Now that Congress has acted, we want to break down the key issues of the American Taxpayer Relief Act, which is also referred to as the Fiscal Cliff Bill.
Here's a breakdown of the key issues.
Individual Tax Rates
All the prior individual marginal tax rates are retained (10%, 15%, 25%, 28%, 33%, and 35%). For single filers with taxable income of over $400,000 and married couples filing jointly with over $450,000, a new top rate of 39.6% is imposed.
Phaseout of Itemized Deductions and Personal Exemptions
The personal exemptions and itemized deductions phaseout is reinstated at a higher threshold of $250,000 for single taxpayers and $300,000 for married taxpayers filing jointly.
Capital Gains and Dividends
A 20% rate applies to capital gains and qualified dividends for individuals above the top income tax bracket threshold. The 15% rate is retained for taxpayers in the middle brackets. The zero rate is retained for taxpayers in the 10% and 15% brackets.
Alternative Minimum Tax
The exemption amount for the AMT on individuals is permanently indexed for inflation. For 2012, the exemption amounts are $78,750 for married taxpayers filing jointly and $50,600 for single filers.
Estate and Gift Tax
The estate and gift tax exclusion amount is retained at $5 million indexed for inflation - it was $5.12 million in 2012, but the top tax rate increases from 35-percent to 40% effective January 1, 2013.
Business Tax Extenders
The increased expensing amounts under Sec. 179 are extended through 2013. The availability of an additional 50% first-year bonus depreciation was also extended for one year by the act. It now generally applies to property placed in service before January 1, 2014.
The act also extended through 2013 a number of temporary individual tax provisions, most of which expired at the end of 2011.
•Deduction for certain expenses of elementary and secondary school teachers.
•Exclusion from gross income of discharge of qualified principal residence indebtedness.
•Mortgage insurance premiums treated as qualified residence interest.
•Deduction of state and local general sales taxes.
•Above-the-line deduction for qualified tuition and related expenses.
•Tax-free distributions from individual retirement plans for charitable purposes.
We will continue to analyze the new tax act and will provide more details in next week's regular edition of our Tax Tip Tuesday Video Blog.
Disclaimer: The items included in the Tax Tip Tuesday Video Blog are informational only and are not meant as tax advice. Consult with your tax advisor to determine how any item applies to your situation. IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advise 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.