ILNews

BGBC: Understand how the new tax law affects you

January 30, 2013
Keywords
Back to TopCommentsE-mailPrintBookmark and Share
Indiana Lawyer Commentary

By Howard I Gross, Steven W. Reed, Erika M. Gowan and Casey L. Higgs

As an attorney, your life is probably hectic with the many federal and state law changes that come your way on a daily basis. On Jan. 2, 2013, President Barack Obama signed into law the American Taxpayer Relief Act of 2012. The Act extends certain tax rates, tax credits and other provisions previously enacted by other tax legislation which were generally scheduled to expire after 2012.

We’ve compiled some key takeaways from the Act so you have a better understanding of how it affects your clients and you.

The major individual tax provisions are as follows:

• The income tax rate increases to 39.6 percent (up from 35 percent) for individuals making more than $400,000 a year ($450,000 for joint filers; $425,000 for heads of household);

• The two-percentage-point reduction in payroll taxes for Old Age, Survivors and Disability Insurance tax, commonly known as the Social Security tax, will be allowed to expire;

• The higher exemption amounts for alternative minimum tax — the so-called “patch” — are made permanent, resulting in an estimated 30 million taxpayers escaping being subject to the AMT;

• Dividends and capital gains are taxed at 20 percent (up from 15 percent) for individuals making at least $400,000 ($450,000 for joint returns);

• The Personal Exemption Phase-Out, which had previously been suspended, is reinstated with a starting 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 for married taxpayers filing separately. Under the phase-out, the total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2 percent for each $2,500 (or portion thereof) by which the taxpayer’s adjusted gross income exceeds the applicable threshold;

• The limitation on itemized 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 percent of the amount by which the taxpayer’s adjusted gross income exceeds the threshold amount, with the reduction not to exceed 80 percent of the otherwise allowable itemized deductions;

• For estate, gift and generation-skipping transfer tax purposes, for individuals dying and gifts made after 2012, there is a $5 million exemption (adjusted for inflation), and the top estate, gift and GST rate is permanently increased from 35 percent to 40 percent; and

• A number of individual tax provisions have been retroactively extended through 2013. In addition, there is a five-year extension of credits that were enhanced as part of the stimulus, including the college tuition credit, the earned income tax credit and the child tax credit.

The major business tax provisions are as follows:

• Tax credits for businesses, including the research credit and the domestic production activities deduction, are generally extended through the end of 2013;

• The increased expensing limitations and treatment of certain real property as Code Sec. 179 property is retroactively extended by the Act through Dec. 31, 2013. The 2012 and 2013 maximum deduction is $500,000 with a phase-out starting at $2 million total asset purchases;

• The 15-year straight-line cost recovery period for qualified leasehold improvements was retroactively extended for 2012 and 2013. This includes improvements for qualified leasehold improvements, restaurant and retail improvements, and new buildings established by Dec. 31, 2013;

• The Act also extends and modifies the bonus depreciation provisions with respect to property placed in service after Dec. 31, 2012. For 2012 and 2013, bonus depreciation will be 50 percent of qualified asset acquisition costs for new, not used, assets;

• The Work Opportunity Tax Credit is extended for 2012 and 2013. This allows businesses a credit equal to 40 percent of the first $6,000 in wages paid to qualified new hires; and

• The New Markets Tax Credit is extended for 2012 and 2013. This allows businesses a credit of up to 39 percent of investments in low-income communities. The credit is spread over seven years with a cap of $3.5 billion each year.

Considering the above tax changes, anticipated additional tax law changes in 2013, and the provisions of the Affordable Care Act, 2013 is shaping up to be a year that proper tax planning should be a priority and can have a significant impact on how much you pay to the U.S. Department of Treasury.

Not knowing the tax rules and not planning ahead can be very detrimental to you. The time to act is now.•

__________

Howard I Gross, CPA/ABV/CFF, CFP; Steven W. Reed, CPA/ABV; Erika M. Gowan, CPA/CFF, CFE; and Casey L. Higgs, CPA/CFF, CFE, CVA are with BGBC Partners, LLP – Litigation, Forensic and Business Valuation. Contact BGBC at 317-633-4700 or visit www.bgbc.com. The opinions expressed are those of the authors.

ADVERTISEMENT

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. What a fine article, thank you! I can testify firsthand and by detailed legal reports (at end of this note) as to the dire consequences of rejecting this truth from the fine article above: "The inclusion and expansion of this right [to jury] in Indiana’s Constitution is a clear reflection of our state’s intention to emphasize the importance of every Hoosier’s right to make their case in front of a jury of their peers." Over $20? Every Hoosier? Well then how about when your very vocation is on the line? How about instead of a jury of peers, one faces a bevy of political appointees, mini-czars, who care less about due process of the law than the real czars did? Instead of trial by jury, trial by ideological ordeal run by Orwellian agents? Well that is built into more than a few administrative law committees of the Ind S.Ct., and it is now being weaponized, as is revealed in articles posted at this ezine, to root out post moderns heresies like refusal to stand and pledge allegiance to all things politically correct. My career was burned at the stake for not so saluting, but I think I was just one of the early logs. Due, at least in part, to the removal of the jury from bar admission and bar discipline cases, many more fires will soon be lit. Perhaps one awaits you, dear heretic? Oh, at that Ind. article 12 plank about a remedy at law for every damage done ... ah, well, the founders evidently meant only for those damages done not by the government itself, rabid statists that they were. (Yes, that was sarcasm.) My written reports available here: Denied petition for cert (this time around): http://tinyurl.com/zdmawmw Denied petition for cert (from the 2009 denial and five year banishment): http://tinyurl.com/zcypybh Related, not written by me: Amicus brief: http://tinyurl.com/hvh7qgp

  2. Justice has finally been served. So glad that Dr. Ley can finally sleep peacefully at night knowing the truth has finally come to the surface.

  3. While this right is guaranteed by our Constitution, it has in recent years been hampered by insurance companies, i.e.; the practice of the plaintiff's own insurance company intervening in an action and filing a lien against any proceeds paid to their insured. In essence, causing an additional financial hurdle for a plaintiff to overcome at trial in terms of overall award. In a very real sense an injured party in exercise of their right to trial by jury may be the only party in a cause that would end up with zero compensation.

  4. Why in the world would someone need a person to correct a transcript when a realtime court reporter could provide them with a transcript (rough draft) immediately?

  5. This article proved very enlightening. Right ahead of sitting the LSAT for the first time, I felt a sense of relief that a score of 141 was admitted to an Indiana Law School and did well under unique circumstances. While my GPA is currently 3.91 I fear standardized testing and hope that I too will get a good enough grade for acceptance here at home. Thanks so much for this informative post.

ADVERTISEMENT