Highlights of what you need to know, effective January 1, 2013:
Federal Individual Income Tax Rates will increase from a maximum of 35% to 39.6% for individuals with taxable income over $400,000 and families with taxable income over $450,000.
Federal Rates on Long Term Capital Gains and Qualified Dividends will increase from a maximum of 15% to 20% for individuals with taxable income over $400,000 and families with taxable income over $450,000. Rates remain the same for all other taxpayers.
Estate Tax Exemption Amount remains at $5,000,000 per decedent. The highest federal estate tax bracket is now set at 40%. The new tax provisions make permanent the concept of “portability” of unused estate tax exemption; the “portability” concept allows the executor of a deceased spouse’s estate to transfer any unused exemption to the surviving spouse for decedents dying after December 31 2012.
Tax breaks extended. The new tax provisions extend for five years the earned income credit, child tax credit and American opportunity tax credit.
Permanent Patch of Alternative Minimum Tax. The long awaited Alternative Minimum Income Tax patch has arrived. The AMT is now permanently indexed for inflation.
Personal exemptions phased out for individuals making over $250,000. The new tax provisions phase out personal exemptions and limit itemized deductions for taxpayers making over $250,000 and families earning more than $300,000.