Bush Tax Cuts Set to Expire
Everyone will pay more in taxes if the Bush Tax Cuts are left to expire at the end of 2012. Some changes will be subtle and others will be very dramatic. All of this depends on where you fall into the tax code.
The Bush tax cuts were passed in 2001 as the Economic Growth and Recovery Tax Act. This was in response to a beginning of a recession and 9/11. The cuts increased the child tax credit from $500 per child to $1000, the standard deduction for married couples was increase to eliminate the marriage penalty, contribution limits for savings plans were increased, and tax rates were lowered.
Later in 2003, The Jobs and Growth Tax Relief Act of 2003 added tax cuts to dividends and capital gain. The impact of the Bush Tax Cuts saved the country from a recession and allowed us to work past 9/11.
Tax Rates Before & After Expiration of Tax Cuts
|Single filers||Married filing jointly or qualifying widow/widower||Married filing separately||Head of household||2011Tax Rate||2013Tax Rate|
|Up to $8,500||Up to $17,000||Up to $8,500||Up to $12,150||10%||15%|
|$8,501- $34,500||$17,001- $69,000||$8,501- $34,500||$12,151- $46,250||15%||15%|
|$34,501- $83,600||$69,001- $139,350||$34,501- $69,675||$46,251- $119,400||25%||28%|
|$83,601- $174,400||$139,351- $212,300||$69,676- $106,150||$119,401- $193,350||28%||31%|
|$174,401- $379,150||$212,301- $379,150||$106,151- $189,575||$193,351- $379,150||33%||36%|
|$379,151 or more||$379,151 or more||$189,576 or more||$379,151 or more||35%||39.6%|
What should you expect for 2013? As you can see from the Tax Bracket Chart above we will be paying more income taxes.
Dividend Tax Rates. Dividend tax rates were also cut, and the current tax rate on dividends is 15%. If Congress makes no additional policy changes this year, dividend rates will revert your ordinary tax rates listed above. Long Term Capital Gains rates are also at 15% now. These will increase to 20%.
What else? The current child tax credit of $1,000 will be reduced to $500; the standard deduction will be lowered for married couples, and limits will be placed on savings plans.
Other increases in your taxes will be derived from the new tax law changes that take affect at the end of the year. Currently medical expenses can be deducted as an itemized deduction. Total medical expenses, doctor visits, co-pays and dental can be deducted if they exceed 7 ½% of adjusted gross income. The new change in 2013 will raise this limit to 10% of adjusted gross income. For example, your adjusted gross income was $100,000 for 2012 this means you would have to exceed $7,500 in medical expenses to add to itemized expenses. After 2012 with the same adjusted income you will now have to exceed $10,000 before you can include any medical expenses as part of your itemized expenses.
Lastly, is alternative minimum tax. More people will fall into AMT if congress does not extend the threshold amounts. Once you fall into AMT everything changes for a tax payer. Itemized deductions, exemptions, and credits become limited.
What actions should you take? Schedule a meeting with Fredrick James Accounting for a tax forecast for 2012. Let us help you to lessen the impact of these expiring tax cuts and other tax changes by planning ahead!
The Bush era Tax Cuts were not designed to last forever, be prepared to pay more in taxes 2013.
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