While the “fiscal cliff” was averted, the coming year will bring a few things to watch for.
Here are a few highlights regarding the American Taxpayer Relief Act of 2012 and what it means to Auctioneers:
1. Bush tax cuts
The compromise permanently extends the 2001 and 2003 income tax cuts for individuals earning less than $400,000 and families earning less than $450,000. Taxable income above those levels will now be taxed at the top rate of 39.6 percent, effectively a tax increase of 4.6 percentage points.
2. Estate tax
The measure provided a permanent fix to the estate tax by raising the maximum rate from 35 percent to 40 percent with a $5 million exclusion, which will be indexed for inflation.
Many small business owners feared the maximum rate would revert to 55 percent with a $1 million exclusion, the level prior to 2001 tax reform, says Walt Hatter, a Certified Public Accountant and managing partner of Hatter & Associates in Fort Worth, Texas.
“That is absolutely great news for small business owners,” says Hatter, a member of Texas Society of Certified Public Accountants. “It turned out better than many of us expected.”
Auctioneers who need to purchase equipment should consider doing so this year.
That is because Section 179 was extended for 2012 and 2013. The provision allows small business owners to deduct a half million dollars of qualified equipment purchases.
The threshold dipped to $125,000 in 2012 and was scheduled to drop to $25,000 in 2013, but it will now remain at a half million dollars for both years as part of the fiscal cliff compromise.
“That’s a good deal for small business owners,” Hatter says. “They would be wise to make any large equipment purchases in 2013.”
4. Payroll tax reduction
The bill did not extend the 2 percent reduction in worker’s Social Security payroll tax that was enacted two years ago on employees’ portion of the payroll tax. For 2013, the employee tax rate for social security increases from 4.2 to 6.2 percent.
Employers should implement the 6.2 percent tax rate as soon as possible, but no later than Feb. 15, according to the Internal Revenue System.
5. Capital gains
The act raises the top rate for capital gains and dividends to 20 percent, up from 15 percent during the Bush era.
Some clients might consider delaying large auctions to avoid the higher rates, says Kurt Kiefer, owner of Kiefer Auction Cos. in Fergus Falls, Minn. But the delay should not last long.
“They might put a three- to six-month light freeze on some auctions while people work through this in their heads,” says Kiefer, NAA Treasurer. “But overall, this was a good break for Auctioneers. Capital gains taxes are still low.”