On January 2, 2013 the Unites States Congress enacted The American Taxpayer Relief Act of 2012, averting what had commonly been referred to as the ‘fiscal cliff’.
The American Taxpayer Relief Act of 2012 prevented the expiration of what are commonly referred to as “Bush-era tax cuts” passed in 2001 and 2003, for the vast majority of U.S. households . In light of this good news, perhaps we should each consider this 2013 savings strategy: Calculate exactly how much the now permanent tax cut will save you and save exactly that amount. You can defer it to your employer-sponsored retirement plan, automatically invest it into your current financial vehicles on a monthly basis, or perhaps earmark the savings for a completely new vehicle you’ve always wanted to acquire, but just couldn’t find the money.
The following are few of the changes addressed by the American Taxpayer Relief Act of 2012 – which technically passed in 2013 but impacts 2012 iincome and everything going forward:
· No more payroll tax reduction – we’re back up to the 6.2% rate on the first $113,000 earned
· Individuals who earn more than $400,000 and couples who make more than $450,000 will see tax rates increase from 35 to 39.6%
· Capital gains and dividends will rise to 20% from the current 15% for the same income thresholds
· Eliminates up to 80% of itemized deductions for taxpayers earning $250,000+ (single) and $300,000+ (couple)
· The estate tax exemption remains at $5.12 million but the top rate rises to 40%
· One-year extension for homeowners who receive principal forgiveness or go through a short sale or foreclosure; they will not have to pay taxes on the amount of debt forgiven
If you’d like help figuring out how the new tax bill may impact your financial situation – and what you can do to take advantage of or deflect your new tax status, please give us a call.
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Source: Woods Blog Old