American Taxpayer
Relief Act of 2012
John Kilroy, CPA, CFP®
January 23, 2013
Agenda
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Estate, Gift and GST provisions
Individual Income Tax provisions
Trust and Estate Income Tax provisions
Business Income Tax provisions
Other Tax Law Changes Taking Effect in 2013
Are We Done With the Cliff?
Estate, Gift and GST provisions
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Sunset repeal
“Permanent” extension of exemption at $5 million (adjusted for inflation) –
Estate and Gift; GST
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Tax rate above the exemption
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2012 $5.12 million ($10.24 million per married couple)
2013 $5.25 million ($10.5 million per married couple)
“Clawback” moot – yea!!!
2012 35%
2013 “permanent” change to 40% (this may be the only “change” in the law)
Portability between spouses extended (Estate and Gift)
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Deceased Spousal Unused Exclusion Amount (DSUEA) clarified
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Election on timely filed return required
DSUEA used “first”
 Only from last deceased spouse
State Death Tax deduction continues
Individual Income Tax provisions
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Sunset Repeal
“Permanent” Rate Changes (Taxable Income)
Rate
2012 (MFJ)
2013 (MFJ)
estimate*
10%
$0 - $17,400
$0 - $17,850
15%
$17,401 - $70,700
$17,851 - $72,500
25%
$70,701 - $142,700
$72,501 - $146,400
28%
$142,701 – 217,450
$146,401 - $223,050
33%
$217,451 - $388,350
$223,051 - $398,350
35%
$388,350 +
$398,351 - $450,000
39.6%
N/A
*Commerce Clearing
House
$450,001 +
Marriage
Penalty
Relief
Inflation
Adjustment
After 2013
Individual Income Tax provisions
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Qualified Dividend Income (QDI)
Long Term Capital Gain (Investment Assets)
Marginal Tax
Bracket
2012
2013
10%
0%
0%
15%
0%
0%
25%
15%
15%
28%
15%
15%
33%
15%
15%
35%
15%
15%
39.6%
N/A
20%
Be careful:
AMT Considerations
may increase actual cost
to possibly 22%
Stealth features return
•Phaseout of Itemized
Deductions
•Phaseout of Personal
exemptions
Individual Income Tax provisions
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Return of Pease limitation
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Itemized Deduction Phaseout
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Excludes Medical Expenses; Investment Interest Expense;
Casualty and Theft Losses; Gambling Losses
3% of AGI above threshold, not to exceed 80% of
itemized deductions
 2013 threshold (inflation adjustment after 2013)
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MFJ and QW $300,000
 HH $275,000
 Single $250,000
 MFS $150,000
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Not applicable to AMT
Individual Income Tax provisions
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Return of Personal Exemption Phaseout (PEP)
2% of exemption phases out for each $2,500 of
AGI ($1,250 for MFS) above threshold
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2013 threshold (inflation adjustment after 2013)
MFJ and QW $300,000
 HH $275,000
 Single $250,000
 MFS $150,000
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Remember - No personal exemption allowed for
AMT
Mr. and Mrs. Cliff
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MFJ – each 60 in 2012, 2 exemptions, PA
residents
Anderson has $200,000 wages and $200,000
pension
Kathy has $100,000 wages
$25,000 QDI and $5,000 Non-QDI
$30,000 active rental real estate income
$40,000 in cash charitable contributions
Pay all PA state income tax in the current year
$12,000 real estate tax on their home
The Cliffs 2012 vs. 2013
2012
2013
AGI
$560,000
$560,000
Itemized Deductions
(63,052)
(55,252)
Personal Exemptions
(7,600)
0
Taxable Income
489,348
504,748
Regular Tax
135,411
142,626*
AMT
3,439
0
Medicare Surtax
0
2,730
Payroll Tax Holiday
0
4,274
Total Tax
138,850
149,630
*Based on Commerce
Clearing House projected
2013 tax rates
Individual Income Tax provisions – AMT Patch
2012 married filing jointly taxpayers:
Marginal rates
AMT
Regular
<$78,750
0%
0%–25%
$78,751–$150,000
26%
25%–28%
$150,001–$233,000
32.5%
28%–33%
$233,001–$465,000
35%
33%-35%
>$465,000
28%
35%
Source: IRS, www.irs.gov
Individual Income Tax provisions – AMT Patch
2013 married filing jointly taxpayers:
Marginal rates
AMT
Regular
<$80,750*
0%
0%–25%
$80,751–$150,000
26%
25%–28%
$150,001–$234,900**
32.5%
28%–33%
$234,901**–$473,000
35%
33%-39.6%
>$473,000
28%
39.6%
Source: *Commerce Clearing House estimate
