A View of Taxes from the Cliff A View of Taxes from the Cliff

Updated on March 8, 2013

PHNBaumcurrentinvest_Nadav pic(1)By Nadav Baum

As we all now know,  Congress passed  the American Taxpayer Relief Act (ATRA) of 2012 at the very beginning of the New Year, but not without  a great deal of media drama.  Although the media coverage was constant and dense, it seemed to create more questions than answers as to what the ATRA actually means to the individual tax payer.  To provide some clarity of the outcomes of the ATRA, consider the following from my colleague Robert Standish, JD, CFP®, Managing Director, Financial Planning, at BPU Investment Management, Inc.

Individual Income Tax Rates

The ATRA makes permanent the Bush-Era tax cuts for Married Filing Joint (MFJ) taxpayers with adjusted gross income (AGI) less than $450,000, and Unmarried filers with AGIs below $400,000.  For tax payers whose AGIs exceed these thresholds, Congress has re-instated the 35% and 39.6% marginal income tax rates.

However, the ATRA did not extend the 2012 payroll tax holiday that included a 2% reduction in OASDI (Old Age, Survivor and Disability Insurance or more commonly known as Social Security) taxes withheld from workers’ paychecks.

Capital Gain and Qualified Divided Rates

In addition to the extension of the individual income tax rates for taxpayers falling under the $450,000/$400,000 AGI threshold, long-term capital gain and qualified dividend rates will remain at 15 percent.  Qualified dividend rates will be subject to tax at the applicable long-term capital gain rate.  For example, if your AGI exceeds $450,000 as a MFJ filer, your qualified dividends will incur a 20% tax rate.

Alternative Minimum Tax (AMT) Relief

The ATRA provides a permanent “patch” by increasing the AMT exemption amounts to $50,600 and $78,750 respectively for Unmarried and MFJ taxpayers.  Furthermore, the AMT exemption amount is indexed for inflation.

Estate and Gift Tax Reform

We now have, as permanent, an estate tax exclusion amount and tax rate.  Exciting to few, but this introduces a level of certainty that enables many to create and execute an appropriate estate plan. The ATRA establishes a portable $5,000,000 exclusion amount, and an estate tax rate of 40%.

Prior to permanent extension, portability was available only to the estates of decedents dying between December 31, 2010 and January 1, 2013.  Now, you can die when you prefer, and your surviving spouse may apply any unused exclusion amount i.e., the deceased spousal unused exclusion amount (DSUE) to his or her transfers during life and at death.

Nadav Baum is Managing Director and Financial Advisor for BPU Investment Management, Inc. For more information, visit www.bpuinvestments.com.


The American Taxpayer Relief Act of 2012, (HR8, as amended by Senate)

“CCH Tax Briefing: American Taxpayer Relief Act of 2012”, CCH Publishing, January 2, 2013.

As you attempt to navigate through the various new aspects of this legislation, and understand how it may impact your tax and estate planning strategies, please contact us if we can provide any assistance.

SECURITIES AND ADVISORY SERVICES ARE OFFERED BY BPU INVESTMENT MANAGEMENT, INC. member FINRA and SIPC, a registered investment advisor.  Please be advised that the accuracy and completeness of this information are not guaranteed.  The opinions expressed are those of the author(s) and are not necessarily those of BPU Investment Management, Inc. or its affiliates.  The material is distributed solely for informational purposes and is not a solicitation of an offer to buy any security or instrument or to participate in any trading strategy and should not be relied on for accounting, legal or tax advice.  Though our firm provides planning services, we do not render specific legal, accounting or tax advice.  Always consult an appropriate professional before implementing any planning decisions.


IRS CIRCULAR 230 NOTICE: To ensure compliance with requirements imposed by the Internal Revenue Service, we inform you that any U.S. tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed in this communication.

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