By now, everyone knows the American Taxpayer Relief Act of 2012 raised the income tax rates for the highest earners to 39.6%. Most everyone knows the American Taxpayer Relief Act of 2012 raised capital gain and qualified dividends rates for the highest earners to 20% (before adding the Obama care 3.8%). Some people even know the American Taxpayer Relief Act of 2012 reinstated phase-out’s of personal exemptions. Finally, whoever has received a 2013 paycheck already knows their take home pay is reduced due to the expiration of the 2% Payroll Tax Holiday.
In this series of posts, we’ll look at some of the provisions of the American Taxpayer Relief Act of 2012 that aren’t getting as much coverage but which may have significant consequences to many taxpayers.
Let’s discuss the Alternative Minimum Tax and its integration into the American Taxpayer Relief Act of 2012. As background, for years and years, taxpayers with very little if any tax preferences have been surprised they are subject to Alternative Minimum Tax. The reason is taxpayers fall into the “doughnut hole” (sometimes referred to as the “sweet spot”) when their income is high enough to begin the partial or total phase-out of the Alternative Minimum Exemption. The significance is that whether the result of falling into the “doughnut hole” or as the result of classic tax preference items such as real estate taxes or state income taxes some taxpayers’ tax liability in 2013 and beyond may not feel the effect of the high income 39.5% in the context of the American Taxpayer Relief Act of 2012 since their Alternative Minimum Tax may have already exceeded their tax liability using the higher 39.5% rate. For these taxpayers, their tax liability remains the same except for the effects of the personal exemption and itemized deduction phase-out.
For more information on how the Taxpayer Relief Act of 2012 affects you or for other tax law concerns, contact Horowitz Law Offices.