll Tax

                Finally, the act did not extend the Payroll Tax cut of 2%, and it also replaced the scheduled estate tax credit with a deduction for state estate taxes paid.


Internal Revenue Service Circular 230 Disclosure: In compliance with IRS requirements, you are on notice that any U.S. tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein.  The information on this website should not be used in any actual transaction without the advice and guidance of a professional Tax Adviser who is familiar with all the relevant facts. Although the information contained here is presented in good faith and believed to be correct, it is general in nature and is not intended as tax advice. Furthermore, the information contained herein may not be applicable to or suitable for the individuals' specific circumstances or needs and may require consideration of other matters.

The materials on this website are for general information purposes only, and do not constitute legal or tax advice.  Viewing the materials contained on this site, or on any linked site, does not create an attorney-client relationship.  Sayer Regan & Thayer, LLP assumes no responsibility for materials posted on any linked site.  If you chose to contact us, or to inquire concerning legal services or legal advice, please be advised that such inquiry does not create an attorney-client relationship.  An attorney-client relationship may only be established by separate agreement.  You should not send any confidential or time-sensitive information to us unless authorized by one of our attorneys.  Information sent before an attorney-client relationship is established may be determined not to be confidential.

Category: Business & Commercial Law


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