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Fiscal cliff reached!  How will this effect you?
The American Taxpayer Relief Act was passed by the Senate in the early hours of Tuesday and was passed by the House of Representatives on late Tuesday evening.  At this time the bill has been forwarded to the President for signature.
We have summarized items below that may be of interest to you, for a more detailed explanation please see an article from the Journal of Accountancy:

Individual Income Tax Rates
The individual marginal tax rates are retained at 10%, 15%, 25%, 28%, 33% and 35%.  A new top rate was added for taxable income over $400,000 for single filers, $425,000 for head-of-household filers, and $450,000 for married taxpayers filing jointly ($225,000 for each married spouse if filing separately).

Capital Gains and Dividends
A new 20% rate applies to capital gains and dividends for high income households; the 15% capital gain rate is retained for taxpayers in the middle tax brackets.  The 0% rate has been retained for taxpayers in the 10% and 15% tax brackets.

Alternative Minimum Tax (AMT)
An exemption amount for 2012 has been agreed to with an exemption amount of $78,750 for married taxpayers filing jointly and $50,600 for single filers.  This permanent exemption amount will be indexed for inflation each year.  Retained is the relief from AMT nonrefundable credits.

Estate and Gift Tax
The estate and gift tax exclusion amount has been retained at $5 Million.  For 2012, the exemption amount is $5.12 Million, indexed for inflation.  However, the top estate and gift tax rates increase from 35% to 40% effective January 1, 2013.  The portability of a deceased spouse’s unused exemption amount has been made permanent.

Individual Provisions extended through 2013
  • Exclusion from gross income of discharge of qualified principal residence indebtedness
  • Tax-free distributions from individual retirement plans for charitable purposes
  • Deduction of certain expenses of elementary and secondary school teachers
  • Mortgage insurance premiums treated as a qualified home mortgage interest deduction
  • Itemized deduction allowed for the higher of state and local general sales taxes or state income taxes
  • Above the line deduction for qualified education expenses
  • Tax Credits for qualified education expenses for higher education (extended through 2018)
Business Provisions extended through 2013 (with some modifications in some cases)
  • Credit for increasing research and development activities
  • Section 179 increased expensing amounts
  • 50% first- year bonus depreciation
  • 15 year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and qualified retail improvements
New or Reinstated Taxes
The following taxes and provisions begin on January 1, 2013:
  •  10% Threshold on Medical Itemized Deductions, for 2013-2016 if either taxpayer or spouse turns 65 before the end of the tax year, the increased threshold does not apply and remains at 7.5%
  • Phaseout of itemized deductions and personal exemptions reinstated at the thresholds of $250,000 single, $275,000 head of household, and $300,000 married filing joint.
  • 0.9% Medicare Tax Increase for wages over $200,000 single ($250,000 Married Filing Joint)
  • 3.8% Medicare Tax on Net Investment Income with Modified Adjusted Gross Income of more than $200,000 ($250,000 Married Filing Joint)
  • Employee portion of the Social Security payroll tax has been increased back to 6.2% from 4.2% over the past few years
  • $2,500 Maximum contribution to Flex Spending Accounts
We hope you find this information helpful!  As always, we greatly appreciate your business and welcome any questions or concerns you may have. 

Thank you,

Pescatore-Cooper, PLC




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