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• 39.6% tax rate for incomes above $400,000 ($450,000 for families).

• All other Bush-era tax rates extended.

• 20% maximum capital gains/dividends tax rate for incomes above $400,000 ($450,000 for families).

• Maximum 40% estate/gift tax rate.

• Permanent AMT patch.

• Five-year extension of enhanced education credit.

• One-year extension of many business tax extenders.

• New Medicare taxes.

• Married same-sex couples may now use the filing status of married filing joint.



2014 Highlights


Individual Income Tax Rates. The American Taxpayer Relief Act of 2012 makes permanent for 2013 and beyond the lower Bush-era income tax rates for all, except for taxpayers with taxable income above $400,000 ($450,000 for married taxpayers, $425,000 for heads of households). Income above these levels will be taxed at a 39.6 percent rate.

Marriage Penalty Relief. The American Taxpayer Relief Act extends all existing marriage penalty relief. Before the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTTRA), married couples experienced the so-called marriage penalty in several areas. EGTTRA gradually eliminated the marriage penalty in two ways. The basic standard deduction for a married couple filing a joint return was increased to twice the basic standard deduction for an unmarried individual filing a single return. The size of 15 percent income tax bracket for a married couple filing a joint return was also increased to twice the corresponding rate bracket for an unmarried individual filing a single return.

Capital gains/dividends sunsets. The American Taxpayer Relief Act raises the top rate for capital gains and dividends to 20 percent, up from the Bush-era maximum 15 percent rate. The top rate will apply to the extent taht the taxpayer's income exceeds the thresholds set for the 39.6 percent rate ($400,000 for single filers, $450,000 for joint filers and $425,000 for heads of households). All other taxpayers will pay a maximum of 15 percent on capital gains and dividends. A zero percent rate will continue to apply to capital gains and dividends to the extent income falls below the top of the 15 percent income tax bracket - projected for 2013 to be $72,500 for joint filers and 36,250 for singles.

Permanent Alternative Minimum Tax relief. The American Taxpayer Relief Act "patches" the Alternative Minimum Tax (AMT) for 2012 and subsequent years by increasing the exemption amounts and allowing nonrefundable personal credits to the full amount of the individual's regular tax and AMT. Without the patch, 60 million raxpayers would have been subject to AMT on their 2012 tax returns.

Pease limitations. The Pease limitations, named after the member of Congress who sponsored the original provision, reduces the total amount of a higher-income taxpayer's otherwise allowable itemized deductions. The American Taxpayer Relief Act offically revives this limitation, which was eliminated by EGTRRA. However, higher "applicable threshold" levels apply under the new law. Certain items, such as medical expenses, investment interest, and casualty, theft or wagering losses, are excluded.

Personal exemption phaseout. The American Taxpayer Relief Act also offically revives the personal exemption phase-out rules. Under the phaseout, the total amount of exemptions that may be claimed by a taxpayer is reduced by two percent for each $2,500, or portion thereof (two percent for each $1,250 for married couple filing seperate returns) by which the taxpayer's adjusted gross income exceeds the applicable threshold level.

State and local sales tax deduction. The Federal Tax Extenders Bill extends through 2014 the election to claim an itemized deduction for state and local general sales taxes in lieu of state and local income taxes.

Child tax credit. The American Taxpayer Relief Act extends permanently the $1,000 child tax credit.

Earned income credit. The American Taxpayer Relief Act makes permanent or extends through 2017 enhancements to the earned income credit (EIC) in Bush-era and subsequent legislation. This includes a simplified definition of earned income, reform to the relationship test and modification of the tie-breaking rule.

American Opportunity Tax Credit. The American Taxpayer Relief Act extends through 2017 the American Opportunity Tax Credit (AOTC). The AOTC rewards qualified taxpayers with a tax credit of the first $2,000 of qualified tuition and related expenses and 25 percent of the next $2,000, for a total maximum credit of $2,500 per eligible student. Additionally, the AOTC applies to the first four years of a student's post-secondary education.

New Medicare taxes. Effective January 1, 2013,the Affordable Care Act imposed two new Medicare taxes on qualified taxpayers: a 3.8% net investment income tax and 0.9% Additional Medicare tax. Generally, these taxes will affect you if your income is in excess of $200,000 (single) or $250,000 (married filing joint), $125,000 (married filing separately).

Same sex marriages. Married same-sex couples may now use the filing status of married filing joint. Please note that you must have been married in a state that recognizes marriage (rather than civil unions). You needn't reside in that state in order to file jointly.

Health Savings Accounts (HSA). If you have a high deductible health insurance plan and an HAS, you may contribute $3,350 (individual plan) or $6,650 (family coverage plan). The contribution limits increase to $3,300 or $6,550 respectively for 2014.

Standard mileage rates. For 2014, the standard rate is 56 cents, medical and moving is 23.5 cents, charitable is 14 cents. The rates for 2015 are 57.5 cents and 23 cents respectively. The charitable rate remains the same as it is set by statute.

Per diem rates. As of September 30, 2014 the per diem rates for travel and meals are set at $259 for high-cost areas and $172 for low-cost areas.

Home office deduction. The IRS announced a new optional method to determine your home office deduction which will no longer require tracking actual expenses. The maximum deduction allowed under this safe harbor method is $1,500 based on 300 square feet. For most of you, tracking actual expenses will result in a higher deduction.


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