The times they are a-changing. Along with other changes in the U.S. economic, social and political scene, are new tax proposals. Here is a partial list of recently submitted proposals by the Obama administration:
These proposals are intended (if adopted by Congress) to become effective as of 1 January 2013.
• Reinstate limitation on itemized deductions for high-income taxpayers. If adjusted gross income (AGI) exceeds $250,000 (joint filers), $225,000 for head of household filers, $200,000 for single persons and $100,000 for marrieds filing sepatately, the total of itemized deduction is reduced by 3% of the excess of those deductions over those amount.
• Reinstate phase-out of personal exemptions for high-income taxpayers.
• Upper income brackets raised. Top rate would become 39.6%
• “Qualified dividends” as ordinary income for portion of those dividends that would fall into the new 36% or 39.6% income tax brackets.
• Raise capital gain rates to 20% on the portion of capital gain income that would otherwise be taxable in the new 36% or 39.6% income tax brackets.
• There would be modifications in the minimum required distributions of IRA and other retirement plans.
• Estate, gift, and generation-skipping transfer taxes would be rolled back to 2009 levels:
– Maximum estate, gift and generation-skipping transfer (GST) tax rate would be 45%.
– The estate tax and GST tax exemptions would each be $3.5 million,
– The gift tax exemption would be $1 million.
– The “portability” of unused estate and gift tax exemptions between spouses would continue.
• Require consistency regarding basis for transfer tax and income tax purposes – An executor would be required to report the basis of property transferred at death and a donor would be required to report the basis of property transferred by gift. The recipient in either case would be required to use that basis.
• Changes in grantor trust taxation. These will be elaborated in a later Blog entry if they become law.
Discussion: Although dependent in large part on the outcome of the next presidential and congressional elections, it would be wise for anyone with a large estate to take advantage of the high ($5,000,000) estate tax exemption by making gifts to intended beneficiaries (e.g,, children) before 31 December 2012.