The Status of Our Federal Tax Laws
How our federal laws will evolve and change in the course of a year is difficult to determine, especially 
Here’s what is known about our current federal tax laws in 2012:
- The progressive tax brackets are set at the following percentages for the ordinary income tax: 10%, 15%, 25%, 28%, 33%, and 35%.
- If a taxpayer has a rate of 25% or higher, then your capital gains and dividend rate will be set at 15%, otherwise your rate is 0%.
- Gains on collectibles held long term will be taxed at 28%, whereas short term gains are taxed based upon your ordinary income tax bracket.
- Congress has not increased the amount allowed for deductions on Charitable IRAs.
- There is no limitation on the amount of itemized deductions a taxpayer may take.
- In 2012, the personal exemption phase-out will not apply.
Here’s what is known about about how our federal tax laws will be structured in 2013 unless Congress chooses to act and changes these provisions:
- The progressive tax brackets are set at the following percentages for the ordinary income tax: 15 %, 25%, 28%, 31%, 36%, and 39.6%.
- All Capital Gains will be taxed at 20%.
- There will be no change in the tax for collectibles except that the highest tax bracket has increased.
- There will be no change for charitable gifts.
- Deductions, both charitable and itemized, will be subject to the following limitation: the amount will be reduced by 3% of the amount of AGI that exceeds what is allowed in the statute. This amount should not exceed 80% of the amount that allowed to be taken as a deduction.
- The personal exemption phase-out will apply, subject to inflation, and will vary depending on your filing status.
For Estate and Gift tax purposes here are the following laws for 2012 and 2013.
- The exemption is set a $5.12 million per each taxpayer with the rate set at 35% for all transfers, and can be used in life and death.
- For spouses, one spouse may transfer the remainder of their exemption to their spouse; however, this only applies for 2011 and 2012.
- In 2013, the exemption will be set $1 million, and the rate will be 55%.
However, these are subject to change based upon the political decisions that this country will make by the end of this year. Mr. Teitell gives a detailed explanation of each candidate’s entire tax proposal; however, this excerpt will only cover some of the main provisions.
- President Obama wants to keep the ordinary and capital gains rate for the 2013 year, tax dividends as ordinary income setting the rate at the taxpayer’s ordinary tax rate, and apply a 25% rate in recapturing depreciation. Furthermore, President Obama would like to make the 2009 estate, gift, and generation-skipping transfers rate permanent. The exclusion amount for estate tax would be set at $3.5 million while the gift tax would be set at $1 million. Additionally, the tax rate would be set at 45%. President Obama may be also looking to implement the Buffet Rule, which essentially creates an alternative minimum tax at a rate of 30% for the wealthiest Americans.
- Newt Gingrich policy is based upon job creation and so he wants to lower the 2013 tax rates; however, he does want to make the increases permanent. Otherwise, Gingrich wants to eliminate the estate tax and and implement a flat tax.
- Ron Paul wants to lower taxes and repeal most capital gains tax laws. He wants to abolish the 16th Amendment, and would like to dismantle the IRS.
- Mitt Romney would like to make the Bush tax cuts permanent, lower income tax rates, and repeal the estate tax.
- Rick Santorum would like to make the tax code easier and more similar by reducing the number of tax brackets to only two: 10% and 28%. Furthermore, Santorum would like to lower the capital gains tax, and increase the amount of deductions that the tax code provides.
See Conrad Teitell, Washington Legislative Climate for Chartiable and Estate Planning, Trusts & Estates, Mar. 26, 2012.
Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) for bringing this article to my attention.