The American Taxpayer Relief Act of 2012 made several changes to individual and business tax rates. It established a new 39.6% tax bracket for individual income over $400,000/$450,000 and indexed these thresholds for inflation. It also set the capital gains/dividend tax at 20% for income over the same thresholds. Additionally, it phased out itemized deductions and personal exemptions for higher incomes. The Act made the alternative minimum tax more permanent and increased exemption amounts. It provided tax planning opportunities related to capital gains allocation, estate planning, retirement contributions, and limiting payroll/investment taxes.

1. HIGHLIGHTS OF THE
AMERICAN TAXPAYER RELIEF ACT
OF 2012
BRUCE E. BELL, ESQ.
SCHOENBERG, FINKEL, NEWMAN & ROSENBERG, LLC
222 S. RIVERSIDE PLAZA, SUITE 2100
CHICAGO, ILLINOIS 60606
(312) 648-2300
Bruce.Bell@SFNR.com
©Copyright 2013 Bruce E. Bell
All Rights Reserved

2. I. Basic Individual Income Tax Changes
A. Personal Tax Rates
1. 39.6% tax bracket established
2. New rate takes effect for taxable income in excess of certain
thresholds
a. $400,000 for single filers
b. $425,000 for heads of household
c. $450,000 for marrieds filing jointly
d. $225,000 for marrieds filing separately
3. Thresholds adjusted for inflation after 2013
B. Capital Gains/Dividends
1. 20% tax bracket established for capital gains and qualified dividends
2. New rate takes effect for taxable income that exceeds thresholds
which are the same as thresholds for new 39.6% tax bracket
C. Itemized Deduction Phaseout
1. Itemized deductions phased out for higher income taxpayers
2. Phaseout begins when adjusted gross income exceeds specified
thresholds
a. $250,000 for single filers
b. $275,000 for heads of household
c. $300,000 for marrieds filing jointly
d. $150,000 for marrieds filing separately
3. For affected taxpayers, itemized deductions reduced by lesser of (i)
3% of adjusted gross income over allowable threshold and (ii) 80%
of itemized deductions

3. 4. Thresholds adjusted for inflation after 2013
D. Personal Exemption Phaseout
1. Personal exemptions phased out for higher income taxpayers
2. Phaseout begins when adjusted gross income exceeds specified
thresholds
a. $250,000 for single filers
b. $275,000 for heads of household
c. $300,000 for marrieds filing jointly
d. $150,000 for marrieds filing separately
3. Personal exemptions reduced by 2% for each $2,500 by which
adjusted gross income exceeds threshold
4. Thresholds adjusted for inflation after 2013
E. Alternative Minimum Tax (AMT) Relief
1. AMT permanently established for individuals
2. AMT exemption amounts for 2012:
a. $50,600 for single filers and heads of household
b. $78,750 for marrieds filing jointly
c. $39,375 for marrieds filing separately
3. Amounts adjusted for inflation after 2012
II. Other Income Tax Changes
A. For 2013 state and local sales taxes may be claimed as deduction in lieu of
state and local income taxes
B. Employer-provided education expenses of up to $5,250 permanently extended
C. Exclusion from income of cancellation of indebtedness income of up to
$2,000,000 attributable to principal residence extended through 2013
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4. D. Tax-free distribution for IRAs of up to $100,000 paid to public charities
extended through 2013
III. Business Tax Provisions
A. Taxpayers may continue to expense up to $500,000 with respect to not more
than $2,000,000 of investments in eligible property in lieu of depreciation
deduction for 2013
B. Bonus depreciation of 50% allowed through 2013 on qualifying property
IV. Estate and Gift Tax Changes
A. Permanent Transfer Tax Exemption
1. Exemption of $5,250,000 for estate, gift and generation-skipping
taxes
2. Exemption indexed for inflation after 2013
B. Transfer Tax Rates – Top marginal tax rate is 40%
C. Portability – Rule allowing surviving spouse to use deceased spouse’s unused
estate tax exemption made permanent
V. Other Tax Provisions Taking Effect in 2013
A. Additional Tax of .9% on earned income over specified thresholds
1. $200,000 for single filers and heads of household
2. $250,000 for marrieds filing jointly
3. $125,000 for marrieds filing separately
B. Additional tax of 3.8% on lesser of net investment income or modified
adjusted gross income over specified thresholds
1. $200,000 for single filers and heads of household
2. $250,000 for marrieds filing jointly
3. $125,000 for marrieds filing separately
4. $11,950 for estates and trusts
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5. VI. Planning Opportunities
A. Allocate receipts attributable to capital gains over a period of years
B. Review and update estate plans
C. Maximize retirement plan contributions
D. Reduce salaries and make S corporation distributions to minimize payroll tax
imposition
E. Shift investments to municipal bonds to limit impact of investment income tax
F:BEBSpeechesBasic Individual Income Tax Changes.doc
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