Thursday, January 10, 2013

Big tax changes passed Jan 1, 2013, or not?

Congress pushed the limits of tax legislation this time.  Recent tax legislation was passed January 1, 2013 to avoid the "fiscal cliff".  The tax law includes significant laws effecting 2013. But it even includes tax laws effecting 2012; even though the year had already ended. I'd say "why bother", but there are actually some good things in there.

As far as tax changes; not so much. The American Tax Relief Act of 2012 (ATRA) primarily extends many of the deductions, credits and tax rates we are already used to. If you're looking for some great, new tax breaks, you won't find them. But you won't lose them either.  What you will get is a continuation of most of the great credits and deductions we've had.  The most popular of these are the child tax credit, American Opportunity Credit, and the expansion of the earned income credit to include a third child.  These credits have been extended through 2017.

Other items included in the new law are retroactive extensions of deductions that expired at the end of 2011.  Did you even miss them? You would have very soon. Had the law not been passed, you would have lost these deductions on the tax return you'll be filing in a few weeks.  These are extended through 2013 and include:
  • mortgage insurance premium deductions
  • teacher’s above-the-line deduction
  • state and local general sales taxes
  • tuition and related expenses deduction
You may have heard of the higher tax rates for "wealthy" Americans.  This is the most significant change, but it doesn't really effect most of us.  Tax brackets for income tax and rates for capital gains were scheduled to revert to higher levels on December 31, 2012.  The new tax law keeps the lower rates for everyone with income levels under:

MFJ  $450,000
MFS $225,000
Single $400,000
HOH  $425,000

Most significantly, the Alternative Minimum Tax (AMT) patch, was also reinstated for 2012.  Not only that, it has been made permanent!  Hooray!  Woo hoo! What, you're not cheering?  Long story, but suffice to say many taxpayers would be hit with this tax without the patch. The AMT is now permanently indexed to inflation.

Next time, a blog on my favorite "special provision" in the new tax law.

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