WTS Tax News - USA Tax Law Changes under the American Taxpayer Relief Act of 2012 (“ATRA”) The ATR A was signed by President Obama on January 3, 2013, temporarily averting the ta x rate increases of the “fiscal cliff” and permanently averting the “fiscal cliff” spending cuts. The ATRA is effective on January 1, 2013 and it addresses certain overdue 2012 issues and makes significant changes beginning in 2013. Understanding the tax law changes of the ATR A is important for both personal and business tax planning. A high-level summary of these changes is provided below.

Alternative Minimum Tax (“AMT”) Relief The ATRA pro vides permanent AMT relief by increasing the exemption amounts and indexing the exemption amounts and the phase-out threshold for inflation beginning in 2013. The AMT e xemption amounts for 2012 are $50,600 for single taxpayers and $78,750 for married individuals filing jointly. The AMT e xemption is phased out when AMT income exceeds certain thresholds. The ATR A also permits nonrefundable personal credits to be offset against the AMT.

Individual Income Tax Rates Extension of Certain Expired Business Provisions The ATRA permanently extends the marginal individual income tax rates of 2012 (35% maximum rate for ordinary income) except for individuals with an annual income exceeding $400,000 ($425,000 in the case of head of household filers and $450,000 for married joint filers), for whom the rate will be 39.6%. The rate structure is indexed for inflation as under current law. The ATR A also indexes the threshold amount for inflation after 2012. Reduced Rates on Capital Gains & Dividends

The ATRA e xtends many expired provisions retroactively from January 1, 2012 through December 31, 2013:

The research and development credit is reinstated retroactively from January 1, 2012 through December 31, 2013. The ATR A also modifies rules for computing the credit during a change of ownership and amends the rules applicable to taxpayers under common control.

Qualified

The ATRA permanently extends the current maximum 15% (or 0% for those below the 25% tax bracket) ta x rate for long term capital gains (“LTCGs”) and qualified dividend income for individuals whose annual income does not exceed $400,000 ($450,000 in the case of married couples filing jointly and $425,000 for individuals filing as heads of household). For individuals with annual incomes in excess of these thresholds, LTCGs and qualified dividends are subject to a 20% rate.

Note that if an individual earns income in excess of $200,000 ($250,000 for married joint filers), dividends and capital gains, as well as other net investment income derived by US individuals are also subject to the “Medicare Contribution Tax,” which results in an additional tax of 3.8%. Repeal of Personal Exemption Phase-Out & Itemized Deduction Limitation

The active financing income exception from Subpart F under Section 954(h) is extended retroactively from January 1, 2012 through tax years beginning before January 1, 2014.

The current “Look Through Rule” under Section 954(c)(6) for payments between related controlled foreign corporations (“CFCs”) is retroactively e xtended from January 1, 2012 through tax years beginning before January 1, 2014. The Subpart F income exemptions for active insurance income under Sections 953(e) and 954(i) are extended retroactively from January 1, 2012 through December 31, 2013. Therefore, only the following types of insurance income should be treated as Subpart F income until December 31, 2013: (i) net premiums covering risks or liabilities of US persons; and (ii) net investment income derived from the net premiums covering risks or liabilities of US persons. Other Provisions of the ATRA

For individuals with adjusted gross income of $250,000 or less ($300,000 in the case of married couples filing jointly and $275,000 for head of household filers), the ATR A repeals the personal exemption phase-out and the limitation on itemized deductions.

The ATRA permanently extends the indexed estate, generation-skipping transfer, and gift ta x exemption of $5 million, but increases the top rate to 40%. The ATR A e xtends the 50% bonus depreciation of capital expenditures for one year

January 9, 2013

WTS Tax News - USA Tax Law Changes under the ATRA (continued) The ATRA increases the limitation under Section 179 on the amount of property that can be e xpensed to $500,000 for ta x years beginning in 2013, with a phase-out beginning when the total amount of eligible Section 179 property exceeds $2 million. The ATR A does not extend the 2% payroll tax deduction that had been in effect for two years.

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January 9, 2013