A Breakdown of the American Taxpayer Relief Act of 2012 (ATRA) - Part 2

A Breakdown of the American Taxpayer Relief Act of 2012 (ATRA) - Part 2

[caption id="attachment_433" align="alignleft" width="150"]Robert K. O’Dell, CFP Robert K. O’Dell, CFP[/caption]

In Part 1, we looked at the first three major changes to be aware of with the American Taxpayer Relief Act of 2012 (ATRA). We'll finishing be looking at the remaining three.

Out of Suspension in 2013

For the past 3 years, the 3% phaseout (also known as the Pease limitation) for Schedule A Itemized Deductions has been in suspension. This phaseout reduces itemized deduction for taxpayers over certain thresholds of income. It returns this year with higher threshold amounts - Adjusted Gross Income of $300,000 for married couples, and $250,000 for individuals. These amounts are also indexed for inflation.

The personal exemptions phaseout (PEP) returns for 2013 and reduces personal exemptions by 2% of total exemptions (for each $2,500 of excess income over a threshold). The threshold for this phaseout is the same as those for the Pease limtiation (AGI of $300,000 for married couples, and $250,000 for individuals, indexed for inflation).

Charitable IRA Rollover

ATRA extends the Charitable IRA rollover for 2012 & 2013. Individuals over 70.5 years of age can give directly from the IRA to charity without picking the distribution up as taxable income. The distribution counts towards the Required Minimum Distribution (RMD) with a maximum gift of $100,000.

The lawmakers included 2012 for the Charitable IRA Rollover on January 1, 2013. However, the law governing RMDs mandates that IRA owners over 70.5 must make the distribution by December 31st (2012) or face a 50% penalty. So Congress has made a provision that RMD made in December of 2012 to be given in January of 2013 while still counting as a 2012 Charitable IRA Rollover.

Coyle Financial Counsel encouraged a number of our eligible clients to give directly to charity.

In anticipation of the passage of this legislation, Coyle Financial Counsel encouraged a number of our eligible clients to give directly to charity. Regular readers of our tax updates were advised of the possibility of the Charitable IRA Rollover being available in 2012 in our last mailing.

Estate & Gift Taxes

The ATRA makes current gift and estate tax laws permanent. The 2012 gift and estate tax exemption was $5,120,000 and will be indexed for inflation in 2013.

However, the top estate tax rate will increase from 35% to a 40% top tax rate.

The portability rules of an individual estate tax exemption also became permanent. This can provide of great tax savings for families with a net worth over $5 million. If you’re in this group, that’s one reason for celebration, though, let’s not get excessive.

Now What?

At Coyle Financial Counsel, we will continue to study the new tax provisions and collaborate with other professionals to develop strategies for optimization of tax planning. We look forward to offering customized and creative solutions for our clients in 2013 and beyond. Give us a call!

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