The ‘Grand Deal’ was far from what transpired, but as you may know, a legislative deal was reached to approve a bill to avert the fiscal cliff, which if it had occurred was going to have tax increases for all and deep spending cuts for government. The new deal has tax increases for many, but maintains some important past features and levels, especially for the estate tax.
Here are some of the details of the plan:
– The Bush-era income tax cuts will expire for individuals making more than $400,000 and for married couples filing jointly making more than $450,000. The tax bracket for these filers will increase from 35 percent to 39.6 percent and for those below those levels the tax rates will remain the same.
– The lifetime gift exemption and estate tax exemption will remain unified at $5 million (or $10 million per married couple), with portability between spouses continuing. The legislation however does increase the tax rate on an estate over such exemption from 35% to 40% for each dollar over the exemption.
– Capital gains and dividend rates will increase to 20 percent for individuals and married couples filing jointly above the filing thresholds of 400,000 and $450,000, respectively.
– The bill did not extend the 2-percent payroll tax cut for all taxpayers so withholdings and employment taxes will increase for most. – The alternative minimum tax (AMT) exemption amounts are made permanent. The current exemptions of $33,750 for individuals and $45,000 for married couples filing jointly are increased to $50,600 and $78,750, respectively, indexed for inflation. This new AMT fix is retroactive for the 2012 tax year.
However, the next fight is right around the corner. Although a deal was reached on taxes the spending cuts which were largely discussed as part of the deal initially were not addressed in the final bill and neither was the potential approval to increase the debt/borrowing limit which is to be reached in late February.
So, the fun continues, but at least there is some short-term knowledge in place now to address estate, business and tax planning…until the next election or congressional change. As always, the key for any planning is to remember it is based on planning for the uncertainities in life, but it is active and changes with your life and the surrounding forces like taxes which may impact it.
Please feel free to contact us to discuss this new legislation or any other questions you may have.
