Late Tuesday, Congress passed legislation to extend the Bush tax cuts permanently for individuals earning less than $400,000 a year or married couples earning less than $450,000.
Here are some of the most important provisions of this bill:
•Tax Rates: As mentioned above, current tax rates are extended for everyone making below $400,000 and couples making below $450,000. For those over these limits, the top tax rate increases from 35% to 39.6%.
•Capital Gains and Dividends Tax: Capital gains and dividend tax rates increase from 15% to 20% for those individuals making over $400,000 and couples making over $450,000. For those in the lowest two tax brackets, the rate is still 0%. For all others in between, it remains at 15%.
•Alternative Minimum Tax: The AMT exemption patch is extended for 2012 to $50,600 for individuals and $78,750 for married couples.
•Social Security Tax: Social Security withholding on wages increases back to the pre-2010 rate of 6.2%.
•Itemized Deduction Phase Out: There is a phaseout of itemized deductions and personal exemptions for those who make more than $250,000 as an individual or $300,000 as a married couple.
•3.8% Medicare Tax on Investment Income: The Patient Protection and Affordable Care Act (“Obamacare”) included a 3.8% Medicare tax on the lesser of net investment income or total income over $200,000 for individuals and $250,000 for married couples. The fiscal cliff deal does not change this.
•Estate Tax: The estate and gift tax exclusion amount is $5,000,000, which is indexed for inflation ($5,120,000 in 2012, $5,250,000 in 2013). The highest estate tax rate increases from 35% to 40%. It appears that the portability option also remains.
•Annual Gift Exclusion: While not part of this bill, it also worth noting that the IRS announced in 2012 that the 2013 annual gift exclusion will increase from $13,000 to $14,000.
While this last minute bill addresses many tax issues, it does not address sequestration or the debt ceiling. Both of these battles are set to be fought in a couple of months.
Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Longview Financial Advisors, Inc.), or any non-investment related content, made reference to directly or indirectly in this newsletter or post will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this newsletter or post serves as the receipt of, or as a substitute for, personalized investment advice from Longview Financial Advisors, Inc.. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Longview Financial Advisors, Inc. is neither a law firm nor a certified public accounting firm and no portion of the newsletter or post content should be construed as legal or accounting advice. A copy of the Longview Financial Advisors, Inc.’s current written disclosure statement discussing our advisory services and fees is available for review upon request.