Rich taxpayers may end up paying higher tax bills this season. Due to the changes in the 2012 tax law, the American Taxpayer Relief Act of 2012. Anyone who makes enough to consider themselves wealthy will pay higher taxes on their income.
The first bill that raised taxes for the wealthy is The American Taxpayer Relief Act of 2012. This bill is also commonly known as the fiscal cliff tax bill. This law prevents rich taxpayers from reducing their bill by utilizing certain tax privileges.
The second change affecting wealthy taxpayers comes from the Affordable Care Act. Two provisions from this law went into effect in 2013. Clearly, this bill targets high-income taxpayers, but the language in the bill fails to provide a numeric value for the term high-income.
These two laws created five significant changes for wealthy taxpayers. These changes are the main causes for higher tax bills and reduced privileges.
Rich taxpayers may end up paying higher tax bills this season. Due to the changes in the 2012 tax law, anyone who makes enough to consider themselves wealthy will pay higher taxes on their income.
Tax rate increase from 35% to 39.6%
This change applies to regular or ordinary income. It affects single taxpayers who earn $400k per year and married couples who earn $450k per year. It also affects married couples who file separately if their income reaches $225k per year.
Capital gains tax increase of 5%
Wealthy taxpayers with numerous investments will pay more taxes this season. Income earned from real estate, currency, and paper assets will increase from 15% to 20%.
Payroll tax increase of 0.9% in American Taxpayer Relief Act of 2012
Employers must subtract an extra 0.9% from employees who earn $200k or more. Self-employed individuals must adhere to this change as well.
Tax on net income from investments.
The healthcare law adds a 3.8% tax to single individuals earning $200k and married individuals earning $125k. This tax applies to net earnings from capital gains and other investments.
Lower dollar amounts on exemptions and deductions.
The previous exemptions and deductions for wealthy individuals no longer apply. The dollar amounts for these deductions are lower and some exemptions are obsolete. Taxpayers will need to file their income taxes before they could come up with a dollar amount for this loss. Using an updated tax software like TurboTax will reduce the confusion that may occur during the calculating and filing.
Some tax preparers may use the new laws as an excuse to raise fees for wealthy taxpayers. If you have a high income, you can avoid this headache by using TurboTax instead. As long as you are using a recent version, you will be able to accurately file your taxes with the updated percentages and new deductions, exemptions, and provisions.