American Taxpayer Relief Act of 2012

I put together a presentation today about the American Taxpayer Relief Act of 2012. I wanted to share some highlights of the changes that occurred with this new regulation. The Act was signed into law by President Obama on Jan. 2, 2013. It prevented many of the tax hikes that were scheduled to go into effect this year and retain many favorable tax breaks that were scheduled to expire. It will also increase income taxes for some high-income individuals. Further, it extends a bunch of expired and expiring tax breaks for businesses and individuals.

Top tax rate increased to 39.6% from 35% for taxpayers making:
• $450,000 for joint filers and surviving spouses
• $425,000 for heads of household
• $400,000 for single filers
• $225,000 for married taxpayers filing separately

Raised the top rate for capital gains and dividends to 20% (up from 15%) for taxpayers making:
• $450,000 for joint filers and surviving spouses
• $425,000 for heads of household
• $400,000 for single filers
• $225,000 for married taxpayers filing separately

Also note that the 2010 Health Care Reconciliation Act includes an additional 3.8% tax on net investment income for joint filers and surviving spouses making $250,000 and single filers making $200,000.

Reinstated personal exemption phaseouts for higher income taxpayers. Under the Personal Exemption Phaseout, the total amount of exemptions that can be claimed by a taxpayer subject to the limitation is reduced by 2% for each $2,500 (or portion thereof) by which the taxpayer’s AGI exceeds the applicable threshold (Inflation adjusted)
• Applicable thresholds (Inflation adjusted for tax years after 2013)
• $300,000 for joint filers and a surviving spouse
• $275,000 for heads of household
• $250,000 for single filers
• $150,000 for married taxpayers filing separately

Extended for five years the following items that were originally enacted as part of the American Recovery and Investment Tax Act of 2009
• American Opportunity tax credit
– Permits eligible taxpayers to claim a credit equal to 100% of the first $2,000 of qualified tuition and related expenses, and 25% of the next $2,000 of qualified tuition and related expenses (for a maximum tax credit of $2,500 for the first four years of post-secondary education)
• Refundable child credit
– Eased rules for qualification
• Earned income tax credit
– Various changes related to higher EITC amounts for eligible taxpayers with three or more children
– Increased in threshold phaseout amounts for singles, surviving spouses, & heads of households

Retained $5 million exemption amount for estate and gift taxes with slight rate increases
• Prevented steep increases in estate, gift and generation-skipping transfer tax that were slated to occur for individuals dying and gifts made after 2012 by permanently keeping the exemption level at $5,000,000 (as indexed for inflation)

Permanently increased in the top estate & gift tax rate
• Rate increased from 35% to 40%

Extended and modified depreciation provisions
• Extended and modified the 50% bonus depreciation provisions for one year for qualified property placed in service before 2014

These are some of the more relevant items from the American Taxpayer Relief Act of 2012 which I wanted to highlight. If you have any additional comments or questions, please feel free to post a comment or contact me.

Trickle down economics

I was browsing some comments on a CNN article about the fiscal cliff and came across these comments. In my opinion they are some good common sense arguments for the existence of “trickle down” economics.

Commenter #1
“it’s been proven that trickle down theory doesn’t work.”

Commenter #2
“Proven by whom? Do you have the actual proof? BTW, when’s the last time a poor person gave you a job?”

Commenter #3
“When the rich get richer all they do is send their money overseas. They don’t open business or hire anyone new.”

Commenter #4
“If trickle down economics does not work then why did we bail out banks and the auto industry. We bailed them out because we were afraid that if they went out of business, then they would not be able to pay employees who in turn give their money to the service industry. It is because the top leaders understand that trickle down economics is the core of our economy that we bailed out those industries.”

Irvine Park Christmas Train

Its holiday season once again in Southern California and my wife was talking about visiting the Irvine Park Christmas Train again this year which gave me a great idea for a post.

We went on the Christmas Train last year.  Its a slow moving, small train that travels around the Irvine Park.  During the holiday season, the park brightens the trains path with lights and decorations.  The ride takes a break at Santa’s Village in which the kids can take a picture with Santa.  Once the pictures are finished the train returns to the station.  

The lines for the train are longer than I like but its a really nice experience for the kids. The Park also has other small attractions set up near the train station.

For more information see the Irvine Park Christmas Train

Irvine Park Christmas Train

Tax on the sale of a personal residence?

I have always been interested in the housing market since the bubble in the last decade.  Recently, some reports have house prices in certain areas starting to increase again.  With increased house prices, this brings a question that hasn’t been popular lately.  Is there tax on the sale of a personal residence?

The below video from the IRS explains the federal tax implications and where to get additional information.  Keep in mind that state tax laws may vary regarding the tax on the sale of a personal residence.

Wintertime activities in Southern California

As winter approaches, the activities of Southern Californians change. We spend less time at the beach and more time in the deserts or mountains. The LA Times has a travel section that brings forth some pretty good ideas for traveling in California during the winter months @ LA Times California Travel.