Beginning in 2011, many tax breaks that have benefited U.S. income taxpayers will "sunset"—reverting back to their former law (pending the absence of an appeal):
General Tax Changes
- Qualified dividends will essentially not exist, and will be taxed at ordinary income rates.
- Long-term capital gains rates will revert back to 10% and 20%, instead of the 2010 rates of 0% and 15%, depending on your tax bracket.
- Tax brackets revert back to the following rates, eliminating the 10% bracket and increasing all marginal rates:
- 15%, 28%, 31%, 36%, and 39.6%
- Qualified Health Savings Account distributions will no longer include expenditures for non-prescribed over-the-counter medications.
- The penalty on such distributions will increase from 10% to 20%.
- $179 expense for qualified capital assets used in a trade or business will revert back to a maximum of $25,000 per year, with phaseouts beginning at a threshold of $200,000 in total asset purchases.
- Estates will be subject to a maximum tax rate of 55% and only allowed a $1 million exemption.
Health Care Changes to Tax Code in 2013
Most of us have heard about the new Health Care & Education Reconciliation Act (HCERA) that was passed in March 2010. Along with mandating health insurance coverage, the bill has some modifications to the tax code. Here is a brief summary of some of the adjustments that might affect you beginning in 2013:
- Medicare tax of 3.8% will be imposed on net investment income if the taxpayer’s modifed adjusted gross income is greater than the defined threshold.
- Thresholds are $250,000 for married filing jointly and $200,000 for individuals.
- Investment income includes: interest, dividends, annuities, royalties, rents, net gain on capital assets, and passive income.
- Tax also applies to trusts and estates, taxing on net investment income if AGI is greater than the highest tax bracket threshold for that year.
- An additional Medicare tax (H.I. Tax) on high income taxpayers.
- 0.9% tax on self-employed earning or wages in excess of the following thresholds of such income:
- Married filing jointly - $250,000
- Single - $200,000
- The threshold for deducting medical expenses on Schedule A of the Form 1040 will be increased from 7.5% to 10% of adjusted gross income.
- For tax years 2013 through 2016 the threshold remains 7.5% for taxpayers 65 years and older.
This summary is not an all-inclusive list of the changes to the road ahead. The tax law is ever-changing and vastly complex, many turns can and likely will be taken. The potential for many changes to the tax law exists, please contact us if you have any questions.