** estimate
Individual Income Tax provisions
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Extenders through 2013
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Above the line deductions:
Up to $4,000 qualified tuition and expenses
 Up to $250 out of pocket teacher expenses
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Below the line deductions:
State and Local sales tax (in lieu of income tax)
 Qualified mortgage insurance premium
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Exclusions:
Transit and parking fringe benefit
 Principal residence debt forgiveness (reduces basis)
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$500 lifetime Energy Credit
Individual Income Tax provisions
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Qualified Charitable Distribution (QCD) from IRA
Extended through 2013
 Same rules for qualification
 Options for 2012 QCD:
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Actual QCD 1/1 – 11/30/12
 QCD from IRA in January 2013
 IRA distribution in December 2012 can be given to charity by
1/31/13
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Presumably to be disclosed on 2012 1040
“QCD” on line 15 of 1040; No 1099R Code for QCD
Payroll Tax Holiday expires – return to 6.2%
employee portion of OASDI in 2013
Individual Income Tax provisions
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Extended through 2017:
Earned Income Tax Credit
 American Opportunity Tax Credit
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$2,500 maximum; 40% refundable
Enhanced Child Tax Credit
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Lower earnings threshold ($3,000) increases opportunity
for credit
Individual Income Tax provisions
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“Permanent” extensions:
Child Tax Credit
 Adoption Credit/Exclusion for Reimbursed
Adoption Expenses
 Child and Dependent Care Credit
 Student Loan Interest above the line deduction
 Coverdell ESA
 Employer Provided Education Assistance
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Trust and Estate Income Tax
Provisions
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Rates:
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2012
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15%, 25%, 28%, 33%, 35%
2013 “Permanent”
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15%, 25%, 28%, 33%, 39.6%
Business Tax Provisions
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Extension of a host of tax credits through 2013
Extension of immediate deduction opportunities
for qualifying property through 2013
50% Bonus depreciation
 $500,000 Section 179 expense
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Extension of shorter depreciation period (15 yrs.)
for qualified leasehold/retail improvements;
qualified restaurant property
Extends 100% exclusion for Qualified Small
Business Stock acquired through 12/31/13
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C Corp held five years
Business Tax Provisions
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Expansion of In Plan Roth Conversions
Removes requirement to otherwise be eligible to take
a distribution from a qualified plan
 Qualified Plan must have:
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Roth feature
 In Plan Roth Conversion option
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Remember – In Plan Roth Conversion cannot be
recharacterized
Other Tax Law Changes Taking
Effect in 2013
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Medicare Surtax
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3.8% on Net Investment Income
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Above MAGI threshold ($200,000/$250,000)
0.9% on Earned Income
Above Earned Income threshold ($200,000/250,000)
 Includes Self Employment Income
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No above the line deduction for 0.9% tax
Surtax is added to greater of regular tax or AMT
FSA Health - $2,500 maximum
Medical Expense AGI floor increased to 10%
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65 and older retain 7.5% floor until 2016
Are We Done With the Cliff?
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Politics aside:
Debt Ceiling
 Sequestration
 Budget
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Other tax possibilities:
Itemized deductions (bucket; cap; rate)
 AMT reform
 Carried Interest
 Corporate Income Tax - May see more C Corp
 Estate and Gift Issues
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GRATs; Grantor Trusts; Discounts