Business & Corporate

The Business & Corporate Law Section's monthly article.

Major Tax Law Changes Are Here (Whether You Know It or Not)

With the end of 2013 quickly approaching, unsuspecting taxpayers may be shocked by what awaits them upon filing their tax returns next year.  The 2013 tax landscape has changed dramatically from prior years for higher income taxpayers with the passage of the American Taxpayer Relief Act of 2012 (the 2012 Act) on January 2, 2013 as well as key tax provisions relating to the Patient Protection and Affordable Care Act of 2010 (the 2010 Act – aka: Obamacare), which went into effect January 1, 2013.  It would be wise for these taxpayers to know and understand the new tax laws so as to not be caught by surprise.

Just over 6 months ago many leaders feared we were headed for a Fiscal Cliff with the looming expiration of the Bush Tax Cuts. With the passage of the 2012 Act, Congress provided relief to many of these expiring provisions.  These include retaining the Bush rates for individuals with income under $400,000 (single) / $450,000 (married), preferential long-term capital gains and qualified dividend rates remain at 15% for these income-level individuals, as well as extending bonus depreciation and increased limits on expensing of certain business asset purchases.  With that said, taxpayers with taxable income over $400,000 / $450,000 will be subject to new maximum rates of 39.6% on ordinary income and 20% on long-term capital gains and qualified dividends.

In addition to the 2012 Act, taxpayers must also consider the new provisions of the 2010 Act.  Beginning in 2013, there are new Medicare taxes assessed on two categories of income:  First,  a 3.8% Medicare tax will be imposed on net investment income of individuals which exceeds “modified adjusted gross income” thresholds of $200,000 (single) / $250,000 (married).  For trusts this tax will be assessed on net investment income in excess of $11,950.  The calculation of the 3.8% tax is fairly simple, but determining the particular income subject to the tax and complying with the Treasury Department’s temporary regulations may prove to be more difficult.  The second tax is the additional 0.9% Medicare tax assessed on earned income (i.e. self-employment income and wages) of individuals in excess of $200,000 (single) / $250,000 (married).

On top of all this, certain employers will need to address the mandate to provide health insurance coverage to their employees, which was initially slated to take effect January 1, 2014.  However, the Treasury Department, citing the complexity of the law, recently announced they will delay this requirement until 2015.

In conclusion, it is clear that 2013 and beyond will present a significantly different tax environment from years past considering these new tax laws.  As a result, it would benefit taxpayers to remain proactive in understanding these laws and their effect to avoid being blindsided by them.

-- Brent Gastineau, CPA, Gatto, Pope & Walwick, LLP

**This article is intended for informational purposes only and does not constitute legal advice. Any views expressed are those of the author only and not of the SDCBA or its Business & Corporate Law Section.**