The 'Fiscal Cliff' and Your Tax Obligations - John R. Dundon II, Enrolled Agent
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The ‘Fiscal Cliff’ and Your Tax Obligations

The ‘Fiscal Cliff’ and Your Tax Obligations

Our esteemed President has proven to me to be extraordinarily disingenuous with his statements about the middle class and their purported tax obligations as pretty much everyone’s taxes will go up in 2013 as a direct result of the cumulative efforts of our ‘elected officials’ over the last few days.  Please don’t get me wrong as I find the man’s leadership in most regards to be much more stoic than any other President in my life time.

What I find particularly galling however is that everyone it seems from pundits to established economists speak about the need to create jobs in America as the best way to reduce the deficit. I believe as a matter of principal that the best way to create jobs from a policy or legislative perspective is to drastically reduce employment tax and to completely eliminate self employment tax as these are some of the biggest costs and risks associated with being an employer or job creator.

Either way if you would like to read the actual legislation a pdf version can be found here at the US Government Printing Office and summaries can be found here at the Library of Congress.  The following are some highlights of what to expect:

Starting in 2013, there will be a new 39.6% rate placed on these thresholds:

  • Married Filing Jointly: $450,000 of taxable income

  • Qualifying Widow(er):  $450,000 of taxable income

  • Head of Household: $425,000 of taxable income

  • Single: $400,000 of taxable income

  • Married Filing Separately: $225,000 of taxable income

Starting in 2013 the tax rates on long-term gains would be:

  • 0% if income falls below the 25% tax bracket

  • 15% if income falls at or above the 25% tax bracket but below the new 39.6% rate

  • 20% if income falls in the 39.6% tax bracket

The Senate proposes the following AMT exemption amounts for 2012 indexed for inflation starting after 2012:

  • Married Filing Jointly: $78,750

  • Qualifying Widow(er): $78,750

  • Single: $50,600

  • Head of Household: $50,600

  • Married Filing Separately: $39,375

The proposed threshold amounts at which itemized deductions would start to be limited are:

  • Married Filing Jointly: $300,000 of AGI

  • Qualifying Widow(er): $300,000 of AGI

  • Head of Household: $275,000 of AGI

  • Single: $250,000 of AGI

  • Married Filing Separately: $150,000 of AGI

The Senate proposes to re-instate the personal exemption phase-out starting in 2013. Taxpayers would see their total personal exemptions reduced by two percent for each $2,500 by which adjusted gross income exceeds the threshold. The proposed threshold amounts for 2013:

  • Married Filing Jointly: $300,000 of AGI

  • Qualifying Widow(er): $300,000 of AGI

  • Head of Household: $275,000 of AGI

  • Single: $250,000 of AGI

  • Married Filing Separately: $150,000 of AGI

The Senate proposes that the following tax provisions be extended through the end of the year 2017:

  • American Opportunity Credit

  • Child Tax Credit at $1,000 maximum and partially refundable

  • Earned Income Credit for 3 or more dependents

The following provisions would be extended through 2013:

  • Educator expenses deduction

  • Exclusion for cancellation of debt on primary residences

  • Mass transit and parking benefits excluded from income set at maximum of $175 per month.

  • Mortgage insurance premium deduction

  • Deduction for state and local sales taxes

  • Charitable deduction for donating real property for conservation purposes

  • Tuition and fees deduction

  • Exclusion for charitable distributions from individual retirement accounts