Impending Individual Tax Law Changes for 2013
Many key federal tax rules affecting individuals will “sunset” at the end of 2012 unless Congress acts otherwise to extend or permanently enact those provisions. As year-end is approaching quickly, it is wise to be aware of what to expect in 2013, absent further legislation.
Key tax law changes affecting individuals beginning in 2013 if prior laws’ sunsets go into effect:
- Ordinary income-tax brackets – The 10% bracket goes away, with the lowest bracket being 15%. The size of the 15% bracket for married individuals filing a joint return will be less (167%) than twice the size of the 15% bracket for individual filers, as it is currently. The top four brackets rise from 25%, 28%, 33%, and 35% to 28%, 31%, 36%, and 39.6%, respectively.
- Taxation of capital gains and qualified dividends – Generally, long-term capital gains will be taxed at a maximum rate of 20%, an increase from 15%, for higher bracket taxpayers. A 10% rate applies to individuals in the 15% tax bracket. Qualified dividends will be taxed at ordinary income-tax rates (up to 39.6%), as opposed to receiving capital gain treatment, as under current law.
- Reduction in itemized deductions – For higher income individuals, most itemized deductions will be reduced by 3% of adjusted gross income (AGI) above an inflation-adjusted threshold. Reduction cannot exceed 80% of the amount of itemized deductions otherwise allowable.