More On Tax Planningfrom The Advisor's Professional Library
- Selected Provisions of the American Taxpayer Relief Act of 2012 The experts of Tax Facts have produced this comprehensive analysis of selected provisions of the American Taxpayer Relief Act of 2012 (the Act) to provide the most up-to-date information to our subscribers. This supplement analyzes important changes to the tax code with emphasis on how these developments impact Tax Facts’ major areas of focus: Employee Benefits, Insurance, and Investments.
- IRAs: In General Individual Retirement Accounts are highly popular tools for contributing funds that grow on a tax deferred basis. Depending on the type of IRA, the accumulation can be tax free.
Nine years ago, Congress passed several income and estate tax reductions through a "reconciliation" process that resulted in their being sunsetted after 2010. The commentary noted that, absent congressional action, marginal income tax rates for the top fifth and top income brackets would increase to 36% and 39.6%, respectively, from the current rates of 33% and 35%. Net capital gains rates for these two brackets would go up to 20% from 15%.
The biggest change, however, would come in the qualified dividend area, which will increase from 15% to a maximum of 39.6% if Congress does not extend the cuts, according to the commentary. Moreover, tax rates for 2013 when the new health care laws are effective would impose an additional 3.8% tax on individual taxpayers whose modified adjusted gross income exceeds $200,000, or $250,000 for married couples filing joint returns.
The estate tax in 2011, and going forward, will also be significantly more onerous if Congress does not act, the commentary said. In 2009, an individual could leave up to $3.5 million to a non-spouse beneficiary without incurring a federal estate tax. "For the current year, 2010, there is no federal estate tax," DiQuollo said in the commentary. "You may recall hearing that the heirs of George Steinbrenner, the late owner of the New York Yankees who died in July, saved almost $500 million in federal estate taxes, on a $1 billion estate. This pales in comparison to Dan Duncan, owner of a natural gas processing plants in Texas, whose heirs will inherit over $10 billion with no estate tax."
The commentary concluded that without congressional action, the federal estate tax will be reborn on January 1, 2011, and will tax all inheritances to non-spouse beneficiaries in excess of only $1 million dollars, with progressive rates going as high as 55%. DiQuollo pointed out that if billionaire Dan Duncan had died in 2011 rather than 2010, "his estate would have paid up to $5.5 billion to Uncle Sam (assuming the estate was left to his children) versus the actual amount of 'zero.'"