In December, Congress extended the expiring 2001 and 2003 tax cuts for two more years. Due to a "sunset" clause, the provisions were set to expire on January 1, 2011.

The table below provides a side-by-side comparison of the provisions prior to the tax cuts and their current state with the extensions in place.

Individual Tax Rates

2000 2010 - 2012

Tax Brackets:

15%
28%
31%
36%
39.6%

Tax Brackets:

10%
15%
25%
28%
33%
35%

View Federal Income Tax Rates for 2013

Taxation of Dividend Income

2000 2010 - 2012
Dividend income was taxed as ordinary income at your marginal tax rate. Qualified dividend income is taxed at your long-term capital gains rate.

Taxation of Long-Term Capital Gains

2000 2010 - 2012

Your long-term capital gain rate depended on how long you held the shares and your income tax bracket.

Ordinary Income
Tax Bracket

Holding Period

>1 yr. >5 yr.
     
15% 10% 8%
28% 20% 18%
31% 20% 18%
36% 20% 18%
39.6% 20% 18%

Note: Short-term gains are gains on investments held under one year. Your short-term capital gains tax rate is the same as your ordinary income rate.

Your long-term capital gains tax rate depends on your income bracket.


Ordinary Income
Tax Bracket

Holding Period

  > 1 yr.
10% 0%
15% 0%
25% 15%
28% 15%
33% 15%
35% 15%

Note: Short-term gains are gains on investments held under one year. Your short-term capital gains rate is the same as your ordinary income rate.


Estate Taxes

2000 2010 2011 - 2012
Estate assets were taxed at 55% with an exemption limit of $1,000,000.

Beneficiaries of decedents who passed away in 2010 have two options:

1. Follow the previous rules for 2010: Estate assets are not taxed, regardless of the transfer amount. However, the cost basis of the transferred amount is carried over to the beneficiary (based on original share price when purchased by decedent).

2. Follow the new provisions: Estate assets are taxed at 35% with an exemption limit of $5,000,000 (based on share price as of the decedent's date of death, including adjustments).

Estate assets are taxed at 35% with an exemption limit of $5,000,000* (based on share price as of the decedent's date of death, including adjustments).

*adjusted for inflation in 2012.

Alternative Minimum Tax (AMT) Exemption Amount and Phase Out Ranges

2000 2010 2011*
Taxpayers were only able to exempt the following amounts from the AMT. If your income fell within the phase out range, you would have been able to only claim a partial exemption.

Married Filing Jointly and Surviving Spouses
Exemption amount $45,000
Phase out range $150,000-$330,000

Single or Head of Household
Exemption amount $33,750
Phase out range $112,500-$247,500

Married Filing Separately
Exemption amount $22,500
Phase out range $75,000-$165,000
Taxpayers may exempt the following amounts from the AMT. If your income falls within the phase out range, you may only claim a partial exemption.

Married Filing Jointly and Surviving Spouses
Exemption amount $72,450
Phase out range $150,000-$439,800

Single or Head of Household
Exemption amount $47,450
Phase out range $112,500-$302,300

Married Filing Separately
Exemption amount $36,225
Phase out range $75,000-$219,900
Taxpayers may exempt the following amounts from the AMT. If your income falls within the phase out range, you may only claim a partial exemption.

Married Filing Jointly and Surviving Spouses
Exemption amount $74,450
Phase out range $150,000-$447,800

Single or Head of Household
Exemption amount $48,450
Phase out range $112,500-$306,300

Married Filing Separately
Exemption amount $37,225
Phase out range $75,000-$223,900

*In 2012, the exemption amounts revert back to the year 2000 provisions.

Coverdell Education Savings Account (CESA)

2000 2010 - 2012

Contribution Limit: $500

Earnings: Any earnings withdrawn were taxed as ordinary income and subject to a 10% penalty unless used for college expenses. In other words, your original contributions were not taxed but the appreciation would have been.

Expenses: Qualified spending was limited to college-related expenses.

Hope and Lifetime Learning Credit: You were not allowed to claim both credits in the same year that you made a withdrawal.

Contribution Limit: $2,000

Earnings: Withdrawals from a CESA that are used to pay expenses for kindergarten through college are tax-free.

Expenses: Qualified spending includes kindergarten through 12th grade, plus college-related expenses.

Hope and Lifetime Learning Credits: These credits can be claimed the same year a withdrawal is made from a CESA.


Child Tax Credit

2000 2010 - 2012
Child tax credit of $500 per child. Child tax credit of $1000 per child.

Backup Withholding

2000 2010 - 2012
For investors who did not have a certified tax identification number, backup withholding was applied at the rate of 31% on payments of interest, dividends and other items. For investors who do not have a certified tax identification number, backup withholding is applied at the rate of 28% on payments of interest, dividends and other items.

Source: Joint Committee on Taxation

Please note that our representatives are not licensed tax advisors and cannot answer tax questions.

IRS Circular 230 Disclosure: American Century Companies, Inc. and its affiliates do not provide tax advice. Accordingly, any discussion of U.S. tax matters contained herein (including any attachments) is not intended or written to be used, and cannot be used, in connection with the promotion, marketing or recommendation by anyone unaffiliated with American Century Companies, Inc. of any of the matters addressed herein or for the purpose of avoiding U.S. tax-related penalties.

This information is for educational purposes only and not intended as tax advice. Please consult your tax advisor for more detailed information or for advice regarding your individual situation.