The American Taxpayer Relief Act of 2012

March 18, 2024

November 3, 2022

By

Conadmin

2013 started on a positive note as markets around the world moved higher on news that the United States Congress had passed The American Taxpayer Relief Act of 2012 (ATRA). ATRA is the first chapter in the government’s effort to prevent America from going over the so-called fiscal cliff, a package of tax increases and spending cuts that were expected to push the U.S. economy into recession. ATRA addressed some of the more pressing tax issues, including:

  • Raises the top rate for individuals with incomes above $400,000 and married couples with incomes above $450,000 to 39.6%.
  • Dividends and capital gains are taxed at 20% (up from 15%) for individuals making at least $400,000 ($450,000 for joint returns);
  • Preserves the individual estate tax exemption at $5 million and indexes it for inflation. Estate tax rates increased to 40% from 35%.
  • Phases out itemized deductions and personal exemptions for individuals earning more than $250,000 and couples earning more than $300,000.
  • Extends middle class tax cuts indefinitely, including setting higher Alternative Minimum Tax (AMT) exemption amounts that are indexed them for inflation.
  • Extends unemployment benefits for one year.
  • Avoids a 27% reduction in doctors’ Medicare reimbursement rates for 2013.
  • Allows workers to convert some or all of their 401(k) account balances into Roth 401(k)s if their employers offer Roth options and allow conversions.
  • The 2% temporary decrease in FICA payroll taxes relief was allowed to expire. This provision has a disproportionate impact on those making less than $113,700 (the FICA limit in 2013), and is expected to take $125 billion out of consumer income.
  • Postpones $109 billion sequester (automatic spending cuts) for two months.
  • Extends the 2008 Farm Bill through the end of this fiscal year (September 30, 2013), which keeps the price of milk from increasing dramatically.

ATRA resolves some of the most pressing tax issues facing the country. Now, however, Congress will need to address spending. During the next two months, we expect fierce debate about deficits and debt reduction. We also anticipate significant discussion about America’s debt ceiling, which limits the amount the country can borrow.ATRA is a first step toward finding a combination of spending and revenue that will keep America’s economy growing, but much is left to be done.DisclaimerThis market commentary is an advertisement and was written and produced by Michael W. Conway of Conway Wealth Group, LLC at Summit Financial Resources, Inc., 4 Campus Drive, Parsippany, NJ 07054. Tel: 973-285-3600, Fax: 973-285-3666 with assistance from third party contributors. Indices are unmanaged and cannot be invested into directly. The investment and market data contained in this newsletter is not an offer to sell or purchase any security or commodity. Standard & Poor’s 500 Index (S&P 500) is an unmanaged group of securities considered to be representative of the stock market in general. Past performance does not guarantee future results. Information throughout this Newsletter, whether stock quotes, charts, articles, or any other statement or statements regarding markets or other financial information, are obtained from sources which we, and our suppliers believe to be reliable, but we do not warrant or guarantee the timeliness or accuracy of this information. Neither we nor our information providers shall be liable for any errors or inaccuracies, regardless of cause, or the lack of timeliness of, or for any delay or interruption in the transmission thereof to the reader. Opinions expressed are subject to change without notice and are not intended as investment advice or a guarantee of future performance. Consult your financial professional before making any investment decision.Any tax statements contained herein were not intended or written to be used, and cannot be used, for the purpose of avoiding U.S. federal, state, or local tax penalties. Nothing in all these pages shall be construed as offering or disseminating specific financial, retirement, estate, asset protection, tax, and/or legal advice. If you require specific advice, please consult an attorney, qualified tax professional, wealth management specialist, or other financial services professional.

Initial 2021 Tax Considerations

With the swearing-in of a new President and Vice President, plus convening of the next Congress, affluent Americans are weighing how changes in federal government may financially impact them.

Given that Democrats hold the Presidency and control both Houses of Congress by a slim margin, it now seems likely that tax reform could be passed as a budget reconciliation bill and then signed into law. While there is a remote chance that expected tax changes will be retroactive, it is more probable that they would take effect immediately upon becoming law or even at the start of 2022.

Since 2021 may be a last opportunity to capitalize on current income, capital gains, and transfer tax laws, families are considering key financial & estate planning adjustments, where appropriate.

Income & Capital Gains Tax Proposals

With the swearing-in of a new President and Vice President, plus convening of the next Congress, affluent Americans are weighing how changes in federal government may financially impact them.

Given that Democrats hold the Presidency and control both Houses of Congress by a slim margin, it now seems likely that tax reform could be passed as a budget reconciliation bill and then signed into law. While there is a remote chance that expected tax changes will be retroactive, it is more probable that they would take effect immediately upon becoming law or even at the start of 2022.

Since 2021 may be a last opportunity to capitalize on current income, capital gains, and transfer tax laws, families are considering key financial & estate planning adjustments, where appropriate.

“Be fearful when others are greedy and greedy when others are fearful.”

Responsive Planning

Given the above proposals, there is great uncertainty surrounding future tax policy. Even if some of the more benign tax provisions now in effect are not repealed, many of them are scheduled to sunset at the end of 2025 already.

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  • Phase out the 20% pass-through deduction on qualified business income for people with annual income exceeding $400,000
  • Eliminate capital gain deferral through like-kind exchanges of business & investment real estate for people whose yearly income exceeds $400,000
  • Increase the highest corporate income tax rate from 21% to 28% and subject corporate book income of $100,000,000 or more to a 15% alternative minimum tax
  • Double the tax rate on global intangible low tax income (GILTI) earned by foreign subsidiaries of American businesses from 10.5% to 21%
  • Impose a 10% surtax for U.S. companies that move manufacturing & service jobs to another country and then provide services or products for sale back to the American market
  • Create an advanceable 10% “Made in America” credit for manufacturers’ revitalizing, re-tooling and hiring costs
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