posted Oct 22, 2012, 10:18 AM by John Hicks
Without congressional action, most of the tax rate reductions and
exemptions enacted since the Economic Growth and Tax Relief
Reconciliation Act of 2001 will expire. Consider the following examples
of the changes that will occur at year-end if no action is taken: - Individual
income tax rates will increase with the expiration of the changes made
by the Economic Growth and Tax Relief Reconciliation Act of 2001 and the
Jobs and Growth Tax Relief Reconciliation Act of 2003;
- The Federal estate tax exemption will revert from $5,120,000 to $1,000,000 per
person. In addition, tax rates will increase to a maximum of 55% and the
election to use a deceased spouse’s unused exclusion from estate tax
will expire;
- For married couples filing joint tax returns
and qualifying widows and widowers, the alternative minimum tax
exemption will revert from $74,450 to $45,000;
- An
additional 2% tax on self-employment income will occur due to the
expiration of the Social Security tax relief enacted with passage of the
Middle Class Tax Relief and Job Creation Act of 2012;
- The
option to fully expense the purchase of fixed assets (i.e. bonus
depreciation) under Internal Revenue Code (IRC) section 168(k) will
expire;
- IRC section 179 deduction will be reduced from a
maximum of $139,000 to $25,000 and the phase-out threshold will be
reduced from $560,000 to $200,000; and,
- Many temporarily
extended tax provisions will expire December 31, 2012, including but not
limited to the increased dependent care credit, refundable credit for
prior year minimum tax liability and exclusion from gross income for
discharge of indebtedness on the principal residence.
In
addition to expiring tax provisions, as a result of passage of the
Patient Protection and Affordable Care Act and the Health Care and
Education Reconciliation Act of 2010, the Medicare tax rate will change.
For example, the Medicare tax rate on earned income exceeding $200,000
($250,000 for couples filing a joint income tax return) will increase
from 1.45% to 2.35%. In addition, net investment income will generally
be subject to a 3.8% additional tax to the extent AGI exceeds $200,000
($250,000 for couples filing a joint tax return) effective January 1,
2013. |
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