Rick Woods, CPA

President Obama submitted a fiscal 2013 federal budget to Congress on February 13, 2012. On the revenue side, the President’s proposals blend several familiar ideas along with a number of new initiatives. If enacted by Congress, these proposals would impact individuals, businesses, exempt organizations, and taxpayers of all types. Below are some of highlights from a dozen of the President’s more significant tax proposals. If you would like to read more about some of the details, click here.

Individual Income Tax Rates:

• End Bush-era tax cuts for higher income taxpayers
• Reinstate 36% and 39.6% tax brackets for higher income taxpayers
• Extend tax brackets of 10%, 15%, 25%, and 28%
• Eliminate the 33% and 35% brackets

Capital Gains/Dividends:

• Increase rate on qualified capital gains from 15% to 20%.
  • Applies to individuals with $200,000 in income, or joint income of $250,000
  • Further, for these taxpayers with income in excess of the above thresholds, qualified dividends would be taxable at ordinary income rates

Limitation on Itemized Deductions/Personal Exemption Phase Out:

• Reinstate the limitation on itemized deductions
  • Itemized deductions reduced by 3% of amount by which adjusted gross income exceeds statutory thresholds, but not by more than 80% of the otherwise allowable deductions
  • Phase-out personal exemptions for upper-income taxpayers
    • Reduced by 2% of the exemption amount for each $2500 or fraction thereof by which adjusted gross income exceeds statutory thresholds ($200,000 for single filer, $250,000 for joint)
  • Statutory thresholds for both provisions of $200,000 for single filer, and $250,000 for joint

AMT/Buffett Rule:

• The “Buffet Rule” would eventually replace the AMT
  • Under the Buffett Rule, taxpayers making more than $1 million a year would be required to pay a minimum effective tax rate of at least 30%
  • The “AMT Patch” would be extended by Congress until they can pass measures consistent with the principles of the Buffett Rule

Estate Tax:

• Reinstate the federal estate tax parameters that were in effect as of calendar year 2009, including a top estate tax rate of 45% and an exemption amount of $3.5 million

Manufacturing Communities Tax Credit:

• Provide targeted federal support for investment in communities that have experienced a major job loss

LIFO/LCM Repeal:

• Repeal of the LIFO & LCM methods

Carried Interest:

• The Administration’s proposal would tax as ordinary income a partner’s share of income from “investment services partnership interest” (“ISPI”), regardless of the character of the income at the partnership level. Accordingly, such income would not be eligible for the reduced rates that apply to long-term capital gains.

Repeal of Oil/Gas and Coal Tax Incentives:

• Repeal credits and deductions available to all oil, gas, and coal producers

Bonus Depreciation:

• Extends the 100% bonus depreciation through the end of 2012.

Tax Credit for New Jobs/Wage Increases:

• Qualified employers would be eligible for a new temporary credit, which would equal 10% of increase in the employer’s eligible 2012 wages over the prior year.

Incentives for Insourcing/Disincentives for Outsourcing:

• Companies bringing operations back the USA would receive tax incentives, while the costs of outsourcing a US trade or business would be nondeductible