Tax Law Changes - 2011, 2012, 2013

Barring Congressional action, the following tax law changes will take effect in the coming years of 2011, 2012, and 2013.

The following items expired at the end of 2011:

1. The Alternative Minimum Tax (AMT) Patch—Going forward, this could mean millions will pay the AMT who were never subject to it before.
2. Charitable Contribution of IRA Assets—A taxpayer who was receiving required minimum distributions (RMDs) from an IRA and wished to contribute that money to charity could have had it sent directly from the IRA custodian to the charity. In so doing it would bypass the individual’s tax return, lowering total income and possibly income tax as well.
3. State Sales Tax Deduction—Taxpayers will no longer be able to deduct state sales tax. Since it has been a choice of whether to deduct state sales tax or state income tax, residents of states without an income tax will lose this deduction.
4. Home Energy Tax Credit—This credit for $500 is no longer available.
5. School Teachers’ Expense Deduction of $250—Teachers who have been dipping into their own pockets to help provide for their students can no longer rely on this deduction.

The following five items will expiring at the end of 2012, barring Congressional action:

1. Payroll Tax Cut of Two Percentage Points—This will go away, resulting in the resumption of the customary 6.2% rate.
2. Top Income Tax Rate of 35%—This will change to 39.6%.
3. Capital Gains Tax Rates—Both the 0% and the 15% brackets will disappear, to be replaced by a single bracket of 20%.
4. Qualified Dividends Tax Rate—This bracket, which taxes qualified dividends at 15%, will disappear entirely and those dividends will be taxed as ordinary income.
5. American Opportunity Education Credit—This, too, will disappear.

Four tax increases are scheduled to take effect in 2013. They are:

1. Net Investment Income Tax—This will be 3.8% for filers making over $200,000 (individuals) or $250,000 (married)
2. Phaseout of Personal Exemption—For a number of years the personal exemption was phased out as your income went up. While the phaseout expired (briefly), it is set to resurrect in 2013.
3. Itemized Deductions Limit—The “Pease” limit on itemized deductions, Kiely explains, will hit those with incomes over $150,000.
4. Flexible Spending Account Limits—These are being cut from $5,000 to $2,500.