It’s been a mere eleven days since the end of 2012 debacle that was the Fiscal Cliff. For most of us, it consumed our minds during the Christmas season. Rather than watching Anderson Cooper and counting down the Times Square ball drop, our eyes were glued to channels like CNN and Fox News. We were still counting down, but not so we could yell, “Happy New Year!” at the precise moment. Instead, we wanted to know one thing and one thing only- deal or no deal? And in the early hours of January 1st we learned- deal! (Kind of.)
Most of us have probably already noticed the increase in the payroll tax, and if you haven’t yet, I’m sure you’ll notice today. Many employees are getting disgruntled that their paychecks are shrinking and yet their workload and work hours remain the same. But don’t get angry at your employer- they’re just as unenthused about this as you are.
In addition to payroll tax increases, H.R. 8 will permanently raise income tax rates for families with incomes above $450,000 and individuals with incomes above $400,000. The federal estate tax will be set at 40% for those at the $450,000/$400,000 threshold, with a $5 million exemption. (The threshold will be indexed to inflation.) In addition, the AMT (Alternative Minimum Tax) will be permanently patched to avoid raising taxes on the middle-class. For businesses, the R&D tax cut has been extended through 2013, as well as the 50% bonus depreciation.
The sequester will be delayed for two months. Half of the delay will be offset by discretionary cuts, split between defense and non-defense. The other half will be offset by revenue raised by the voluntary transfer of traditional IRAs to Roth IRAs, which would tax retirement savings when they’re moved over. Finally, H.R. 8 extends unemployment insurance for 2 million Americans still looking for jobs and it extends tax relief for higher education and the hardest pressed working families for another five years.
Here is a link to the full text of the legislation. It is important for tax payers to stay informed. Granted, we cannot control Congress, the bills they pass and how far into the eleventh hour that they decide to pass them. However, we can control how we react financially to these changing laws. If you need assistance with tax planning so that you can reduce the tax implications of your decisions on your family and business, please give us a call for a free consultation at (570) 430-8082.