Avoiding the Fiscal Cliff (for now…)
In a bill passed by both the House and Senate on January 1st 2013, and expected to be signed by the president on January 2nd, the Fiscal Cliff has been averted. The “American Taxpayer Relief Act” prevents many of the impending tax rate increases from going into effect and preserves the more favorable ‘Bush-era’ tax breaks for the middle class that were scheduled to expire.
Included in the bill are provisions to retain the individual marginal tax rates (10%, 15%, 25%, 28%, 33%, and 35%), in addition to creating a new top tax rate of 39.6%, which is to be imposed on taxable income over $400,000 for single filers and $450,000 for married taxpayers filing jointly. This bill also provides for a 20% capital gains and dividend rate for individuals in the top income tax bracket, with the rates remaining at 15% for the other tax brackets.
The Alternative Minimum Tax exemption amount has been permanently indexed for inflation, saving millions of taxpayers from paying significantly more in 2012.
The bill also permanently extended may tax provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001, such as enhanced rules for student loan interest deductions and marriage penalty relief; extended the American Opportunity Tax Credit through 2018; and extended individual provisions which expired at the end of 2011 through 2013, including deductions for expenses of elementary and secondary school teachers, deduction for qualified tuition and related expenses and deductions of state and local general sales taxes.
The American Taxpayer Relief Act also extended many business tax credits and other provisions through 2013. Included in these extensions is the credit for increasing research and development activities, the work opportunity tax credit, increased expensing amounts under Sec. 179 and the availability of 50% first-year bonus depreciation.
Details on these provisions as well as an exhaustive list of all items included in the American Taxpayer Relief Act can be found in H.R. 8, or give us a call if you have additional questions.