Unless Congress acts by year-end, these are the changes you’ll see in the tax rules effective January 1, 2013.
SOCIAL SECURITY TAXES. Employee’s share will increase to 6.2% after 2012, up from 4.2%.
INCOME TAX RATES. 2012 rates of 10%, 15%, 25%, 28%, 33%, and 35% will change to 15%, 28%, 31%, 36% and 39.6% for 2013.
CAPITAL GAINS. Maximum long-term rate will increase from 15% to 20% after 2012.
DIVIDENDS. Top 15% rate will be eliminated; dividends will be taxed as ordinary income with a top rate of 39.6%.
CHILD TAX CREDIT. Current $1,000 credit per qualifying child will be reduced to $500 after 2012.
AMT. Exemption amounts will be $33,750 for singles, $45,000 for couples.
ESTATE TAX. Top 2013 rate will increase to 55% (up from 35%); exclusion amount will be reduced to $1,000,000 (down from 2012 amount of $5,120,000).
DEDUCTIONS & EXEMPTIONS. After 2012, higher-income taxpayers will again lose a portion of itemized deductions and personal exemptions.
DEPRECIATION. Section 179 expensing limit will be reduced to $25,000, with a total qualifying property limit of $200,000, down from 2012 levels of $139,000 and $560,000 respectively. 50% bonus depreciation will expire.
EDUCATION. Education savings account contribution limit will be $500, down from 2012 limit of $2,000. Expanded American Opportunity Credit will expire and be replaced by prior Hope Credit.
TAX EXTENDERS. These tax breaks expired at the end of 2011: Teachers’ classroom expense deduction, state and local sales tax deduction, tax-free charitable IRA distributions for those 70½ and older, higher education tuition deduction, business R&D credit, and 15-year depreciation for leasehold improvements and restaurant property.
Stay tuned. Congress and President Obama may agree to extend or revise some or all of these provisions. We’ll keep you informed.