Important Aspects of the New Tax Law—Good News and Bad News

• In Event: Taxes 2

Abstract

The American Taxpayer Relief Act of 2012 was enacted by Congress on January 1, 2013 with the aim of averting the “fiscal cliff.” It was passed to stave off the increase in taxes for many Americans. The Act allowed the reduction in the Social Security tax to expire and provided a permanent fix for the Alternative Minimum Tax (AMT). However, it only provided temporary measures for many other items and impacted capital gains and dividend rates, itemized deductions, personal exemptions, sales and local tax deductions, child related tax breaks, earned income credit as well as education credits and incentives. It also extended the unemployment benefits for one year, restored several tax breaks for homeowners and addresses federal estate and gift taxes. Overall, the Act contained many good points as well as bad points but has implications for Americans at all income and tax levels.
This paper discusses the provisions contained in the Act. We examine the implications of the various elements of the Act on American taxpayers and utilize numerous examples for illustration purposes at various income and tax levels. We also provide tax planning strategies that can be utilized by American taxpayers to minimize their tax liability so that they are able to maintain more of their paychecks and other income from various sources.

Authors

• Frank John Aquilino, Montclair State University

• Agatha E Jeffers, Montclair State University