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Reese Henry & Co

One Small Step, But No Giant Leap

Congress was able to do what it had failed to do for the last 15 months - reach a "fiscal cliff" deal that provides some sense of certainty to American taxpayers. The American Taxpayer Relief Act was signed into law by President Obama on January 2, 2013. We have outlined the highlights below. Please give us a call to discuss these or any other topics in greater detail.

Federal ordinary income tax rates
A higher tax rate of 39.6% has been added for couples with incomes over $450,000 ($400,000 single), up from the maximum rate of 35% in 2012. Ordinary income tax rates for individuals under these income thresholds remain unchanged.

Capital gains/qualified dividends
The tax rate on capital gains and dividends has increased to 20% for couples with incomes over $450,000 ($400,000 single). Capital gains and dividends will continue to be taxed at the preferential rate of 15% or less for couples with incomes under $450,000 ($400,000 single).

Estate and gift taxes
The estate and gift tax system is now permanently installed with a $5.12 million exemption per person that will be adjusted for inflation going forward. The top estate and gift tax rate increases effective 1/1/2013 from 35% to 40%.

The estate exemption is now permanently "portable" between spouses. Any unused estate tax exemption from the first spouse to die is available to the second to die.

Itemized Deduction Phase-Out
The "phase-out" of personal exemptions and itemized deductions has been reinstated couples with incomes over $300,000 and singles with incomes over $250,000 will now begin to "lose" some of their itemized deductions (e.g. Charitable Contributions, State and Local Tax Deductions, Mortgage Interest). The amount "lost" is calculated based on the excess of the adjusted gross income on the return that exceeds the $300k/$250k thresholds.

Alternative Minimum Tax
History: The Alternative Minimum Tax, enacted in 1982, limits the benefits from a variety of deductions. It was designed to ensure high income taxpayers pay at least a minimum amount of tax, requiring taxpayers to pay the AMT tax amount if it is higher than their regular tax amount.

New Law: The Alternative Minimum Tax exemption has been permanently set with inflation-adjusted increases to apply going forward and will continue to impact many of the same taxpayers it has over the past several years.

Capital Expenditures: Section 179 Expensing & 50% Bonus Depreciation
Section 179: Under the new law businesses may immediately expense up to $500,000 in qualifying capital expenditures in 2012 and 2013, subject to certain income and expenditure limitations.

50% Bonus Depreciation: The new law allows businesses to immediately expense 50% of qualifying capital expenditures in 2013.

Unfortunately, several issues were NOT addressed in this legislation:

Payroll Tax Increases
The 2% reduction of the Social Security tax withholding from all American employees' paychecks that had been in place for 2011 and 2012 has expired. So, every American that has wage income will see a decrease in their net pay as of 1/1/2013. For a person making $100,000 a year the increased tax equals $2,000 per year.

Health Care Tax (ObamaCare Surtax)
The highly-publicized 3.8% surtax on net investment income ($250,000 couples/$200,000 singles) remains in place effective 1/1/2013. The 0.9% additional Medicare tax on high wage earners ($250,000 couples/$200,000 singles) remains in place effective 1/1/2013.

We will undoubtedly continue to hear more debate about the spending side of the equation in the next 6-8 weeks. Please contact us to discuss how these tax law changes might affect you.

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Reese Henry & Company
Phone: 970.925.3771  |  Email:
Aspen Office: 400 East main Street Aspen, CO 81611
Carbondale Office: 0326 Hwy. 133, Suite 200 Carbondale, CO 81623

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