American Taxpayer Relief Act of 2012
By: Chuck Telk, CPA, Partner | email
The American Taxpayer Relief Act of 2012 was signed into law on January 2, 2013. This new law modifies or extends many business tax breaks, and also contains many changes to individual income tax. There are substantial additional changes in this act, but the following are most likely to impact you and/or your business.
- Bonus Depreciation: The new law extends the 50% first year bonus depreciation for additional years to cover qualifying new assets that are placed in service in calendar year 2013 (December 31, 2014 for certain assets). Bonus depreciation has been a useful tool for many of our cooperative and business clients, and the new law enables us to utilize this benefit for all tax years beginning in 2013– provided the qualifying asset is placed in service by December 31, 2013.
- Section 179: The new law restores the maximum Section 179 deduction to $500,000 for tax years beginning in both 2012 and 2013, and restores the Section 179 deduction phase out threshold to $2,000,000 for those years as well. While many of our clients place too many assets in service in a tax year to qualify for this deduction, for those clients that qualify, this presents another tool to help manage and reduce your federal tax bill.
- Work Opportunity Credit: This credit has been extended to cover qualifying hiring that occurs in 2012 and 2013.
- Research Credit: This credit has also been extended to cover qualifying expenses paid in 2012 and 2013.
- Alternative Fuel Vehicle Refueling Equipment: This credit has been extended to cover qualifying property placed in service in 2012 and 2013. The per-location cap of $30,000 has been retained.
- Railroad Track Maintenance Credit: This credit has also been extended for qualifying expenditures to maintain railroad tracks for years beginning in 2012 and 2013.
- Employer Educational Assistance Plans made permanent: Section 127 of the Internal Revenue Code allows employers to set up plans that provide up to $5,250 in annual federal income tax free educational assistance to each eligible employee. This new act makes this provision permanent.
- Standard Business Mileage Rate: The Standard Business Mileage Rate for 2013 has been increased to 56.5 cents per mile effective January 1, 2013.
- 1099 and W-2 Reporting: Remember that 2012 1099’s and W-2’s are generally due to the recipient by January 31, 2013. Even if you have a fiscal year end, these forms are based on calendar year 2012 amounts. Also, these forms are not due to the government until the end of February (March in some cases). Be sure to wait until the due date to file the forms with the government– that will give the recipient a chance to review the forms and get any errors fixed. It is far easier to fix the mistake prior to the forms being sent to the government.
I know that the temptation is there to get the forms sent in to the government as soon as the recipient copies are mailed. However, you should wait to file the forms with the government until the due date.
- Tax increases for higher-income individuals: The maximum federal income tax rate has been increased to 39.6% for those that have taxable incomes above $400,000 (single) and $450,000 (married filing joint), $425,000 (Head of household) and $225,000 (married filing separate). These income levels will also cause your tax rate on long term capital gains and qualifying dividends to increase from 15% to 20%. And finally, these income levels may subject a taxpayer to the new 3.8% Medicare surtax on investment income and the new 0.9% Medicare tax on wages and self-employment income. These 2 new taxes were previously imposed to help pay for the Patient Protection and Affordable Care Act (PPACA), commonly called Obamacare.
- Phase-out rules reinstated: This means that higher-income taxpayers will lose a portion of their itemized deductions and personal exemptions at adjusted gross incomes above $250,000 (single), $300,000 (married filing joint), $275,000 (head of household) and $150,000 (married filing separate). The specifics of these rules are too complex to cover here in detail, but if your AGI exceeds these limits, then this is a method of increasing your federal income tax without increasing tax rates.
- Alternative Minimum Tax: The exemption has been increased and made permanent. This change, which used to be fixed on an annual basis, will keep an estimated 30 million filers from paying the Federal Alternative Minimum Tax.
As with the business tax changes, there are many additional items effecting your personal taxes– far too many to discuss here. If you have any questions regarding the American Taxpayer Relief Act of 2012 and how it affects your business or personal taxes, or if you have questions regarding 1099 forms and W-2 reporting, please contact me at our Des Moines, Iowa office.