Phoenix, AZ (PRWEB) January 02, 2013
Tax expert Benjamin Podraza, a Certified Public Accountant and principal of Podraza CPA, PLLC, provides insight into the details of the American Taxpayer Relief Act of 2012. The act allows the United States to avoid one of the steepest tax increases in the country’s history. Major benefits individuals realize from the legislation include:
- The bill makes permanent reduced tax rates for individuals making less than $400,000 (single) or $450,000 (married). Tax rates for individuals over this threshold will rise from 35 to 39.6 percent.
- The act permanently adjusts the income exemption levels for the Alternative Minimum Tax (AMT). The exemption amount for 2012 will be $50,600 (single) and $78,750 (married).
- Capital gains and dividend rates will rise to 20 percent for the top bracket, but remain at zero percent for taxpayers in the 10 and 15 percent brackets and 15 percent for all other taxpayers.
- Qualified mortgage insurance premiums will continue to be treated as qualified residence interest through the end of 2013.
- State and local sales taxes will be available as an itemized deduction in lieu of state income taxes through the end of 2013.
- The higher education tuition deduction, which allows individuals to deduct up to $4,000 for tuition and fees paid to post-secondary educational institutions, has been extended through December 31, 2013.
- The bill extends three important credits through the end of 2018. The American Opportunity Credit will continue to make available a $2,500 credit for qualifying education expenses for the first four years of post-secondary education. The parameters for the Earned Income Credit have also been extended and the maximum Child Tax Credit will continue to be $1,000.
- The act permanently extends the estate tax exemption at $5.12 million ($10.24 million for couples) with a maximum rate of 40 percent.
Although in many respects this is a victory for the American people, it should not cloud the fact that taxes are increasing for just about every American in 2013. Legislation failed to address:
- The payroll tax holiday is officially expired, so most middle class Americans will see their net payroll checks 2 percent smaller than what they saw in December.
- The bill limits personal exemptions and itemized deductions for taxpayers making more than $250,000 (single) or $300,000 (married).
- Obamacare’s 3.8 percent Medicare surtax on taxpayer’s net investment income and the .9 percent Medicare tax for individuals earning $200,000 or married couples earning more than $250,000 are now in effect.
- Contributions to Coverdell Education Savings Accounts have been reduced from a maximum of $2,000 down to $500.
- In 2012, up to $5,250 of employer provided education assistance was excludable from income and employment taxes. In 2013, education assistance must be included in employee’s income.
- Enhanced treatment of student loan interest has expired as of the end of 2012. Student loan interest is now only deductible for the first 60 months of repayment.
Permanent relief from tax rate increases and the AMT provides some much needed clarity, but this legislation has been criticized for failing to address spending side issues with the budget. Because it only extends sequester for two months, Congress will face another version of the fiscal cliff in the coming weeks. It is probable that revenue side discussions will again become part of the debate this year.
"The smartest move for individual taxpayers is to exhibit behaviors that have been consistently encouraged through legislation," says Benjamin Podraza. "Although the form of incentives have changed, the behaviors the US government have subsidized have withstood the test of time. The government has been consistent with incentives related to education, employment, medical care, charitable contributions and saving for retirement. Individuals engaging in these activities consistently have lower tax bills than individuals who abstain from these activities."
To speak with Ben Podraza in more depth about the American Taxpayer Relief Act of 2012 or to schedule an interview, please contact Mary Garrett at 602-432-2010.
ABOUT PODRAZA CPA, PLLC:
Podraza CPA is a Scottsdale, AZ based CPA firm. It offers a wide range of services designed to help its clients reach their long-term financial goals. In addition to preparing personal and business tax returns, they also offer numerous services geared to help individuals and business owners. Individual services include income tax return preparation, tax representation, and estate planning. Business services include tax planning, preparation and representation, development of accounting policies and internal control systems, financial modeling and forecasting, business valuations, loan packaging, as well as, general bookkeeping and payroll services. For more information, contact Podraza CPA at 480-998-3945 or visit their website at http://www.podrazacpa.com.