At the start of 2012, all the same incentives to engage in estate planning that were present in 2011 are still present. What may be different, though, is a greater sense of urgency, as things are set to change at the end of the year, unless Congress takes action. Both in terms of income taxes and estate/gift taxes, changes are in store.
Beginning with income taxes, the current top bracket for federal income tax is 35 percent, and this will remain through 2012. If no action is taken, it will increase to 39.6 percent in 2013.
In terms of qualified capital gains and dividends, the top rate is 15 percent in 2012, and 0 percent for taxpayers in the 10 percent and 15 percent income tax brackets. The capital gains rate is scheduled to increase to 20 percent in 2013, and the top rate for qualified dividends is set to increase to 39.6 percent.
As far as itemized deductions, high-income taxpayers will not have any reduction in the total amount of such deductions in 2012, but there will be a limitation in 2013. Neither will high-income taxpayers be subject to the phase-out of the personal exemption deduction, but the phase-out of the personal exemption deduction is scheduled for 2013. This essentially means that high-income taxpayers will have a decreased ability to reduce their federal taxes after this year.
Getting to estate and gift taxes, the top federal estate tax rate in 2012 is 35 percent and the amount individuals are allowed to exclude from their estate is $5,120,000. In 2013, the top federal estate tax rate will change to 55 percent and the exclusion amount is set to decrease to $1 million. That is a huge decrease.
In our next post, we’ll continue looking at this topic, picking up with changes to the federal generation-skipping transfer tax.
Source: Smart Business, “How to approach tax and estate planning opportunities for 2012,” Stanley Heyman, January 3, 2012.