The American Taxpayer Relief Act - How It Applies To Individuals & How It Applies To Businesses

Dave Erb and Karen Baksa for BerryDunn write: On January 2, President Obama signed the "American Taxpayer Relief Act of 2012" (ATRA) into law.  The law averted the so-called "Fiscal Cliff" and prevented the expiration of many of the tax provisions put in place during the Bush administration. Here is a summary of some of the changes included in the new tax law that may affect you:

INDIVIDUALS

• Income tax rates for most individuals will remain unchanged. However, a 39.6% rate will apply to high-income taxpayers with income above a threshold of $450,000 for joint filers and surviving spouses; $425,000 for heads of household; $400,000 for single filers; and $225,000 for married taxpayers filing separately. 
• Tax on capital gains and dividends has changed for years beginning after 2012. The tax rate will be 20% for taxpayers with income above the thresholds defined above and will be 15% for others (0% for taxpayers in tax brackets below 25%.) In addition, the 3.8% investment surtax will apply to individuals with modified adjusted gross income (MAGI) in excess of $250,000 for joint filers ($200,000 for single and head of household). Note that the threshold triggering the 3.8% remains the same as it did before January 1—and it is lower than the income tax rate thresholds mentioned above.
• Marriage penalty relief has been reinstated. The size of the 15% tax bracket for joint filers and qualified surviving spouses remains at 200% of the 15% tax bracket for individual filers.
• Personal exemptions did not phase out, except for higher-income taxpayers. The starting threshold for phase-out is $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.
• The "Pease" limitation on itemized deductions has been reinstated for 2013. Certain itemized deductions are reduced by 3% of the amount by which the taxpayer's adjusted gross income exceeds the same thresholds used for the personal exemption phase-out.
• The Alternative Minimum Tax relief has been extended and made permanent. The AMT exemption amounts have been increased and will be indexed for inflation.
• For estates of decedents dying after December 31, 2012, the maximum federal estate tax rate increases to 40% with a $5 million exclusion that will be adjusted annually for inflation. "Portability" between spouses has been made permanent.
• The exclusion for discharged home mortgage debt has been extended for one year through 2013.
• The treatment of mortgage insurance premiums as deductible qualified residence interest has been reinstated and extended through 2013.
• The state and local sales tax deduction has been reinstated and extended through 2013. This deduction is in lieu of state and local income taxes.
• The American Opportunity Tax Credit for qualified tuition and related expenses has been extended for five years.
• The above-the-line deduction for higher education expenses has been reinstated and extended so it can be claimed for tax years beginning before Janurary 1, 2014. 
• The provision to allow nontaxable IRA transfers up to $100,000 to eligible charities has been reinstated and extended for two years so that it's available for charitable IRA transfers made in tax years beginning before January 1, 2014. Two tax elections are available to allow the retroactive application of this provision to 2012; however, you must act before the end of January 2013.

BUSINESSES

On January 2, President Obama signed the "American Taxpayer Relief Act of 2012" (ATRA) into law. The law averted the so-called "Fiscal Cliff" and prevented the expiration of many of the tax provisions put in place during the Bush administration. Here is a summary of some of the changes included in the new tax law that may apply to your business:

• Bonus first-year depreciation has been extended for one year. The new law extends the 50% first-year bonus depreciation allowable for qualified property placed in service before January 1, 2014. In addition, the rules treating qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property as 15-year property have also been extended through 2013.
• Section 179 expensing amounts have been increased for 2012 and 2013 to $500,000. The cap on eligible purchases has been increased to $2,000,000. An extension has been granted to allow up to $250,000 of qualified leasehold improvement property, qualified restaurant property, and qualified retail improvement property, to be eligible for expensing under code Section 179.
• The allowable increase in first-year deprecation for autos and trucks of $8,000 has been extended through 2013.
• The Work Opportunity Tax Credit has been extended through 2013.
• The Research Credit has been reinstated for 2012 and has been extended so that it applies for amounts paid or accrued before January 1, 2014.
• Permanently extends the exclusion from income and employment taxes of employer-provided education assistance up to $5,250.
• The exclusion of 100% of gain from the disposition of qualified small business stock has been extended to include qualified stock acquired after September 27, 2010 and before January 1, 2014.