With recent voter approval of CA proposition 30, the tax increases included in Obamacare, and the looming expiration of the Bush-era tax cuts both scheduled for January 1, 2013, we have presented below a summary of the changes in the tax code that will surely have an impact on you.
| Federal | 2012 provisions | 2013 provisions |
|
Lifetime estate and gift tax exemptions per individual |
$5.12 million |
$1 million |
|
Generation-skipping tax exemption amount |
$5.12 million |
$1.43 million |
|
Annual estate and gift tax exclusions per individual |
$13,000 |
$14,000 |
|
Maximum estate tax rate |
35% |
Up to 55% |
|
Threshold for claiming medical expense deductions |
7.5% |
10.0% (a) |
|
Limitations on cafeteria plan contributions |
$5,000 |
$2,500 |
|
Profit sharing plan contributions (for age 50 and above) |
$50,000 ($55,500) |
$51,000 ($56,500) |
|
IRA contributions (for age 50 and above) |
$5,000 ($6,000) |
$5,500 ($6,500) |
|
401(K) contributions (for age 50 and above) |
$17,000 ($22,500) |
$17,500 ($23,000) |
|
50% bonus depreciation on qualified acquisitions |
Yes | No |
|
Section 179 deduction and phase-out dollar limit |
$139,000/$560,000 |
$25,000/$200,000 |
(a) Note that for taxpayers age 65 and above, the threshold will remain at 7.5% through tax year 2016.
Federal income tax rates will increase in 2013 as compared to 2012 as detailed below:
| Single | Married | Head of House | 2012 Rate | 2013 Rate |
|
$0 to $8,700 |
$0 to $17,400 |
$0 to $12,400 |
10% |
15% |
|
$8,700 to $35,350 |
$17,400 to $59,200 |
$12,400 to $47,350 |
15% |
15% |
| – |
$59,200 to $70,700 |
– |
15% |
28% |
|
$35,350 to $85,650 |
$70,700 to $142,700 |
$47,350 to $122,300 |
25% |
28% |
|
$85,650 to $178,650 |
$142,700 to $217,450 |
$122,300 to $198,050 |
28% |
31% |
|
$178,650 to $388,350 |
$217,450 to $388,350 |
$198,050 to $388,350 |
33% |
36% |
|
$388,350 and up |
$388,350 and up |
$388,350 and up |
35% |
39.6% |
For tax years beginning in 2013, the phase-out threshold amounts for personal exemptions and itemized deductions are projected to start at $178,000 for single filers, and $267,000 and $178,000, respectively, for married filing jointly.
In addition, for tax years beginning after December 31, 2012, the Health Care and Education Reconciliation Act of 2010 (Obamacare) imposes a 3.8% surtax on net unearned income for married couples and individuals making more than $250,000 and $200,000, respectively. The unearned income includes income from interest, dividends, capital gains, annuities, rents, and royalties.
| Income | 2012 Max Rate | 2013 Max Rate | 2013 w/ surtax |
|
Capital gains |
15% |
20% |
23.8% |
|
Qualified dividends |
15% |
39.6% |
43.4% |
|
Ordinary income |
35% |
39.6% |
43.4% |
Under the same Act, the Medicare employee payroll tax will increase from 1.45% to 2.35% for wages received in excess of $250,000 by married taxpayers and $200,000 by single taxpayers effective January 1, 2013.
Finally, for Californians, the voter-approved Proposition 30 results in an increase in California income tax rates retroactively effective January 1, 2012, through the end of 2018 as follows:
| Filing Status | Income | Old Rate | New Rate |
|
Single / Married filing separately |
$48,000 – $250,000 $250,000 – $300,000 $300,000 – $500,000 $500,000 – $1,000,000 more than $1,000,000 |
9.3% 9.3% 9.3% 9.3% 10.3%* |
9.3% 10.3% 11.3% 12.3% 13.3%* |
|
Married filing jointly |
96,000 – 500,000 500,000 – 600,000 600,000 – 1,000,000 More than $1,000,000 |
9.3% 9.3% 9.3% 10.3%* |
9.3% 10.3% 11.3% 13.3%* |
|
Head of household |
$65,000 – $340,000 $340,000 – $408,000 $408,000 – $680,000 $680,000 – $1,000,000 More than $1,000,000 |
9.3% 9.3% 9.3% 9.3% 10.3%* |
9.3% 10.3% 11.3% 12.3% 13.3%* |
Proposition 30 also increased the California sales tax rate by 0.25% effective January 1, 2013, through December 31, 2016. Currently, the sales tax rate in Los Angeles County ranges from 8.75% to 9.75%; and from 7.25% to 7.75% for Ventura County.
Please contact us if you have any questions on how these changes in rates will impact you and how to plan for them. Also, we strongly recommend that you consider if appropriate for your circumstances making gifts to your children or grandchildren before December 31, 2012, to take advantage of the $5,120,000 per person exemption on gift and estate tax for transfers made, and also keep in mind that these gifts are exempt from estate tax for the recipients at their death. Time is running out if this has appeal to you.
