Fiscal Cliff Averted: Time to Party?
03 Jan, 2013
Listed below are points to keep in mind about the measures passed by the U.S. Congress on January 1 to address the most immediate concerns to keep the economy from falling off the fiscal cliff.
This list is compiled by Leon LaBrecque, chief strategist and founder of LJPR LLC, based in Troy, Mich.
- The top tax rate will permanently rise to 39.6 percent for families with income above $450,000 and individuals above $400,000, up from the current top rate of 35 percent.
- The tax on capital gains and dividends will be permanently set at 20 percent for those with income above the $450,000/$400,000 threshold. It will remain at 15 percent for everyone else.
- The estate tax will be set at 40 percent up from the current level of 35 percent for those with estates above $5 million ($10 million for couples), and it will be indexed to inflation.
- The 2009 expansion of tax breaks for low-income Americans: the Earned Income Tax Credit, the Child Tax Credit, and the American Opportunity Tax Credit, will be extended for five years.
- Includes a permanent patch fix for the alternative minimum tax (AMT).
- The payroll tax holiday will be allowed to expire.
- Two limits on tax exemptions and deductions for higher-income Americans will be re-imposed: Personal Exemption Phase out (PEP) will be set at $250,000 and the itemized deduction limitation (Pease) kicks in at $300,000.
- The full package of temporary business tax cuts will be extended for another year.
- Provisions for the doc fix avoids a cut in payments to doctors treating patients on Medicare.
- Federal unemployment insurance will be extended for another year, benefiting those unemployed for longer than 26 weeks.
- A nine-month farm bill fix will be attached to the deal.
- The pay freeze on members of Congress, which President Obama had lifted earlier this year, will be re-imposed.
- The sequestration cuts will be delayed for two months. Half of the delay will be offset by discretionary cuts, split between defense and non-defense spending.
- The new tax law extends the ability to make Qualified Charitable Deductions (QCDs) of RMDs directly (or indirectly) to charity.
Learn more about the fiscal cliff.
Leon LaBrecque, JD, CPA, CFP, CFA is the chief strategist and founder of LJPR, a firm managing more than $470 million, as of November 2012, in assets. LaBrecque specializes in financial planning, estate planning, business and tax planning for individual and business clients. He can be reached at email@example.com.
Illustration by stockimages at Free Digital Photos.net