Under current law, many of the Bush-era tax provisions, which include, reduced income and capital gains/dividends tax rates, are scheduled to expire after December 31, 2012. At the end of 2011, various so called “ tax extenders” expired, and after 2012, numerous other incentives are also scheduled to sunset. In addition, the 2012 payroll tax holiday, which reduced the employee-share of Social Security taxes by two percentage points, is slated to expire December 31, 2012.
As this is an election year, the balance between Democrats and Republicans in the House and the Senate may also change on Election Day. Both major party candidates have been discussing their stance on various tax positions. The chart below includes a brief summary of each candidate's position on a variety of topics.
|SELECTED POSITIONS OF THE CANDIDATES|
|Obama – Individual taxes||Romney – Individual taxes|
|2013 rates to increase for higher-income taxpayers only.||2013 rates same as 2012 for all taxpayers.|
|Treat dividend income as ordinary, increase capital gain rate to 20%.||Make the Bush era capital gain/dividend treatment permanent.|
|Temporarily repeal itemized deduction limitations. Limit mortgage interest deductions in the future for certain taxpayers.||Permanently repeal itemized deduction limitations. Limit mortgage interest deductions in the future for certain taxpayers.|
|Unspecified future date: lower rates for middle/lower income brackets.||Unspecified future date: 20% income tax rate reduction for all taxpayers.|
|Higher capital gains/dividend rate for higher income taxpayers (defined as the top two percent of individuals).||Eliminate tax on investment income for AGI below $200,000.|
|$3.5 million estate tax exemption and a 45% rate. Separate gift tax exemptions.||Abolish the estate and gift tax.|
|Replace AMT with “Buffett rule”*.||Repeal the AMT.|
|Payroll tax holiday-not addressed.||Payroll tax holiday-not addressed.|
|Obama – Corporate taxes||Romney – Corporate taxes|
|Reduce maximum corporate tax rate to 28% (25% for manufacturing entities) coupled with elimination of unspecified tax preferences.||Eventually reduce maximum corporate rate to 25%.|
|Extend 100% bonus depreciation through 2012.||Extend bonus depreciation, but not at 100%.|
|Extend the research credit and increase the credit rate.||Extend the research credit.|
*Obama has described the Buffett Rule as ensuring that taxpayers making over $1 million annually would pay an effective tax rate of at least 30 percent.
If there are no changes made to current tax legislation by year end, the following provisions may take effect.
|SELECTED CHANGES IN FEDERAL TAXES: 2012-2013 IF CONGRESS FAILS TO ACT**|
|Top Individual tax rate||35%||39.6%|
|Dividends||15%*||Taxed at ordinary income rates|
|Top estate tax rate||35%||55%|
|Child tax credit||$1,000||$500|
|WOTC||Up to $2,500||Unavailable|
|WOTC for veterans||Up to $9,600||Unavailable|
|Code Sec. 179 dollar limit||$139,000||$25,000|
|Research tax credit||Unavailable||Unavailable|
|Wind energy tax credits||Available||Unavailable|
*Zero percent for taxpayers in the 10 and 15 percent brackets
**Does not address impact of Medicare tax and earnings tax surcharge passed under previous legislation.
This article is a summary issued by Marcum Tax Advisors to inform the reader of positions as of this writing. The candidate’s positions or explanations may change as we near Election Day. As more information on these topics becomes available, we will inform you of the parties positions and any changes to current tax laws.