CCH Tax Briefing, 2012 American Taxpayer Relief Act

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CCH Analysis of the American Taxpayer Relief Act of 2012 Now Available!

On January 1, 2013, Congress passed the American Taxpayer Relief Act of 2012, averting the "Fiscal Cliff." The Act allows the Bush-era tax rates to sunset after 2012 for individuals with income over $400,000 and families with incomes over $450,000; permanently "patches" the alternative minimum tax (AMT); revives many now-expired tax extenders, including the research tax credit and the American Opportunity Tax Credit; and provides for a maximum estate tax of 40 percent with a $5 million exclusion. In addition to an extension for most taxpayers of the lower individual income and capital gains tax rates, marriage penalty relief, and more than 50 other tax benefits popularly referred to as the "Bush Tax Cuts," the legislation makes over 100 changes to the Internal Revenue Code.

Highlights of The American Taxpayer Relief Act of 2012 include:

• 39.6% tax rate for incomes above $400,000 ($450,000 families)
• All other Bush-Era Tax Rates extended
• 20% Maximum Capital Gains/Dividend Tax Rate
• Permanent AMT Patch
• Five-Year Extension of American Opportunity Tax Credit
• One-Year Extension of Business Tax Extenders
• And more!

Click here to read the report now!

The CCH Group has provided tax professionals with the most comprehensive, ongoing practical and timely analysis of the federal tax law since 1913.

Facing the tax cliff

A surprising number of tax changes loom as year end approaches. Learn more about them here.

New information required on the 2011 - W-3

We were apprised by the IRS this week of a major change with the 2011 Form W-3.  This change will now require to collect and report the "Kind of Employer" - generally, a distinction between for-profit, non profit or governmental -  on the paper form and in the electronic file submitted to the agency.   

2010 Tax Relief Act

On December 17th, the President signed into law the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (the 2010 Tax Relief Act) which includes: an extension of the Bush-era tax cuts for two years, estate tax relief, a two-year "patch" of the alternative minimum tax (AMT), a two percentage point cut in employee-paid payroll taxes and self-employment tax for 2011, new incentives to invest in machinery and equipment, and a host of retroactively resuscitated and extended tax breaks for individuals and businesses. The following is a summary of the most important provisions of this legislation.

Individual Tax Rates-these tax rates were scheduled to revert from the current levels back to pre-2001 rates beginning January 1, 2011 (with the top rate rising to 39.6%). However, the 2010 Tax Relief Act extends all current individual tax rates of 10, 15, 25, 28. 33 and 35 percent for two years, through December 31, 2012.

Capital Gains/Dividends-similarly, the maximum tax rate of 15% on capital gains and qualified dividends will continue for two years, through December 31, 2012.

Itemized Deductions/Personal Exemptions/Marriage Penalty Relief-the 2010 Tax Relief Act also extends the full repeal of various tax limitations that was scheduled to expire as of December 31, 2010 for two years, through December 31, 2012. As such, there is significant relief for middle income and higher-income taxpayers under these tax "extenders".

Payroll Tax Cut-the Tax Act reduces the employee-share of the OASDI portion of Social Security taxes from 6.2% to 4.2% for wages earned in calendar year 2011 up to the FICA maximum taxable wage base of $106,800. Thus, individuals earning at or above this maximum wage base amount will receive a $2,136 tax benefit in 2011. Further, self-employed individuals will pay 10.4% on self-employment income up to the income threshold. Please note that the employer's portion of the FICA expense remains at 6.2%.

Bonus Depreciation-the Tax Act boosts 50% bonus depreciation to a 100% write-off for qualified property placed in service after September 8, 2010 and before January 1, 2012. This provision is one of the most expansive for businesses. Unlike Sec. 179 expensing, it is not limited to use by smaller businesses or capped at a certain dollar levels.

