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Fiscal Cliff Averted?

January 02, 2013

By Andrew S. Lattimer, CPA
Partner

As Americans woke the morning of January second it was learned that the House of Representatives had passed “The American Taxpayer Relief Act”.  Now the only thing left is for President Obama to sign and enact the bill into law, which he is expected to do.  After what feels like months of negotiations, the following major tax provisions will be enacted:

  • Increase in tax rates:
    • The income tax rate increases to 39.6% (up from 35%) for individuals making more than $400,000 a year ($450,000 for joint filers; $425,000 for heads of household);
    • Dividends and capital gains are taxed at 20% (up from 15%) for individuals making at least $400,000 ($450,000 for joint returns);
       
  • The two-percentage-point reduction in payroll taxes for FICA expired as of December 31, 2012 (4.2% to 6.2%);
     
  • The AMT Patch -- the higher exemption amount will be made permanent;
     
  • The Personal Exemption Phaseout (PEP), which had previously been suspended, is reinstated with a starting threshold of $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately;
     
  • The “Pease“ limitation on deductions, which had previously been suspended, is reinstated with a threshold of $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately;
      
  • Tax credits for businesses, including the Code Sec. 41 research credit and the Code Sec. 199 domestic production activities deduction, are generally extended through the end of 2013;
     
  • A number of individual tax provisions have been retroactively extended through 2013. In addition, there is a five-year extension of credits that were enhanced as part of the stimulus, including the college tuition credit, the Code Sec. 32 earned income tax credit and the Code Sec. 24 child tax credit;
     
  • Various energy credits are also extended.

Please contact Andrew Lattimer with additional questions, at alattimer@blumshapiro.com

Under U.S. Treasury Department guidelines, we hereby inform you that (1) any tax advice contained in this communication is not intended or written to be used, and cannot be used by you, for the purpose of avoiding penalties that may be imposed on you by the Internal Revenue Service (or state and local or other tax authorities), (2) no part of any tax advice contained in this communication is intended to be used, and cannot be used, by any party to promote, market or recommend any transaction or tax-related matter(s) addressed herein without the express and written consent of Blum, Shapiro & Company, P.C.

 

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