Denha & Associates, PLLC http://www.denhalaw.com/?p=871 In a cruel twist of legislative wrestling, while the citizenry raced to complete year-end tax planning and complete year end gifts that were put off combined with the media frenzy of whether we were going off the “cliff”, Congress passed the “American Taxpayer Relief Act of 2012″ (“the 2012 Act”) on New Year’s Day. President Obama signed the 2012 Act into law on January 2, 2013. The new law has important – and mostly positive – consequences for the federal estate, gift and generation-skipping transfer (GST) taxes. Overall, the 2012 Act prevents tax-rate increases for the vast majority of taxpayers by making permanent many of the Bush-era tax breaks that had been scheduled to expire at the end of 2012. Higher-income taxpayers (defined in the 2012 Act as individuals with income above $400,000 or married couples with income above $450,000) will face significant tax increases through a combination of higher rates and limits on itemized deductions. Since the passage of the 2012 Act, much has been reported in this area so the following is a very brief table that shows the various income tax rates for 2013:
A Key point worth mentioning is that a “stealth tax” called the Pease provision was included as part of the 2012 Act. In effect, this sleight of hand increases tax liability without increasing tax rates. How? It operates as an income-based reduction in the amount of itemized deductions higher-income taxpayers can claim. Personal exemptions and itemized deductions will be phased out at new thresholds: $250,000 for single taxpayers and $300,000 for married taxpayers filing jointly. All in all, you will not be able to deduct all that you think you can!
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