Tax Law Changes - Planning for 2012 & Beyond

As we approach the end of 2012, it is important to start thinking about year-end planning.  As we outlined in our another article, January 2013 will bring with it significant changes to current tax law as the “Bush tax cuts” expire and additional provisions from the Patient Protection and Affordable Care Act take effect.

Below we summarize changes, of particular interest to the construction and transportation industry: 

Income Tax Rates:

	Top Rates
	2012		2013
Ordinary Income	35%		39.6%
Long-Term Capital Gain	15%		20%
Qualified Dividends	15%		39.6%

   





Medicare surcharges:

• 3.8% surcharge on investment income (interest, dividends, capital gains, passive income, including partnerships and S-Corporations that a taxpayer doesn’t materially participate in).
• Applicable to taxpayers with adjusted gross income for 2013, exceeding $250,000 for married couples, and $200,000 for single individuals.
• The surcharge is over and above the top rates noted above, meaning the maximum tax rate for capital gains will be 23.8%, and for dividends will be 43.4%.
• 0.9% additional Medicare tax on compensation of more than $200,000 for an individual, or $250,000 for a married couple.  This tax is imposed on both wages and self-employment income.

Depreciation:

• Depreciation limits are scheduled to drop back significantly in 2013.  The Section 179 deduction limit is reduced from $139,000 in 2012 to $25,000; plus inflation adjustments for 2013.  Bonus depreciation, which allows for a 50% first year deduction for new equipment, will no longer be available for equipment placed in service January 1, 2013 and after.

The uncertainty as to whether there will be any legislative action to address the impending law changes makes tax planning for 2012 critical and more complex.  It is important to get an early review of your income tax situation in order to provide time to develop a strategy to minimize your tax exposure and prepare for the changes ahead.