As many of you know, last week Congress passed a bill that averted the so called “fiscal cliff”. Why Congress and the President would play a sick game of “chicken” with our nation’s economy is beyond imagination and will be addressed in another posting.
That said, a tax bill was passed and let’s take a look at how this will affect you and your family.
- Payroll tax holiday – the payroll tax holiday is over. As you may recall from your paycheck, a few years ago in an effort to stimulate the economy, the Congress cut your share of FICA tax (social security) from 6.2% to 4.2%. This has expired. Everyone will have 6.2% taken out their earnings up to $113,700.
- The Bush Tax Cuts…have indefinitely been extended for 99% of households. This includes American Opportunity (college) tax credit and various other tax credit items.
- Alternative Minimum Tax – has received a permanent indexation patch. This will ensure that 30 million middle class taxpayers will not be hit with the higher taxes required by the AMT.
- Estate Tax – We have received permanent indexing of the estate tax. The exemption will be above $5.2 million per person. In addition, the exemption will continue to be portable between spouses. However, the estate tax rate increases from 35% to 40%. Also, the gift and estate tax remain unified.
- The 1% – the taxes on joint filers earning at least $450,000 and individuals earning at least $400,000 will now have a top rate of 39.6% up from 35%. The dividends and long term capital gains rates have increased on these folks as well – up to 20%. In addition, the phase out of the itemized deductions and the personal exemptions are back.
- Small Business – Section 179 depreciation is $500,000 for both 2012 and 2013. Also, 50% bonus depreciation is available through 2013.
- Tax Free Transfer from IRA to Charity – this little nugget has been made retroactive to 2012 and is available for 2013. However there are two special rules for 2012…qualified distributions made in January 2013 are deemed to have been made on December 31, 2012. Also, normal distributions made in December 2012 will be considered a qualified distribution if any portion is transferred in cash directly to a charity before February 1, 2013.
So now that Congress has resolved the “fiscal Cliff”, Congress will turn its attention toward the debt ceiling.