Impending individual tax law changes for 2013

By on Oct 10, 2012 in Uncategorized | 0 comments

Many key
federal tax rules affecting individuals will “sunset” at the end of 2012 unless
Congress acts otherwise to extend or permanently enact those provisions. As
year-end is approaching quickly, it is wise to
be aware of what to expect in 2013, absentfurther legislation.

Key tax law
changes affecting individuals beginning in 2013 if prior laws’ sunsets go into

  • Ordinary
    income-tax brackets
     – The 10% bracket goes away, with the lowest bracket
    being 15%. The size of the 15% bracket for married individuals
    filing a joint return will be less (167%) than twice the size of the 15%
    bracket for individual filers, as it is currently. The top four brackets rise from 25%, 28%, 33%, and
    35% to 28%, 31%, 36%, and 39.6%, respectively.
  • Taxation
    of capital gains and qualified dividends
     – Generally, long-term capital
    gains will be taxed at a maximum rate of 20%, an increase from 15%, for higher
    bracket taxpayers. A 10% rate applies to individuals
    in the 15% tax bracket. Qualified dividends will be taxed at ordinary income-tax
    rates (up to 39.6%), as opposed to receiving capital gain treatment, as under
    current law.
  • Reduction
    in itemized deductions
     – For higher income individuals, most itemized
    deductions will be reduced by 3% of adjusted gross income (AGI) above an
    Inflation-adjusted threshold. Reduction cannot exceed 80% of the amount of itemized deductions otherwise allowable.
  • Phaseout
    of personal exemptions 
    – Higher income taxpayers’ personal exemptions will
    be phased out by a certain percentage when AGI exceeds a certain
    inflation-adjusted threshold.
  • Coverdell
    Education Savings Accounts (formerly
    Education IRAs) 
    – Maximum allowable annual per-beneficiary contribution
    will drop to $500 (from $2,000). Many other adverse changes will apply, including a
    reduced phaseout range for joint filers
  • Student
    loan interest deduction 
    – This above-the-line deduction will apply only to
    interest paid during the first 60 months in which interest payments are
  • Child tax
    – The maximum allowable credit will drop from $1,000 to $500, and
    the credit will not be allowed as an offset against the alternative minimum tax.
  • Dependent
    care credit 
    – Tax credit for allowable household and dependent care
    expenses will drop from $3,000 (for one qualifying individual) and $6,000 (for two or more) to
    $2,400 and $4,800, respectively. Also, the maximum percentage credit will drop
    from 35% to 30%, and the AGI-based percentage reduction will begin at $10,000
    instead of $15,000.
  • Earned
    income tax credit (EITC)
     – Multiple changes will include a reduced EITC for
    eligible taxpayers with three or more children and lower threshold phaseout
    amounts for individuals, surviving spouses, and heads of households.
  • Estate-,
    gift-, and generation-skipping transfer
    (GST) taxes – 
    The top rate will increase to 55% (plus a 5% estate-tax surtax on certain estates), from 35% currently.  The unified gift-
    and estate-tax credit exemption amount and GST exemption amount will be
    reduced to $1 million (plus an inflation adjustment, from $5.12 million currently).

These are just some of the tax law provisions
that are scheduled to change. Contact us for more information.