The Fiscal Cliff Tax Changes
Published on February 8, 2013 by Staff Writer
Itâ€™s been just over one month since congress passed late night legislation to partially resolve the fiscal cliff crisis. As the dust settles, what does this resolution mean to you, your family and your bottom line? What changes are coming and what remains to be resolved?
Businesses would be wise to snatch up any potential employees who hold a degree in accounting from Broadview University as tax compliance rules are going to get more complicated in the next several years even with this historic resolution.
The More Things Changeâ€¦
The more they stay the same. The fiscal cliff resolution addressed the immediate deadline regarding the tax aspects of the crisis. The dual issues of the debt ceiling and sequestration were left to be â€śresolvedâ€ť another day.
While the legislation does work to prevent significant tax increases and addresses some spending issues it does not fully address the underlying issues in our countryâ€™s fiscal policies. The fiscal cliff solution does have some significant changes to the tax laws that will affect your bottom line in 2013. Hereâ€™s a quick overview:
- Payroll Taxes â€“ The 2% payroll tax â€śholidayâ€ť has gone away. This is probably the first and most significant change you will notice as an individual. You will have less take home pay.
- Income Taxes â€“ As the Bush tax cuts were set to expire, the battle was waged over the upper limit subject to increased taxation. The president originally wanted the cuts to be eliminated on over $200,000 in individual income. The final number reached in the compromise was $400,000. Any individuals making over $400,000 ($450,000 for couples) will see their top income tax rate increase to 39.6% from the current 35%. All of the other Bush-era tax cuts have been made permanent.
- The Alternative Minimum Tax â€“ This was a major area of concern, as the impending cliff would have had dire consequences for many members of the middle-class regarding the AMT. The good news, the resolution permanently tweaked the AMT laws so any middle-class workers who have not been paying it will continue to not be affected.
- Capital Gains â€“ The compromise here benefits small business owners and investors. The Presidentâ€™s original proposal called for an increase to 39% on capital gains. In the resolution, capital gains increased to 20% from 15% on gains over $400,000. That means this increase will not affect most of the middle-class.
There are also other specific areas of the tax code that were addressed such as estate and gift taxes, education and family tax credits. Certain provisions were also extended. The deduction for business equipment investment, for example, was extended through 2013.
This resolution is only the first round in the ongoing battle to get the countryâ€™s fiscal house in order. With negotiations over the debt ceiling and sequestration still to come, itâ€™s going to be an interesting spring and summer in Washington. For now, many taxpayers have been spared huge increases in annual taxes, but there will be incremental tax raises that will take a bite out of most taxpayerâ€™s paychecks.
The real test for those holding a degree in accounting will come in the next two years as the Affordable Care Act (Obamacare) slowly comes online. The fiscal cliff resolution is a decent step in the right direction, but more work needs to be done to address spending and further refine the tax code. Letâ€™s hope both parties in Washington can begin to work together to get it done!
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