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BGBC: Understand how the new tax law affects you

January 30, 2013
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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.

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  1. Applause, applause, applause ..... but, is this duty to serve the constitutional order not much more incumbent upon the State, whose only aim is to be pure and unadulterated justice, than defense counsel, who is also charged with gaining a result for a client? I agree both are responsible, but it seems to me that the government attorneys bear a burden much heavier than defense counsel .... "“I note, much as we did in Mechling v. State, 16 N.E.3d 1015 (Ind. Ct. App. 2014), trans. denied, that the attorneys representing the State and the defendant are both officers of the court and have a responsibility to correct any obvious errors at the time they are committed."

  2. Do I have to hire an attorney to get co-guardianship of my brother? My father has guardianship and my older sister was his co-guardian until this Dec 2014 when she passed and my father was me to go on as the co-guardian, but funds are limit and we need to get this process taken care of quickly as our fathers health isn't the greatest. So please advise me if there is anyway to do this our self or if it requires a lawyer? Thank you

  3. I have been on this program while on parole from 2011-2013. No person should be forced mentally to share private details of their personal life with total strangers. Also giving permission for a mental therapist to report to your parole agent that your not participating in group therapy because you don't have the financial mean to be in the group therapy. I was personally singled out and sent back three times for not having money and also sent back within the six month when you aren't to be sent according to state law. I will work to het this INSOMM's removed from this state. I also had twelve or thirteen parole agents with a fifteen month period. Thanks for your time.

  4. Our nation produces very few jurists of the caliber of Justice DOUGLAS and his peers these days. Here is that great civil libertarian, who recognized government as both a blessing and, when corrupted by ideological interests, a curse: "Once the investigator has only the conscience of government as a guide, the conscience can become ‘ravenous,’ as Cromwell, bent on destroying Thomas More, said in Bolt, A Man For All Seasons (1960), p. 120. The First Amendment mirrors many episodes where men, harried and harassed by government, sought refuge in their conscience, as these lines of Thomas More show: ‘MORE: And when we stand before God, and you are sent to Paradise for doing according to your conscience, *575 and I am damned for not doing according to mine, will you come with me, for fellowship? ‘CRANMER: So those of us whose names are there are damned, Sir Thomas? ‘MORE: I don't know, Your Grace. I have no window to look into another man's conscience. I condemn no one. ‘CRANMER: Then the matter is capable of question? ‘MORE: Certainly. ‘CRANMER: But that you owe obedience to your King is not capable of question. So weigh a doubt against a certainty—and sign. ‘MORE: Some men think the Earth is round, others think it flat; it is a matter capable of question. But if it is flat, will the King's command make it round? And if it is round, will the King's command flatten it? No, I will not sign.’ Id., pp. 132—133. DOUGLAS THEN WROTE: Where government is the Big Brother,11 privacy gives way to surveillance. **909 But our commitment is otherwise. *576 By the First Amendment we have staked our security on freedom to promote a multiplicity of ideas, to associate at will with kindred spirits, and to defy governmental intrusion into these precincts" Gibson v. Florida Legislative Investigation Comm., 372 U.S. 539, 574-76, 83 S. Ct. 889, 908-09, 9 L. Ed. 2d 929 (1963) Mr. Justice DOUGLAS, concurring. I write: Happy Memorial Day to all -- God please bless our fallen who lived and died to preserve constitutional governance in our wonderful series of Republics. And God open the eyes of those government officials who denounce the constitutions of these Republics by arbitrary actions arising out capricious motives.

  5. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

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