As Alameda County residents celebrated the end of one year and the beginning of a new one, members of Congress were busy reaching an agreement that prevented the country from going over the so-called fiscal cliff. While most people were just happy to learn that a deal had been reached on New Year's Day, the question soon became: What does the deal mean to me?
Generally speaking, tax experts say that the fiscal cliff deal means that income tax rates will not go up for a majority of households. However, as the deal currently stands, workers will see another 2 percent of their paychecks go to the government this year because a temporary payroll tax cut has been allowed to expire. Additionally, households earning more than $450,000 will see their tax rates rise.
For households earning more than $450,000 (or individuals making more than $400,000), the top tax rate on ordinary income will jump back up to where it stood in 2000: 39.6 percent. Capital gains tax for these households will also jump from 15 percent to 20 percent, the pre-Bush era rate. Then you need to add the health-care reform taxes, which will bring the top federal tax on long-term capital gains to 23.8 percent.
The fiscal cliff deal also affects estate taxes on estates valued above $5 million. Under the new agreement, the estate tax rate for estates falling into this category will rise from 35 percent in 2012 to 40 percent in 2013. As you can see, this change could have a significant effect on the taxation of large estates, and could influence estate planning considerably.
For more information on how the fiscal cliff deal will affect you, your family or your business, talk to an experienced tax lawyer in your area right away.
Source: Fox 6 WBRC, "Fiscal cliff deal: What will it mean for you," Mark Trumbull, Jan. 4, 2012