Here are the key points of the new tax law agreed to by the Obama Administration and Congress.
- Married couples with income over $450,000 and singles with $400,000 of income will have a top tax rate of 39.6%.
- The next highest rate is 33%. All tax rates do not expire on a specific date.
- Deductions and exemptions start to phase out for married couples with $300,000+ of income. This makes the real top rate 41% and 34.2% for those in the 33% bracket.
- The Alternative Minimum Tax (AMT) now has a permanent patch. Increases to the $78,75o exemption are now tied to inflation, similar to Social Security benefits.
- The estate tax was raised to 40% but the $5,000,000 exemption for each spouse and transferability remain.
- Capital gains and dividends rates go up to 20%. Those with income above certain levels will also pay an additional 3.8% Health Care Tax to pay for Obama Care.
- Businesses will have additional tax breaks. Section 179 limit for expensing equipment is $500,000 for 2013. There is also a 50% bonus depreciation for new equipment.
- S corps that were converted from C corps will be allowed to waive the built in gains tax for assets sales completed in 2013.
- Pay roll taxes go back up to their normal 6.2%. They had been 2% lower for the past 3 years.
- State income taxes or local sales taxes can be deducted on your annual tax return.
- Up to $2 million of forgiven mortgage debt on a principal residence will not be taxable in 2013. This special provision was scheduled to expire on December 31st, 2012 but was brought back for one more year.
