Expert Articles

What is Tax Armageddon All About?

Gary DellaPosta

CPA

Gary DellaPosta, CPA & Business Advisors

 EXPIRATION OF “BUSH” TAX CUTS

The “Bush” tax cuts were originally set to expire at the end of 2010 but were extended for two years through 2012. Don’t make the mistake of thinking this will be repeated again.

The major provisions which are scheduled to expire at the end of 2012 are:

• Long term capital gains which are currently taxed at a maximum rate of 15% will be taxed at 20%

• Qualified dividends which are currently taxed at 15% (same as long term capital gains) will be taxed as ordinary income which means a rate as high as 39.6% (for most taxpayers 25%)

• Ordinary income tax rates will increase as follows:

2012                      2013                         Single                      Married

  10%                         15%                    8,700                           17,400

  15%                         15%                   35,350                          70,700

   25%                         28%                  85,650                         142,700

   28%                        31%                  178,650                         217,450

   33%                        36%                  388,350                       388,350

 

• OTHER CHANGES:

o The 2% payroll (social security) tax cut expires resulting in a decrease in employee take home pay

o The “marriage penalty relief” expires

o Child care credit reduced

o Refundable child credit of $1,000 per child is reduced to $500 per child

o Exclusion of forgiveness of debt income on your principal residence expires

o Bonus depreciation expires

o Sec 179 depreciation is reduced from an annual maximum of $125,000 to $25,000

o The maximum estate tax of 35% expires and returns to 50%

o Itemized deduction phase out is reinstated

Over 55 major provisions expire resulting in additional taxes for individual and businesses at every income level.

 

OBAMA CARE TAX PROVISIONS

The Supreme Court ruling upholding The Affordable Care Act (ACA) has resulted in a number of changes to the tax code.

The major provisions are taking effect in 2013 are:

• An additional .9% Medicare tax on wages above $200,000 ($250,000 for married joint returns)

• A new 3.8% Medicare tax on investment income. Investment income includes interest, dividends, rents, annuity income and capital gains (including taxable principal residence sales). This new tax applies to taxpayers with AGI over $200,000 ($250,000 for married joint returns).

• An increase in the Adjusted Gross Income (AGI) limit for deductible medical expenses from 7.5% to 10%.

The Small Business Health Care Tax Credit will continue. This offers a credit for employers that:

o Pay at least half of employee health insurance premiums

o Employ 25 or fewer full time equivalents (FTE)

o FTE average income is less than $50,000

In 2014 additional provisions take effect:

• The Individual Mandate starts. It requires US Citizens obtain minimum health care coverage or pay a tax penalty. The penalty increases each year through 2016.

• An additional tax will be imposed on businesses with 50 or more full time equivalents (FTE) employees that do not offer minimum essential health insurance.

 

Gary DellaPosta is a CPA and founder of the Falmouth firm Gary DellaPosta, CPA & Business Advisors. In addition to providing accounting, tax and advisory services to individuals and businesses, he also provides litigation support to attorneys and has been recognized as an expert in numerous Massachusetts’ courts. Mr. DellaPosta serves on the Board of the Barnstable County Mutual Insurance Co., where he serves on the audit, investment and employee benefit committees. He also serves as the Treasurer of the Community Health Center of Cape Cod, is a Corporator at The Cooperative Bank of Cape Cod and is a former director of Eastern Bank and Plymouth Savings Bank.

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