Summary of the American Taxpayer Relief Act of 2012

On January 1, 2013, both the United States Senate and the House of Representatives passed the American Taxpayer Relief Act of 2012. Here are some key highlights of the new “Act.” These provisions are effective for the 2013 tax year, except where otherwise specified. With over 100 changes to the Tax Code, we have put together a summary of the changes that will impact businesses.

Business Tax Extenders

The Act extended many business tax credits and other provisions. Notably, it extended through 2013:

  • The credit for increasing research and development activities.
  • The increased expensing of plant and equipment under Section 179 of $500,000.
  • The availability of an additional 50 percent first-year bonus depreciation applies to assets placed in service before January 1, 2014 (January 1, 2015 for certain long-lived assets).
  • Other business provisions extended through 2013, and in some cases modified, are:

    • Temporary minimum low income tax credit rate for non-federally subsidized new buildings.
    • Work opportunity tax credit.
    • Fifteen-year straight-line cost recovery for qualified leasehold improvements, qualified restaurant buildings and improvements, and retail improvements.
    • Regulated investment company qualified investment entity treatment under the Foreign Investment in Real Property Tax Act (FIRPTA).
    • Look-through treatment of payments between related controlled foreign corporations under foreign personal holding company rules.
    • Temporary exclusion of 100% of gain on certain small business stock.
    • Basis adjustment to stock of S-Corporations making charitable contributions of property.
    • Reduction in S-Corporation recognition period for built-in gains tax.
    • Empowerment Zone tax incentives.
    • Tax-exempt financing for New York Liberty Zone.

    New Taxes

    In addition to the various provisions discussed above, some new taxes also took effect on January 1, 2013 as a result of 2010’s health care reform legislation as follows:

    Medicare Tax Paid on high-income taxpayers — Medicare wages paid in excess of newly established thresholds are subject to an extra 0.9% Medicare tax that will only be withheld from employees’ wages. Employers will not pay the extra tax. The employee portion of the tax, normally 1.45% of covered wages, is increased by 0.9% on wages that exceed a threshold amount. The additional tax is imposed on the combined wages of both the taxpayer and the taxpayer’s spouse, in the case of a joint return.

    The threshold amount is $250,000 in the case of a joint return or $125,000 in the case of a married individual filing a separate return, and $200,000 in all other cases. For self-employed taxpayers, the same additional hospital insurance tax applies to the tax on self-employment income in excess of the threshold amount.

    Flexible Spending Arrangements
    Effective for cafeteria plan years beginning after December 31, 2012, the maximum amount of salary reduction contribution that an employee may elect to have made to a flexible spending arrangement in any plan year is $2,500.

    Mayur T. Dalal, is the chief executive officer at The Legacy Planning Group Inc. Mr. Dalal has been advising ultrahigh-net-worth families for more than 20 years, and is a specialist in wealth coaching and multigenerational estate planning.

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