On New Year’s Day 2013, Congress passed a far-reaching new law intended to avert the so-called fiscal cliff. The American Taxpayer Relief Act, signed into law by President Obama on January 2, 2013, impacts every taxpayer.
As 2012 ended, the national debate focused on the expiration of the Bush-era tax cuts and the so-called fiscal cliff. On January 1, 2013, Congress passed, and President Obama signed the next day, the American Taxpayer Relief Act. The new law includes some valuable business tax incentives. Many of these business tax incentives are temporary so taxpayers have a limited window in which to maximize their potential tax savings.
As you know, the alternative minimum tax (AMT) traps more middle income taxpayers every year. To partially alleviate this tax burden, Congress has been enacting annual “patches” to the AMT to increase exemption amounts. The American Taxpayer Relief Act of 2012 (2012 Taxpayer Relief Act) provides immediate relief for the AMT by permanently increasing the AMT exemption amounts retroactive to the 2012 tax year. Beginning in 2013, these base AMT exemption amounts will be adjusted annually for inflation.
The health care reform package (the Patient Protection and Affordable Care Act and the Health Care and education Reconciliation Act of 2010) imposes a new 3.8 percent Medicare contribution tax on the investment income of higher-income individuals.
Effective January 1, 2013, the Patient Protection and Affordable Care Act (PPACA) imposes an Additional 0.9 Percent Medicare Tax on earned income above specified dollar amounts. The 0.9 percent tax is imposed on individuals and does not apply to corporations, estates, or trusts.
For decedents dying in 2013, American Taxpayer Relief Act of 2012 (ATRA) sets a maximum estate tax rate of 40 percent with a $5 million exclusion (indexed for inflation). One goal of ATRA is to bring some certainty to estate planning, which has been in a state of flux for most of the past 10 years.
Undeniably, the most prominent and reoccurring tax issue throughout 2012 surrounded the fate of the Bush-era tax cuts and the uncertainty that resulted in connection with effective tax planning for 2013 and beyond.
For the 2013 tax year, the IRS has adjusted the standard mileage rates upward for the first time since mid-2011. Taxpayers who use the standard mileage rate to calculate their 2013 itemized deductions for the cost of business miles driven will now be able to deduct slightly more.
Much work needs to be done in dealing with the requirements of the health care reform package passed in 2010 and upheld by the U.S. Supreme Court in 2012. The tax law plays a major role in implementation of health care reform. From the tax credits and subsidies used to expand health coverage, to the many penalties, fees and surtaxes designed to pay for it, the Tax Code is front and center.