For now the “fiscal cliff” has been temporarily averted with the American Taxpayer Relief Act of 2012 (ATRA). Below are some of the major provisions of the Act.
Tax Rates and Brackets: There will be no increase in the income tax rate for individuals who make less than $400,000 (or married couples who make more than $450,000). The rate will be 39.6% for those who make more than this amount.
Capital Gains: The tax rate on capital gains was not changed for most filers. For individuals in the bottom two income tax brackets there is no tax on capital gains. The permanent rate for filers in between the bottom two brackets and the top bracket will be 15%. For individuals who make over $400,000 ($450,000 for couples) the new rate will be 20%.
Dividends: The ATRA permanently set the tax rate on qualified dividends as it is for capital gains. Taxes on dividends were scheduled to be begin being taxed at ordinary income rates for 2013 and thereafter.
Child Tax Credit: The per-child credit of $1,000 is permanent. This was scheduled to revert back to $500 per child.
Marriage Penalty: The standard deduction for married couples has been permanently set at twice the value for single filers. For 2013 the standard deduction will be $12,200 instead of the $10,150 that it was scheduled to revert to.
Estate Taxes: The estate tax rate will be 40% and the exemption amount will remain at $5,000,000 instead of going back to $1,000,000. The exemption amount will be indexed for inflation.
Source: National Association of Tax Professionals 2013
The Act, like most legislation, is lengthy and this is not intended to be an exhaustive description of the provisions or construed as tax advice. The list above is simply an outline of the major pieces that my clients and friends have asked me about as the “fiscal cliff” conversation was escalating. If you have additional questions please don’t hesitate to talk to your tax advisor. If you are in the Texarkana area I will be more than happy to recommend a competent tax professional who is knowledgeable about the Act and its provisions. You can find us at www.carrollinvestmentmanagement.com or send us an email at firstname.lastname@example.org.
The opinions voiced in this material are for are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.