Guest Editorial by Mike Trammell, CPA, CCIFP Well We Didn’t Fall Off the Cliff…So Now What? After hours of political debate, House Leaders voted on New Year’s night and passed a compromised measure (called the American Taxpayer Relief Act) aimed at prevent- ing a series of tax increases and spending cuts from auto- matically going into effect, temporarily easing fears that the nation would drop off the “fiscal cliff” into a recession. The Senate resoundingly passed the legislation earlier on the same day. Unfortunately, the only part of the cliff to be averted was the tax side. However, the financial markets have responded favorably; at least in the short-term. The measure only deferred the resolution to sequestra- tion; leaving it for the 113rd Congress to deal with and hopefully they will do so immediately. Contractors will now have to deal with the expiration of the existing continuing resolution, the debt ceiling debate and sequestration all in the first quarter of 2013. In addition, such unresolved is- sues as revenue raising and reducing expenses, while much ballyhooed, were once again trumped by partisan politics and a “kick the can” approach. • • • • • • What the legislation did do: • Avoids automatic sunset provisions on 2001, 2003 and 2010 Tax Acts • Bush-era tax cuts will sunset for individuals with tax- able incomes over $400,000 and families with • • taxable income over $450,000 (although these taxpayers still benefit from the reduced rates beneath the thresholds) “Permanently patches” the alternative minimum tax (AMT) Increases the amounts allowed for the expensing of capital assets under IRC Section 179 to $500,000 for 2013 AND 2012, with a $2 million investment limit (without the Act, the limit in 2012 would have been an inflation adjusted $125,000; and to $25,000 beyond 2012) Extends Bonus Depreciation rules to 2013; and selectively to 2014 Reinstates certain credits such as the research tax credit and the American Opportunity Credit, while elim- inating cuts to other credits like the child tax credit Maintains preferred tax treatment for capital gains and dividends for taxable incomes below the maximum rate threshold Increases the applicable thresholds for phase-out of certain itemized deductions Stabilizes the Estate / Gift Tax rules with a $5 million lifetime exclusion and a maximum tax rate of 40%, and indexes the exclusion amount with inflation Extends Marriage Penalty Relief What the legislation did NOT do: • Did not extend the 2012 payroll tax “holiday” which gave wage earners and self-employed individuals a 2% savings on OSDI taxed incomes up to $113,700 (new wage base for 2013) • Address sequestration; postpones cuts for two months While there are many other items contained in the legis- lation, it falls far short of the sweeping “fix” that many law- makers hoped and campaigned on. At best it is a respite for the middle class, and a prolonged source of angst for business owners, high income individuals, and “not far from retirement” aged baby-boomers. Is sweeping tax re- form on the horizon? Will Bowles-Simpson get a second look? Is a “grand bargain” to be had in a divided Washing- ton, D.C.? We anticipate these questions and other related issues to be addressed as the new year unfolds. Mike Trammell, CPA CCIFP leads the Construction Services Group for Dixon Hughes Goodman LLP and is a frequent speaker and writer to the Construction industry. Mike can be reached at mike.trammell@dhgllp.com or at 864.342.8525. Any tax advice contained in this communication [including any attachments] is not intended or written to be used, and can- not be used, for the purpose of (i) avoiding penalties imposed under the Internal Revenue Code or applicable state or local tax law or (ii) promoting, marketing, or recommending to another party any transaction or matter addressed herein. 16 – February / March 2013 — The South Carolina Construction News