2013 Budget Proposal - Tax Research ACCT 4316 By Michelle...

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Tax Research ACCT 4316 By: Michelle Dockery 4/26/12
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Proposed tax law changes as they affect the Individual and Business entity taxpayer for 2012 Tax Provisions Affecting Only High-Income Taxpayers   During the 2008 campaign, President Obama made a promise that he would raise taxes only on households with the highest income—over $250,000 for married couples and over $200,000 for single people. In keeping with that promise, he proposes to increase taxes for those taxpayers by allowing the 2001-03 tax cuts to expire as scheduled in 2013 and limiting the value of itemized deductions to 28 percent. He would continue to tax qualified dividends at the same rate as long-term capital gains. That would represent a tax cut for high-income taxpayers since dividends would otherwise be taxed at the same rates as ordinary income. Allow 2001 and 2003 Tax Cuts to Expire at the Highest Incomes The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 (TRUIRJCA) extended the 2001 and 2003 tax cuts through 2012, but nearly all of them are now scheduled to expire in 2013. Unless Congress acts, the individual income tax will return to its pre-2001 level (except for a few permanent changes). The president has decided, rather than ending in 2013, the tax cuts will become permanent for low- and moderate-income households but would expire at income levels over $250,000 for couples and above $200,000 for single people. In addition, the president would eliminate a pre-2003 law provision that allowed 8 percent and 18 percent tax rates on capital gains on assets owned more than five years. Those tax increases would allow marginal tax rates at the highest income levels to return to rates scheduled after 2012 under current law. Those with qualified dividend income
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would pay less tax because the proposed 20 percent rate would be lower than their regular tax rate, the rate that would apply to dividend income if Congress let the 2001–03 tax cuts expire as scheduled. Others would pay more tax because the 20 percent rate on capital gains exceeds the 18 percent rate that would apply to gains on assets held more than five years and because the phase-out of personal exemptions would begin at a lower income than under current law. Allow Top Two Rates to Rise 36% and 39.6% After 2012 The president proposes to allow the top tax rate in 2013 to increase from 35 percent to 39.6 percent as scheduled under current law. In 2013, that would increase income tax liability for all taxpayers with taxable income over $390,050 (half that amount for married couples filing separately). Increase the 33% Tax Rate to 36% Only for Joint Filers with Adjusted Gross Income Over $250,000 ($200,000 for Single Filers) in 2013 President Obama proposes to allow the 33 percent tax rate to return to its pre-2001 level of 36 percent as scheduled under current law but only for joint filers with adjusted gross income over $250,000 ($200,000 for single filers, with both values in 2009 dollars and indexed for inflation in future years).
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