TAX TIPS for 2013

Fact Sheet on Fiscal Cliff Agreement

After two years of party wrangling, Congress has passed and President Obama has signed a permanent extension of the Bush-era tax breaks for individuals with annual incomes up to $400,000 and couples with annual incomes up to $450,000. Here is a look at the highlights of the new law.

Small Business Tax Breaks


Business Equipment Write-off: Retroactively increases 2012 maximum expensing amount from $139,000 to $500,000 and extends this amount through 2013. It also reinstates the $250,000 write-off of qualified real property improvements.

Bonus Depreciation: Extends for one year, into 2013, accelerated “bonus”depreciation of business investments in new property and equipment tax deductions.

Individual Breaks


Income Tax Rates: Rates remain the same for couples with taxable annual incomes under $450,000. Those with over $450,000 will see their top rate go from 35% to 39.6%.

Dividends and Capital Gains: The maximum rate remains at 15%, except for joint filers making more than $450,000. That maximum rate will be 20%. The President had proposed a top rate of 39.6% for dividends prior to the agreement.

Estate Tax: The amount of an estate exempt from the tax remains at $5 million for individual estates and $10 for family estates. The maximum tax rate increases from 35% to 40%. The sharing of unused exemption amounts between spouses is also still alive. Personal Exemptions and Itemized Deductions:The personal exemption and itemized deductions will be reduced for families earning more than $300,000.

Alternative Minimum Tax (AMT): The law provides a permanent patch to keep more Americans from being subject to the increased tax level, and indexes it for inflation. The change prevents a tax increase that would have affected an estimated 30 million additional taxpayers.

Unemployment Benefits: Unemployment benefits for the long-term unemployed are extended through 2013.

Tax Credits: A five-year extension of tax credits was given to the child tax credit, earned Income tax credit and the college tuition tax credit.

Medicare Doc fix: A 27% reduction in payments to Medicare providers is postponed for 2013.

Automatic Across-the-Board Spending Cuts: The sequester of funds will be delayed by two months and replaced with new half revenues and half targeted spending cuts.

Other Breaks: Deductions for educator supplies, sales tax, college tuition and exclusion for home mortgage debt forgiveness were retroactively included in the new law.

Tax Increase

Payroll Tax: The temporary 2% cut to the employee payroll tax rate was not renewed.

William A. Robinson, III, CPA