Payroll Taxes Increase by 2%: For millions of wage earners, the most immediate effect would be the lapse of a 2% payroll-tax cut that was part of a deal President Barack Obama struck with Republicans late in 2010. It lowered to 4.2% from 6.2% the employee portion of the Social Security tax, allowing workers to keep more take-home pay. For an individual earning the maximum 2013 cap of $113,700 or more, the increase would be nearly $200 per month. Overall, the expiration of this stimulus would cost working Americans $125 billion a year. It will take up to four weeks for many workers to know exactly what their 2013 take-home pay will be, according to Michael O'Toole, an official of the American Payroll Association.
Capital Gains & Dividends: For joint filers with income above $450,000 ($400,000 single), the top rate on long-term capital gains and dividends would rise to 20% from 15%. For taxpayers earning less than the thresholds, there would be a permanent 15% top rate on long-term capital gains and dividends, except perhaps for the lowest-bracket taxpayers, who currently have a zero rate.
Alternative Minimum Tax: The bill permanently and retroactively adjusts AMT to stop it impacting more taxpayers than designed. The current fix expired at the beginning of 2012.
Limits on Itemized Deductions & Personal Exemptions: Starting at $250,000 of income for individuals and $300,000 for married couples there will be a limit on itemized deductions and allowed exemptions.
Estate and Gift Tax: The estate and gift tax exemption would remain $5 million or more per individual vs. the $3.5 million sought by President Obama. But the current 35% top tax rate on amounts above the exemption would increase to 40%.
Other Good Stuff: Several provisions that lapsed either at the beginning or the end of 2012 will be back. Among these provisions are deductions for $250 of teachers' classroom expenses; state sales taxes in lieu of state income taxes; tuition and related expenses; and the direct charitable contribution of up to $100,000 of IRA assets for people 70½ and older. The deal would also extend for five years the American Opportunity Tax Credit; for many taxpayers this dollar-for-dollar credit is worth up to $2,500 and therefore the most valuable education benefit. And it would extend for five years the current versions of the Child Tax Credit and Earned Income Tax Credit.
Business Owners: A one-year extension of current "bonus" depreciation rules, which allow businesses to deduct up to 50% of the cost of a wide variety of property and equipment, excluding real estate.
For more 2013 Tax and Financial Planning go to www.JasonQuallsCFP.com