Tax Changes
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Now that the elections are completed, we wanted to share with you where the tax laws currently stand:
Proposition 30
The passing of California Proposition 30 will result in an increased tax rate from the previous 9.3% for many California taxpayers. The law is effective January 1, 2012 and is scheduled to be in effect for 7 years. In addition, California sales tax will increase by .25% for four years (scheduled to be in place January 1, 2013), bringing the state sales tax rate to 7.50% (currently 7.25%).
A summary of the effects of Proposition 30 is as follows:
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Proposition 30 Tax Rate Schedule
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Single/Married Filing Separately
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10.3% (1% increase) on income of:
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$250,001-$300,000
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11.3% (2% increase) on income of:
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$300,001-$500,000
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12.3% (3% increase)
on income of:
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Greater than $500,000
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Head of Household
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10.3% (1% increase) on income of:
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$340,001-$408,000
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11.3% (2% increase) on income of:
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$408,001-$680,000
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12.3% (3% increase) on income of:
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Greater than $680,000
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Married Filing Jointly
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10.3% (1% increase) on income of:
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$500,001-$600,000
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11.3% (2% increase) on income of:
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$600,001-$1,000,000
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12.3% (3% increase) on income of:
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Greater than $1,000,000
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(Note: Income in excess of $1 million remains subject to the California 1% mental health surcharge making the true effective tax rate for taxable income over $1 million 13.3%.)
The Fiscal Cliff (Expiration of Bush Tax Cuts)
Federal Tax Rates – The re-nomination of President Barrack Obama allowed for some clarity regarding the direction of the Federal Tax Plan; however Congress has not yet come to a decision on whether to let the Bush tax cuts expire or to implement new tax law. The following rates will be enacted if Congress does not come to a decision and the Bush tax cuts expire:
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Marginal Tax Rates
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Married Couple Filing Jointly
§ Tax rate of 15% for income from $0-$63,500
§ Tax rate of 28% for income from $63,501-146,400
§ Tax rate of 31% for income from $146,401-$223,050
§ Tax rate of 36% for income from $223,051-$398,350
§ Tax rate of 39.6% for income from $398,351+
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Single
§ Tax rate of 15% for income from $0-$36,250
§ Tax rate of 28% for income from $36,251-$87,850
§ Tax rate of 31% for income from $87,851-$183,250
§ Tax rate of 36% for income from $183,251-$398,350
§ Tax rate of 39.6% for income from $398,351+
Please note that itemized deduction phase outs will apply, making the true effective tax rate higher than listed above.
Additionally, please see link below to our previous newsletter regarding additional taxes that may apply to earned income.
Long Term Capital Gain and Dividends Rates – If the Bush tax cuts are not extended, capital gains will be taxed as follows:
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10% for taxpayers in the 15% bracket
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20% for those above the 15% bracket
Lastly, as a result of the Affordable Care Act, as of January 1, 2013, higher income taxpayers will be subject to an additional 3.8% health care tax on passive income. Higher income taxpayers are individuals – above $200,000; married filing jointly – above $250,000; married filing separately – above $125,000. See link below to our previous newsletter for definition of income subject to this 3.8% additional tax.
AMT
The current AMT “Patch” expires on December 31, 2011. It is unknown if the Patch will be retroactively applied throughDecember 31, 2012. If the current AMT Patch is not extended, the exemptionamounts effective January 1, 2012 will be as follows:
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Effective January 1, 2012
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Single – $33,750
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Married Filing Jointly (and surviving spouse) – $45,000
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Married Filing Separately – $22,500
For information on tax implications related to Obama Care, as well as the Estate and Gift Income Tax changes, please refer to the link below for our previous newsletter.
Please contact us if you have any questions.
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