Written by: Scot A. Smith, CPA
The recently passed tax bill makes significant changes to individual taxation and estate and gift taxes and extends some business tax provisions. Highlights of individual tax changes in the new law include the following:
Individual Income Tax Changes for 2013
- The highest tax rate will increase from 35 percent to 39.6 percent on income in excess of $450,000 for married taxpayers ($400,000 for individuals). The rates for all other individual taxpayers will remain unchanged and have been made permanent. (1)
- The tax rate on capital gains and qualified dividends will increase from 15 percent to 20 percent for individuals subject to the 39.6 percent tax rates.
- Phaseouts of personal exemptions and itemized deductions will apply to married individuals with adjusted gross income in excess of $300,000 ($250,000 for individuals). (1)
- The election to deduct state and local sales taxes in lieu of state and local income taxes expired after the 2011 tax year. The legislation makes the election available for the 2012 and 2013 tax years. This is a significant item for taxpayers residing in states such as Florida, Tennessee, and Texas, which do not impose individual income taxes.
- The bill provides a permanent increase in the alternative minimum tax exemption. This change applies retroactively to the 2012 tax year. (1)
- The 2 percent payroll tax cut expired on Dec. 31, 2012, and was not renewed.
(1) These items will be adjusted annually for inflation.