Zaher Fallahi, Tax Attorney, CPA; Fiscal Cliff
January 1, 2013, Congress reached a tax and spending deal tonight around 11:00 PM, Washington DC Time. The so called fiscal cliff; HR 8 or the Tax Relief Extension Act, passed by 257 to 167 votes of the US House of Representatives. The same bill had passed by the members of the US Senate previously by 89 to 8 votes. The Congressional Budget Office estimates that this bill would add $329 billion to 2013 budget deficits and approximately $3.9 trillion (with twelve zeros) to the deficits over the next 10 years. The bill postpones the scheduled government spending cuts for the next two months, which means the law makers and the President must be working on another package within the next 60 days. The next step for the bill is signing of the bill by President Obama so that it would become law.
Here are the highlights:
a- No tax increase, as originally was scheduled, for single individuals making less than $400,000 a year, and married individuals filing jointly making less than $450,000.
b- The members of the congress will not get the 2013 scheduled salary increase.
c- Long-term unemployment compensation is extended. This is a real treat for the unemployed people whose benefits ended last week-end.
d- Capital Gains and Dividends tax rates will increase from the 2012 rate of 15% to 20%.
e- The estate tax exemption will be the same as 2011 threshold of $5,000,000. However, the rate will increase from 35% to 40 %.
f- Alternative Minimum Tax (AMT) that hits most middle class families with unintended negative consequences will be adjusted for inflation.
g- Medical professionals will be protected from the scheduled compensation loss for treating Medicare recipients.
h- The tax credit is extended for renewable energy companies.
i- Subsidies for milk producers are extended.
We will provide the additional details of the new bill as become available.