Compromise Reached, But How Does It Effect Tax Planning For 2013?
In December, 2012, we addressed the looming “fiscal cliff” tax ramifications and potential last-minute tax planning. With legislation finally passed in late December, in order to prevent widespread tax increases and steep spending cuts, it is a good time to look at the highlights of the legislation and how it affects taxpayers.
- Income tax rates. A compromise was reached on income tax rates. Although neither side attained its goals, tax cuts were extended on incomes up to $400,000 for individuals and $450,000 for couples. Earnings above that are taxed at 39.6%, up from 35%. Many liberals and conservatives were unhappy with this compromise that extends the tax cuts for most taxpayers. Unless new legislation is passed, this extension is permanent.
- Estate taxes. The federal estate tax exemption remains at $5 million (adjusted for inflation) and up to $10 million for family estates. Without legislation, the exemption was set to return to $1 million for 2013. The top estate tax rate is set at 40%, up from 35%. This change is permanent.
- Capital gains and dividends. Capital gains tax rates were returned to those during the Clinton administration. Capital gains