After Congress passed and the president signed into law the American Taxpayer Relief Act of 2012 (ATRA), dramatic individual income tax increases went into effect in 2013. ATRA shifted America from a two-dimensional tax system to a five-dimensional tax system. The advent of a five-dimensional tax system makes 2013 year-end tax planning imperative. On top of regular income taxes and the Alternative Minimum Tax (AMT), ATRA introduced higher tax brackets for high income taxpayers, personal exemption phase-outs (PEP), itemized deduction limitations (named Pease after the congressman) and a new net investment income (NII) tax. These increases include the following:
- The highest income tax bracket on ordinary income and short-term capital gains increased from 35% in 2012 to 39.6% in 2013.
- The highest income tax bracket on long-term capital gains increased from 15% to 20%.
- A new 3.8% net investment income (NII) tax went into effect for high income individuals.
- Taxpayers over the applicable threshold amount for PEP may have some or all of their personal exemptions phased out.
- Taxpayers over the applicable threshold amount for Pease may have up to 80% of their itemized deductions phased out.
ABOUT THE AUTHOR
Robert A. Abel, CPA
Bob is a Principal and Shareholder of Brown Schultz Sheridan & Fritz. He works out of both offices, giving him better access to the Central PA region of Harrisburg, Lancaster, and York. Bob provides tax, audit, and consulting services to his clients and specializes in assisting privately owned businesses achieve their success.