In the early morning hours of Jan. 1, 2013, the Senate, by a vote of 89-8, passed H.R.8, the “American Taxpayer Relief Act” (the Act). Late on that same day—hours after the government had technically gone over the “fiscal cliff”—the House of Representatives, by a vote of 257 to 167, also passed the bill. The Act, which the President is expect to quickly sign into law, would prevent many of the tax hikes that were scheduled to go into effect this year and retain many favorable tax breaks that were scheduled to expire. However, it would also increase income taxes for some high-income individuals and slightly increase transfer tax rates. This article provides an overview of the Act's key provisions. 

In late 2010, as part of the Tax Relief Act, Congressional legislation allowed for businesses to expedite the deduction of capital expenditures of most new business equipment.  Typically, the cost of property cannot be deducted in the year it is placed in service if the property will be useful beyond year-end.  Instead, the cost is “capitalized” and depreciated over a period of years.  However, in an effort to aid small businesses to quickly recover the cost of capital investments for qualifying personal property (such as machinery or equipment), small business taxpayers can elect to write off part of these expenditures in the year of acquisition instead of recovering the costs over time through depreciation.

Starting in 2013, individual taxpayers may be subject to a 3.8% Medicare surtax on certain passive investment income.  The surtax is based on the lesser of (1) net investment income (“NII”) or (2) the excess of a taxpayer’s modified adjusted gross income (“MAGI”) over an applicable threshold amount.

Most individual taxpayers take advantage of deductions through itemized deductions, such as medical expenses, mortgage interest, real estate taxes and charitable contributions.  Two changes in effect for 2013 will make planning for these deductions vital in the next two months.