Tax Attorney, Lesley Sive, Reminds High Income Taxpayers of the Impact the American Tax Relief Act (ATRA) of 2012 Will Have on their Taxes this Year

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High income taxpayers will see their personal taxes increase from both ATRA and the Affordable Care Act. The tax rate for capital gains and dividends will also increase.

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Good tax planning can help reduce the impact of higher taxes on high income taxpayers.

In January, 2013, Congress passed the ATRA to extend certain tax relief provisions, enacted in 2001 and 2003, that were expiring at the end of 2012. While ATRA "permanently" extended existing federal tax rates for the majority of taxpayers, it increased the 35% tax rate to 39.6% for those taxpayers whose taxable income is greater than $400,000 (filing single), $450,000 (filing married jointly) and $425,000 (filing head of household).

In addition, ATRA increased the tax rate for long-term capital gains and dividends from 15% to 20% for those taxpayers whose taxable income is greater than $400,000, $425,000 and $450,000, based on filing status. The 20% will apply to the extent that a taxpayer's income exceeds the above income thresholds. Ordinary income tax rates will continue to apply to short-term capital gains (held for less than one year.)

Taxpayers with incomes over $250,000 (filing single), $300,000 (filing married jointly) and $275,000 (filing head of household) will also be impacted as personal exemptions will be phased out at the rate of 2% for each $2,500 of Adjusted Gross Income (AGI) over the income threshold amounts. In addition, taxpayers in the above income categories, will have their itemized deductions limited under the provisions of ATRA.

Federal tax rates for taxpayers with incomes over $250,000 (if filing married jointly), $125,000 (if filing married filing separately) and $200,000 for all others, will also increase under the provisions of the Patient Protection and Affordable Care Act ("PPACA" or "Affordable Care Act"). The PPACA imposes an additional 3.8% tax rate for the above categories of taxpayers, on the lesser of (A) net investment income for the taxable year, or (B) any excess of (i) the modified adjusted gross income for the taxable year, over (ii) the threshold amount. Thus, the effective tax rate for net capital gains for many higher income taxpayers will become 23.8% (20% + 3.8%) for long-term gains and 43.4% (39.6% + 3.8%) for short-term gains.

As high income taxpayers approach the filing deadlines for their 2012 individual income tax returns, they should consult a well-qualified tax professional and start planning now for ways to lessen the impact of ATRA's higher tax rates on their 2013 taxes.

Lesley A. Sive, Attorney at Law, is a 1985 graduate of Loyola Law School, Los Angeles and is a member of the State Bar of California. She has successfully resolved thousands of tax controversy cases across the United States involving payroll and sales tax, personal and corporate income tax and civil penalties, including trust fund recovery penalties. She represents clients in audits, IRS and state tax appeal hearings and in the United States Tax Court. She is also an author and provides seminars on tax issues to organizations and businesses.

For more information, or to obtain a no-cost consultation, contact Lesley A. Sive, Attorney at Law, at (310) 980-5798 or visit

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