Starting January 1, 2013, a number of tax breaks are set to expire, as well as a number of tax rate increases are set to come into effect.
They will hit families, small business, big businesses, investors, and just about every other category of Americans. Personal income tax rates will increase, the capital gains tax rate will increase, business tax exemptions will be cut and educational tax exemptions will be decreased. Be prepared…this may be a year we all have to tighten our belts a bit more.
Personal income tax rates will rise on January 1, 2013.
-The 10% bracket rises to a new and expanded 15%
-The 25% bracket rises to 28%
-The 28% bracket rises to 31%
-The 33% bracket rises to 36%
-The 35% bracket rises to 39.6%
Higher taxes on marriage and family coming on January 1, 2013. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of taxable income. The child tax credit will be cut in half from $1000 to $500 per child. he standard deduction will no longer be doubled for married couples relative to the single level.
Middle Class Death Tax returns on January 1, 2013. The death tax is currently 35% with an exemption of $5 million ($10 million for married couples). For those dying on or after January 1 2013, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.
Higher tax rates on savers and investors on January 1, 2013. The capital gains tax will rise from 15 percent this year to 23.8 percent in 2013. The top dividends tax will rise from 15 percent this year to 43.4 percent in 2013.
Full business expensing will disappear. In 2011, businesses can expense half of their purchases of equipment. Starting on 2013 tax returns, all of it will have to be “depreciated” (slowly deducted over many years).
Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.
Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.
As you can see, we are in line for a number of major tax changes that will impact our lives at nearly every level. Of course, all of this is subject to Congress doing nothing and making no changes. We will have to just wait and see and be prepared if these tax burdens to come into effect. We will need to make necessary changes to our budgets and our retirement savings strategies in order to be able to survive this tax increase and keep our fiscal goals within reach.
Attorney Jared Bellum is a contributing author to this blog.