Off the Cliff Commentary About the New 2013 Tax Law

As predicted, Congress waited until the last minute to make a deal, technically after we plunged off the fiscal cliff to pass a new tax law. The new 2013 tax law, in summary, is below with some of our commentary:

• Raise the marginal tax rate to 39.6% on income over $450,000 (joint) and $400,000 (single).
• Raise the tax rate on dividends and long term capital gains to 20% on taxpayers with income over $450,000 (joint) and $400,000 (single).  The top rate would remain 15% for taxpayers with lower incomes.
• Estate and gift tax:  $5 million exemption (inflation-adjusted) and 40% rate (up from 35 percent).  The estate (and still linked gift tax lifetime) exemptions will remain at $5 million, but larger estates will pay more estate tax due to the rate increase.
• Permanent and retroactive patch for the AMT.  If we have to have an AMT, then it makes sense to adjust it for inflation like the rest of the income tax.
• Return of the exemption and itemized deduction phase-outs. This reinstates the phase-out of itemized deductions and personal exemptions for couples with incomes over $250,000 ($200,000 for singles), which is a small, progressive  tax increase, but it is also a complex way to add about 1 percentage point to tax rates in that income range.
• One-year extension of 50% bonus depreciation.
• Payroll taxes will go up by 2% due to the expiration of the payroll cut for economic stimulus. Apparently the economy no longer needs such stimulus.
• Extension of various tax extenders, including Child Tax Credit, Earned Income Tax Credit, American Opportunity Tax Credit, and renewable energy incentives.

Stay tuned!  Our law firm is carefully monitoring developments and the opportunities available for our clients.

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