Tax Law Changes for 2013

Many tax rules that have been in effect since 2001 are set to expire on December 31, 2012. The expiring provisions include:

  1. Increase in the individual tax rates from a maximum rate of 35% to 39.6% and elimination of the 10% rate.
  2. Increase in the maximum preferential rate on net capital gains from 15% to 20%
  3. Qualified dividends will no longer be taxed at the capital gains rate
  4. Reduced estate and gift tax applicable exclusion and increased estate and gift tax rates
  5. Special 50% bonus depreciation is set to expire
  6. Section 179 deduction will be set at $25,000
  7. 2% employee payroll and self-employment tax reduction is set to expire

In addition, new tax provisions enacted as part of the Patient Protection and Affordable Care Act of 2010 are set to take effect on January 1, 2013. These new tax provisions include:

  1. Additional 0.9% Medicare tax on high wage earners and high self-employed earners (wages over $250,000 if MFJ
  2. Medicare contribution tax of 3.8% on investment income for individuals with adjusted gross income over $250,000 if MFJ
  3. The amount an individual can contribute to an employer-provided health flexible spending arrangement is limited to $2,500 per year
  4. Medical expense deduction threshold is increased from 7.5% to 10%

Based on conversations I had with members of congress, it does not appear that congress will take action to avoid the fiscal cliff before the end of 2012.