THE TRUTH
ABOUT THE
FISCAL CLIFF
We are all sick of hearing the dreaded words; “Fiscal Cliff” so we thought a summary of the facts would be warranted. Without speculation, political affiliation, or any observation, below is a summary of, “The Truth About The Fiscal Cliff”
The main part of the bill extended Bush-era income tax cuts for individuals with incomes of less than $400,000 and couples who make less than $450,000. Most prominently, it will extend the Bush-era tax cuts for the vast majority of Americans and spare tens of millions from the Alternative Minimum Tax. Effectively that means for households above those thresholds, their top rate will rise in 2013 to 39.6%, up from 35% in 2012. Plus, the capital gains and dividend tax rates for these high-income households will increase to 20% from 15%. For everyone else, investment tax rates will remain at 15% or below.
Other areas affected by the bill include:
• Limited tax breaks for high-income households: The bill will reinstate limitations on how much those making $250,000 (married couples making $300,000) and above may take in itemized deductions and personal exemptions.
• Retain key tax incentives for businesses: The bill will extend for two years several tax breaks for businesses, including a production tax credit for developers of wind projects, the research and development tax credit, and a measure allowing for bonus depreciation.
• Retains several expired tax breaks for individuals: The compromise bill will extend for one or two years a few “temporary” tax breaks for individuals that regularly are extended. These include an option to deduct state and local sales taxes in place of state and local income taxes; and a deduction for elementary and secondary school teachers for certain expenses.
• Permanently extend a more lenient estate tax: The legislation will preserve the current estate tax exemption level of $5.12 million but index it to inflation for future years. And it will raise the top rate to 40% from 35% currently.
• Extend benefits for the long-term unemployed: The bill will continue a federal extension of unemployment benefits for one year. Without it, more than 2 million of the long-term unemployed would have run out of benefits at the end of this year. The extension for one year will cost an estimated $30 billion
• Other elements of the package: with its $222 million credit for the rum industry, a $78 million write-off for the owners of NASCAR auto racing tracks and tax credits for the film industry that could total $248 million, among other things – survived intact, like a holiday bonus to Washington’s lobbyists. The bill extended several tax breaks backed by both parties, including $14.3 billion in credits for research and development projects for thousands of U.S. businesses. In the end, the bill approved by Congress and signed into law by President Barack Obama included all of those things, thanks partly to the White House’s interest in promoting wind and other alternative sources of energy, and in subsidizing research and development costs for companies.
• Families with children: The Bush tax cuts of 2001 doubled the child tax credit and made it refundable, meaning you can actually get cash back from the government if the credit exceeds your tax liability. The fiscal cliff extends those changes for another five years, until the end of 2017. For families with kids who drink a lot of milk, there was one other big benefit: The expiration of a farm bill that would have substantially increased the price of milk was extended until the end of 2013.
• Students and their parents: Students and their parents got a couple of key benefits in the fiscal cliff fix, primarily related to education. The law makes permanent Coverdell Education Savings Accounts, which allow parents to save up to $2,000 per year tax-free for education expenses, including private school tuition. It also extends through 2013 a tax deduction for tuition, fees and other qualifying expenses that can be claimed whether or not you itemize, known as an “above-the-line” deduction. Finally, the American opportunity tax credit, created by the 2009 stimulus, which provides a $2,500 refundable credit to cover college expenses, was extended until 2018.
One more item………..Due to the last minute inept action by Washington, Tax Filing Season will start later than normal. Best estimate now is the first week in February before anyone can file their tax return.
Cartlidge, Cartlidge & Co., LLC can help you plan for your future, contact us here.
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success!! Thanks.