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"Fiscal Cliff" Averted: Congress Passes Tax Reform - Pinni Bohm



In the waning evening hours of January 1, 2013, Congress approved all-encompassing legislation that averted what some had described as the "fiscal cliff." The new law provides greater certainty for businesses and individuals when structuring transactions, and defers the automatic spending cuts for two months.

Some of the notable income tax changes in the bill include:
  • The top ordinary income tax bracket increases to 39.6% for those earning over $400,000 (or $450,000 for those that file jointly) per year;
  • Dividends and capital gains tax rate increases to 20% for those earning over $400,000 (or $450,000 for those that file jointly) per year;
  • Most itemized tax deductions were eliminated or restricted for those that earn more than $250,000 (or $300,000 for those that file jointly) per year;
  • Phase outs of personal exemptions returned for those that earn more than $250,000 (or $300,00 for joint filers); and
  • An inflation-indexed exemption for the the Alternative Minimum Tax (AMT) was retroactively increased to $50,600 (or $78,750 for those filing jointly) for the 2012 tax year.

This bill also permanently codifies the inflation-indexed $5 million estate and gift tax exemption put in place in 2010 after a similar high-risk negotiation. This exemption might actually increase to $5.25 million this year! The reform also indefinitely extends the popular portability provision, which permits a spouse to pass on the balance of their exemption to their widow/widower for later use. The top transfer tax bracket is now 40%.

Of course, there is still much undetermined, and much can still change. But the bill's major modifications should remain untouched.

For a more a detailed review of how this bill affects the transfer tax system, Deborah Jacobs of Forbes Magazine wrote an excellent article. You may also read a more comprehensive article from the Wall Street Journal.

Pinni Bohm, J.D., LL.M. (Taxation), is a tax and estate planning attorney with the Bohm Law Firm.


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This page contains a single entry from the blog posted on January 3, 2013 1:51 PM.

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