INCLINE VILLAGE, Nev. - Now that we don't have to put up with all of the "fiscal cliff" blather any more, it's time to size up some of the implications of the "American Taxpayer Relief Act of 2012.
Good and bad - For most folks, the 10, 15, 25, 28 and 33 percent tax brackets have been retained (permanently, until some future Congress decides they're just too low) for 2013, as does the 35 percent rate applicable to taxable income from the top end of the 33 percent bracket, up to a number somewhere around $398,000. Folks with income above this upper limit (and joint filers whose income tops $450,000) will not-so-fondly recall the Clinton era, when the top tax rate was first elevated to 39.6 percent, to which it returns now.
Good - The "marriage penalty" for income in the 15 percent bracket, which was set to return to the picture in 2013, has been halted.
Good and bad - The Bush era maximum 15 percent tax rate applicable to long term capital gains and most dividend income has been retained for most folks. The high earners will get clipped at 20 percent on these forms of income, starting in 2013. Another bad result in this regard will be the fact that installment payments received after 2012 will be subject to the new, higher rate, rather than the 15 percent rate which applied in the year of the original sale event.
Good - We won't have to sit around waiting for Congress to "patch" the alternative minimum tax (AMT) each year, to assure that more and more of us aren't sucked into AMT purgatory. The new law provides for annual (automatic) inflation adjustments to the AMT exemption amounts.
Bad - In another return to the bad old days of the Clinton administration, many folks' itemized deductions will be annually subjected to a "haircut" starting in 2013. (Obama likes this one - he had been lobbying for some way in which itemized deductions would not be allowed to produce the full tax benefit which a bloke's marginal tax rate would provide.)
Good - The uncertainty regarding the estate tax has finally been put to rest - the maximum tax rate has now been fixed at 40 percent, with an annually inflation adjusted $5 million exclusion for estates of decedents dying after December 31, 2012.
Good - The opportunity for folks to claim an itemized deduction for state and local sales taxes (instead of state and local income taxes) has been extended through 2013. Nevadans like this one.
Good - Cancellation of indebtedness has become a big problem in recent years - especially when such an event occurs with respect to one's principal residence (such as in a foreclosure or short sale). The new law extends for one year the provision which allows for exclusion from income cancellation of a principal residence mortgage of up to $2 million.
Good - The Internal Revenue Code Section 179 benefit has been extended through 2013, affording taxpayers the opportunity to immediately expense up to $500,000 of business property purchase cost, which otherwise would have to be depreciated over many future years. Similarly, the new law extends the "50 percent bonus depreciation" availability through 2013.
And in closing, does it rankle you as much as it does us that these politicians knew this "cliff" was on the horizon for 17 months, yet nonetheless, and despite all the hand-wringing, just couldn't get around to fixing the mess until after the December 31, 2012 deadline, as if that deadline didn't even exist at all???
What happened the last time you missed some deadline? Did IRS look the other way?
- CONSULT YOUR TAX ADVISER - This article contains general information about various tax matters. You should consult your CPA regarding the implications to your own particular situation. Jeff Quinn, the author of this article, is a shareholder in Ashley Quinn, CPAs and Consultants, Ltd., with offices in Incline Village and Reno. He can be reached at 831-7288, welcomes comments at firstname.lastname@example.org, and invites readers to consider his other commentary at http://blog.nolo.com/taxes.