Tax Law Changes

Finally Congress has permanently addressed the alternative minimum tax issue and indexed the annual exemption limits for inflation, retroactive for 2012.

Capital gains and Qualified Dividend rates remain at 15% for individuals with income up to $400,000 and families up to $450,000. Capital gains and Dividends for income exceeding those limits would be taxed at 20%

Bonus Depreciation was extended for an additional year on new property and equipment

The $1,000 child tax credit, the enhanced earned income tax credit, and the $2,500 American Opportunity college tuition credit has been extended

Tax credits for research and development costs, renewable energy such as wind energy were extended for one year only

Income above $400,000 for individuals and $450,000 for couples will be taxes at a rate of 39.6%, up from 35%.

There is a phase-out of the personal exemption for individuals making more than $250,000 and couples making more than $300,000. The “Pease“ limitation on deductions, which had previously been suspended, is reinstated with a threshold of $300,000 for joint filers and a surviving spouse, $275,000 for heads of household, $250,000 for single filers, and $150,000 (one-half of the otherwise applicable amount for joint filers) for married taxpayers filing separately. Thus, 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 AGI exceeds the threshold amount, with the reduction not to exceed 80% of the otherwise allowable itemized deductions

There is a 5 year extension of direct charitable donations of up to $100,000 of IRA assets for people 70 1/2 or older.

The above the line deduction of up to $250 for teacher's classroom expenses was reinstated