Friday, January 4, 2013


By now you’ve heard that Congress has passed legislation avoiding the tax increases of the “fiscal cliff.” In actuality it is more like a bungee jump off the cliff, because they dealt with the tax increase aspects of the cliff but not the deficit problem.  So, like a bungee jumper, they have hit the first bottom and now are back at the top ready to propel back down for the second half of the cliff. Few of us who watched the process would consider it Washington’s finest hour, but we finally have answers to the questions that have made proactive tax planning so difficult.

Here are the highlights:
  • The Bush tax cuts are restored for income up to $400,000 ($450,000 for joint filers). Rates for income above those ceilings rise to 39.6% for ordinary income and 20% for qualified corporate dividends and long-term capital gains. (There actually are six different capital gains rates, but more on that at a later time.)
  • The Alternative Minimum Tax is finally indexed for inflation retroactive to January 1, 2012, meaning Washington won’t need to “patch” it every year.
  • The estate tax “unified credit” amount that you can bequeath tax-free remains at $5 million, indexed for inflation. The actual rate rises from 35% to 40%.
  • The 2% payroll tax holiday has expired, most likely for good.
  • The higher expensing of equipment has been increased to $500,000 for both 2012 and 2013.  In addition, the 50% write off of new qualified business purchases in place for 2012 has been extended through 2013.

The legislation also extends several popular tax breaks like deductions for student loan interest, and tax-free charitable gifts made directly from Individual Retirement Accounts and several others that have been reported on by the news organizations.

We realize you’ve already heard this news. But we want you to know we’ll be studying the new law in the coming weeks and months to look for every opportunity to help you save. And of course, if you have any questions, don’t hesitate to call or email us.