It took a government shutdown, but after four years the Democrats in the U.S. Senate (led by the Undertaker) finally agreed to an established process that has gone on for ages: sitting down with the House of Representatives and hashing out a budget. And in another bit of shocking news, they are demanding new “revenues” (they never say taxes) to come to a compromise.
You may have heard that the feckless Democrats in the Senate have not passed a budget for three years. They standardized a rarely used way of operating a government – continuing resolution or the new in vogue term: a CR. They only did pass a budget this past year because of a House Republican law that was passed that said “No budget, no pay.” The Undertaker and his crew said we can spend recklessly and be irresponsible, but taking away our paychecks is just downright uncivil. But then the Undertaker told his budget chair, Patty Murray (D-WA) that she could not meet with those scoundrels from the House who actually want to operate the government on a budget and maybe trim that nasty overspending.
So while I was working on year-end tax planning for my clients, I came upon the multitude of tax increases that go into effect this year to cover the cost of Obamacare and the expanding federal government.
• There is some special depreciation that is scheduled to expire in 2014. It does not look at this time like it will be renewed. There is a 50% bonus depreciation on most new equipment and software. You can write off up to the first $500,000 of acquisitions of fixed assets. Also, there is a special 15-year depreciation for leasehold improvements that usually has to be depreciated over 39 years. Not renewing effectively raises tax rates especially on small businesses.
• A new Medicare tax begins in 2013 of .9% for wages over $200,000; $250,000 for couples.
• A new surtax of 3.8% exists for the lesser of your investment income (dividends, capital gains) or adjusted gross income over $200,000; $250,000 for couples.
• A new tax rate of 39.6% exists on taxable income above $400,000 for individuals; $450,000 for couples.
• The tax rate on dividends and capital gains goes from 15% to 20% for individual taxpayers with income above $400,000; $450,000 for couples.
• Personal exemptions again are being phased out. The phasing out begins at $250,000 for individuals; $300,000 for couples.
• Once again itemized deductions are being phased out for income over $250,000 for individuals; $300,000 for couples.