After Our Fall Over the Fiscal Cliff: by Karla Hopkins

2012 was a year of negation and election. Many of us were watching with trepidation for our congressional leaders to come to agreement on the terms of our federal budget and especially changes that would impact our tax liabilities in 2012 and future. Now that we have gone over the dreaded fiscal cliff: what does the landscape look like?

Here are a few highlights on the changes which will be important for you to consider for 2013:

• A 3.8% additional tax on the lower of net investment income or the amount of modified adjusted gross income over the $250,000/$200,000 threshold. Net investment income includes, interest, dividends, rents, and gains.

• Additional .9% Medicare Tax for employees (not employers) on compensation over a $250,000/$200,000 threshold. Because the threshold amounts are based on filing status and combined wages for a joint return, not all employees will have the correct amount of withholdings.

• The top federal tax rate will return to 39.6% for a married couple with in excess of $450,000 of income and a single taxpayer with $400,000 of income.

• Capital gain rates will return to 20% based on a threshold again of $450,000/$400,000.

• Phase outs of personal exemptions and itemized deductions will return for taxpayers over a threshold of $300,000/$250,000 in income.

• The payroll tax holiday has ended. Employees' FICA withholdings will return to a 6.2% rate from the reduced 2012 rate of 4.2%.

• Personal tax credits including the $1,000 child tax credit and advanced opportunity college tax credit are extended.

• The elective contribution to a 401(K) plan has been increased to $17,500.

• The elective contribution to an IRA account has been increased to $5,500.

Because many of these changes came so late in the year (and are still being worked out in Washington), it will be critical in 2013 for all taxpayers to play an active role in their tax planning during the year. Follow our newsletters and blogs for the most up-to-date information and as always, contact our office with questions and we will gladly assist you with your tax planning.