By: Lori T. Williams, Owner/Managing Attorney of Your Legal Resource, PLLC
Many business owners and individual tax payers are wondering what did happen and didn’t happen as a result of averting the “Fiscal Cliff”, and President Obama signing the American Taxpayer Relief Act (ATRA) into law on January 2, 2013.
If you are wondering “How do these laws affect me and my business?”, the following information may help you.
Attorney Terri L. Giampetroni, Owner of Legal Strategies, PC in Clinton Township, MI shares her insights about how the new tax laws affect your Estate.
What Do New Estate Tax Laws Mean for You?
The American Taxpayer Relief Act (“ATRA”), makes permanent the 2010 temporary rules regarding federal estate taxes, gift taxes and generation-skipping taxes.
How Does It Work?
Under ATRA, the federal estate tax exemption is $5.25 million for 2013 and will be indexed for inflation going forward. The top estate tax has increased from 35% to 40% on those estates that exceed the exemption amount. The lifetime gift tax exemption and the generation-skipping tax exemption are also $5.25 million for 2013 and both will also be indexed for inflation.
The Fine Print
ATRA also makes permanent the “portability” of the federal estate tax exemption for married couples. This means that in 2013, a married couple can pass on a total of $10.5 million to their heirs, free from all federal estate taxes.
PLEASE NOTE that the surviving spouse will be required to file with the IRS in order take advantage of a deceased spouse’s unused estate tax exemption. If the IRS form is not filed, the unused exemption will be lost.
Also PLEASE NOTE that the generation-skipping tax exemption is NOT portable.
As for avoiding the ‘Fiscal Cliff” and what this means to you, our friends at Gordon Advisors in Troy, MI, summarize the tax changes that impact you, your family and/or your business.
PERSONAL TAX PROVISIONS:
Tax Rates
The income tax rates for individuals will stay at 10%, 15%, 25%, 28%, 33% and 35%, but now a 39.6% rate applies for income above $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately.
Capital Gain and Dividend Rates
The top rate for capital gains and dividends permanently rises to 20% for taxpayers with incomes exceeding $400,000 ($450,000 for married taxpayers). When combined with the new 3.8% Medicare surtax on investment income, the overall rate for higher-income taxpayers will be 23.8%.
Estate and Gift Tax
The Act permanently increases the top estate, gift and generation-skipping-transfer (GST) rate from 35% to 40% for individuals dying and gifts made after 2012. The exemption level will be permanently kept at $5,000,000 (indexed for inflation).
AMT Relief
Retroactively effective for tax years beginning after 2011, the Act permanently increases the Alternative Minimum Tax (AMT) exemption amounts (and indexes for inflation) to $50,600 for unmarried taxpayers, $78,750 for joint filers and $39,375 for married persons filing separately.
PEP Limitations
The Personal Exemption Phaseout (PEP) is reinstated with a starting threshold for those making $300,000 for joint filers and a surviving spouse; $275,000 for heads of household; $250,000 for single filers; and $150,000 for married taxpayers filing separately. The total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 by which the taxpayer’s AGI exceeds the applicable threshold.
Pease Limitations
The “Pease” limitation on itemized deductions is reinstated with starting thresholds that are the same as the PEP listed above. For taxpayers subject to the “Pease” limitation, the total amount of their itemized deductions is reduced by 3% of the amount by which the taxpayer’s adjusted gross income (AGI) exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions.
Pension Provision
Plan provisions in an applicable retirement plan can allow participants to elect to transfer amounts to designated Roth accounts with the transfer being treated as a taxable qualified rollover contribution under Code Sec. 408A(e).
BUSINESS TAX PROVISIONS:
There were numerous business-specific extensions, but the extensions applicable to most businesses are:
- Extension and modification of bonus depreciation.
- Extension of increased expensing limitations and treatment of certain real property as section 179 property.
- Extension and modification of research credit.
- Other Extensions
The Act contains a considerable list of additional extensions, including:
- Individual Tax
- Business Tax
- Energy Tax
- Unemployment Extensions
- Medicare and Health Extensions
- Agricultural Programs
- Child care and tuition credits.
For additional information go to the American Taxpayer Relief Act, CCH Tax Briefing Special Report, Legal Strategies, PC, or Gordon Advisors, PC.
If you need a referral to an attorney or an accountant, Your Legal Resource, PLLC can help.