Estate Tax Relief-the Tax Act revives the estate tax for decedents dying after December 31, 2009. The maximum estate tax rate is 35% with an exclusion amount of $5 million. This represents a significant reduction from the 45% rate and the $3.5 million exemption applicable for 2009. These new rate and exclusion amounts apply for 2011 and 2012. However, for those decedents dying in 2010, the Act allows for a choice between the new estate tax rules, which would include a step-up in basis, or no estate tax (as in effect for 2010) with a modified carryover basis. In effect, the Act achieves this choice by making estate tax and basis changes retroactively for estates of decedents dying after 2009 but allowing the opt-out choice for estates of decedents dying in 2010. Very importantly, the Act provides for "portability" between spouses of the maximum exclusion. This would allow a surviving spouse to elect to take advantage of the unused portion of the estate tax exclusion (i.e. unused portion of the $5 million) of his or her predeceased spouse. With this election and careful tax planning, married couples can effectively shield up to $10 million from estate tax.

Gift Taxes-for gifts made in 2010, the top gift tax rate and maximum applicable exclusion is 35% and $1 million, respectively. For gifts made after 2010, the gift tax is reunited with the estate tax with a top gift tax rate of 35% and a maximum applicable exclusion of $5 million. Of course, donors may continue to apply an annual gift tax exclusion before having to utilize part of their unified exclusion. For 2010 and 2011, the annual exclusion remains at $13,000.

Individual Tax Breaks Extended-the following tax breaks that expired at the end of 2009 will be retroactively reinstated for 2010 and extended through 2011:

- the $250 above-the-line deduction for certain teachers
- the election to take an itemized deduction for state and local general sales taxes
- the above-the-line deduction for qualified tuition and related expenses
- the provision that permits taxpayers 70 1/2 or older to make tax-free distributions from IRA accounts to charity of up to $100,000

The new law gives taxpayers some certainty in tax planning for the next two years, particularly for individual income tax rates, capital gains/dividends tax rates and the estate tax. However, these provisions are temporary and the new law pushes the ultimate fate of the Bush-era tax cuts to 2012, a presidential tax year.

CCH Tax Cuts Briefing

On December 6, 2010, President Obama announced an agreement with the GOP to extend tax cuts for all taxpayers for 2 years.  This plan would also provide for a 1-year payroll tax cut, an extension of the enhanced Earned Income Credit, a 1-year, 2% reduction in Social Security tax (6.2% to 4.2%), and more.  In addition, federal unemployment benefits will be extended through 2011.

ADP has partnered with CCH to provide a legislation update on the highlights of this important agreement for you. 

Click here to download the Full PDF 

Geosocial Networking

The Next Phase in Social Media?

If you haven't yet heard of geosocial networking, you're not alone. Geosocial networking is a term that has been coined to describe location-based online social media applications. At the most basic level, geosocial applications allow you to share information on where you are with your chosen contact list. By sharing your location, geosocial networkers can access reviews to nearby restaurants, see the names of friends in the area, view recommended local activities, and more. Picture yourself at a football game with 60,000 other people. If you are using a geosocial tool, you would know if any of your close friends are also at the game, you could then initiate social contact, communicate directly with them, and take advantage of a targeted offer from a network sponsor at a local restaurant. The goal of geosocial networking is to connect users to local people and events that match their interests. Some current social network providers like Facebook or Twitter offer a form of geosocial networking by having users submit their location. Other mobile applications use cell phone tracking to plot locations in "real time". Startups like Foursquare and Gowalla encourage members to "check-in" at their location and then broadcast their location to others. So what's the big deal? Many think some type of geosocial networking will be the next phase of social networking replacing or enhancing tools like Twitter and Facebook. Why? It allows advertisers and companies to track and reward customer loyalty. For example, Foursquare encourages businesses to give special discounts to people who check-in frequently and Foursquare also encourages people to frequent businesses that reward Foursquare users. More importantly, geosocial networking allows people to use their online technologies to connect with friends and events in the real world in real time. The bad news is that you must be willing to give up a level of privacy to share your location within the network. This could lead to some very awkward moments if you owe someone money or break up with a boyfriend or girlfriend. Will it be the next "big thing"? Only time will tell.