Regardless of Presidential outcome, there will be numerous changes to the tax laws.  However, it is very likely that the changes will not be determined until early 2013 and will be implemented retro actively to January 1, 2013. 

A few of the upcoming changes to the tax laws have been announced.  These changes include: 

  • The 2 percent decrease to the Federal Insurance Contributions Act (FICA) will expire on December 31, 2012.  The rate increases to 6.2% on January 1, 2013.  Also, effective January 1, 2013, the amount of the wages and self-employment income subject to Social Security tax will increase from $110,000 in 2012 to $113,700 in 2013.
  • An additional .9% Medicare Surtax on earned income of higher income individuals who earn in excess of $250,000 for married filing jointly, $125,000 married filing separately or $200,000 for singles and others. 
  • An additional 3.8% Medicare Surtax on net investment income of higher income individuals.
  • Increased contributions limits for 401k plans from $17,000 to 17,500 (50 or older increases from $22,500 to $23,000) in 2013.
  • Increased contribution limits for SIMPLE plans from $11,500 to $12,000 (50 or older increases from $14,000 to $14,500) in 2013.
  • Increased contribution limits for IRAs and Roth IRAs from $5,000 to $5,500 (50 or older increases from $6,000 to $6,500) in 2013.    

If Congress takes no action for 2013, some of the more significant changes to the tax laws will include: 

  • Increased individual income tax rates increasing with the top rate increasing from 35% to 39.6%.
  • Long-Term Capital Gain rates increasing from 15% to 20%.
  • The 15% and 0% tax rates on qualified dividends to individuals will disappear and be taxed at ordinary tax rates up to 39.6%.
  • The return of phased out personal exemptions and reduced itemized deductions.
  • The federal estate tax exclusion will decrease from $5.12 million in 2012 to $1 million in 2013 and the estate tax rate will increase from 35% to 55%.
  • The accelerated depreciation limits for Code Section 179 will decrease from $139,000 to $25,000 with the phase-out decreasing from $560,000 to $200,000.  Bonus depreciation will expire after December 31, 2012.
  • The standard deduction for married taxpayers filing jointly will decrease from twice the amount allowed for single individuals to 167% of the standard deduction for single individuals.
  • Many more changes to deductions and tax credits that are likely to be reduced or eliminated.

Sumbitted by Tom Cornwell
Malvin, Riggins & Company, P.C.