2013: A Tax-Paying Oddity

The “Fiscal Cliff” was narrowly averted, as the last act of the 112^th Congress was to approve a modern day HAL 9000, the American Taxpayer Relief Act of 2012. While it does not actually provide much relief, the 157 page House Resolution 8 (as amended by the Senate) does include a “patch” for the Alternative Minimum Tax, or AMT. Without this patch, 60 million taxpayers making $33,750 (single) and $45,000 (married filing joint) per year or more would have been subject to a massive tax hike. The new exemption amounts of $50,600 S/$78,750 MFJ create a haven for many, but if you reside in an area where the median income is higher than that, you can count on the AMT affecting you. Congress kicked the proverbial can down the road on this one for more than ten years now, as a new patch was needed each year because it was never indexed for inflation. That problem has now been fixed, as HR 8 also includes a permanent index for inflation. There is some discussion regarding elimination of the AMT as the 113^th Congress will more than likely attempt to tackle tax reform.

Every person will pay more in taxes for Social Security beginning this year as HR 8 does not extend the 2% reduction we have enjoyed since 2010. This means you will pay $1,000 more per year for every $50,000 of income, up to the $113,700 base. The Estate and Gift Tax Rate is set at a high 40% (with a $5 million exclusion), but considering the alternative 55% if the Act wasn’t passed, it’s a relief. Among many other provisions, the top capital gains rate is raised from 15% to 20% on those with incomes of $400,000 single/$425,000 head of household/$450,000 married filing joint. Everyone from there down to $72,500 MFJ/$36,750 S will stay at 15% maximum, and those below that keep their ZERO rate. It’s pretty sweet if you don’t make much money, but generally most singles making under $36K do not have much invested to produce major capital gains.

The American Taxpayer Relief Act of 2012 will certainly take some time to digest, as the IRS updates its software, publications, and forms to comply. There also still remains the possibility of delayed tax filing for many taxpayers until mid-February, as what happened in 2011. In all, the legislation is typical in that it has its good and bad points which will be meted out in the near future. Discuss your financial position with a Certified Public Accountant today, and identify any malfunctions and upgrades you should make.