Fiscal cliff bill ready for signature: What dental professionals need to know

Reprinted from The Willeford Group — Kate Willeford, CPA, and Rick Willeford, CPA, CFP.

The House passed the American Taxpayer Relief Act late Jan. 1, 2013. In the end, the House voted very close to what we had predicted. Here are some of the key aspects of the bill you need to know now.

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• Tax bracket rises for those over $450,000.The higher 39.6% tax bracket will affect families making over $450,000 adjusted gross income (single filers, $400,000). This will affect about 0.6% of the country. This is an increase from 35%.

• The payroll tax holiday has NOT been extended .... meaning FICA taxes now rise back to the 7.65% we had prior to 2012. This means an immediate decrease in the net pay for your paycheck as well as your employees, if you have employees. You may want to recommend your employees fill out a new tax withholding form to change their withholdings to offset this net check reduction. In other words, if they always get a refund on their tax return, they could reduce their withholdings now and keep more cash in their pocket during 2013.

• Alternative Minimum Tax has finally been permanently "patched" or fixed to reduce the number of those affected by this tax. If you are a client of ours, we had already assumed this would be the case in our tax projections.

• Capital gains and dividends return to 20%. The Act would raise the top rate for dividends and capital gains from 15% to 20% for taxpayers who would be subject to the new 39.6% bracket.

• Depreciation and special depreciation extended. Use of the Section 179 depreciation deduction will remain at the high levels we have been used to for 2011 and 2012, indexed for inflation.

• Deduction limitations for individuals with income over $250,000. The Act would reinstate the Pep and Pease limitations on the personal exemption and itemized deductions for families with adjusted gross income over $300,000.

• Estate tax exemption remains at $5 million. The Act prevents steep increases in estate, gift, and generation-skipping transfer (GST) 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). The Act also permanently increases the top estate, gift, and GST rate from 35% to 40%.

• Unemployment insurance benefits extended for one year. This affects more than 2 million Americans — individual extenders. The Act extends a host of individual provisions, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for state and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.

• Business tax extenders. Many key business tax breaks would be extended including depreciation provisions, notably including bonus depreciation, and the research and work opportunity tax credits.

• Other items. The Act extends unemployment insurance and many health- and energy-related provisions, as well as extended farm legislation. The Act pushes consideration of the sequester down the road for a few months.

If you have any questions about how the new tax bill will affect you, please call The Willeford Group at (770) 552-8500 or email [email protected].