SVHS News & AnnouncementsThe Latest from Sadd Velazquez Higashi Shammaa, LLP

Fiscal Cliff Edition

January 1, 2013

Michael VelazquezLike many of us, it is quite likely that you are now suffering from hangover-like symptoms. I am not referring to New Years Eve festivities, but to the melodramatic excesses of the fiscal cliff proceedings. It was sheer political theater that unfolded in the last days of 2012. This debacle over, (for now at least) we are left wondering what it all means to us individually. To that end, we are presenting you with the best digests we have seen of what it means to you for income taxes, as well as estate and gift taxes.

Key Provisions of HR 8

American Taxpayer Relief Act of 2012(aka Fiscal Cliff Agreement)

(Excerpts courtesy of John Napolitano, CEO, US Wealth Management, Braintree, MA)

Summary:

United States CapitolThe 112th Congress was recently dubbed the “Do Nothing Congress” for the minimal amount of legislation enacted during the two-year session. Two hours after going over the Fiscal Cliff at midnight on January 1, the Senate voted 89-8, and the House of Representatives voted 257-167 to pass the American Taxpayer Relief Act of 2012 to reverse some of the measures which may have had a severe negative impact upon the economy.

  • The Congressional Budget Office projects the legislation will add $4 trillion to the U.S. deficit over the next 10 years compared to a scenario where the Bush tax cuts had been allowed to expire.
  • The Senate bill also sets up what is likely to be an even more heated fight in late February when the Treasury Department must come to Congress to seek an increase in the government’s borrowing limit.

Key Provisions:

  • Tax rates will be allowed to rise on individual incomes over $400,000 per year, and household incomes over $450,000 per year to a maximum rate of 39.6%.
  • The tax on estates would rise to a 40% maximum rate, with a permanent exemption of $5 million, indexed for inflation.
  • Permanently sets maximum long-term capital gain and dividend tax rates at 20% for households making more than $450,000.
  • Phases out itemized deductions and personal exemptions for those making more than $250,000, $300,000 joint.
  • Permanently sets maximum long-term capital gain and dividend tax rates at 15% for households making less than $450,000.
  • The 2% temporary decrease in FICA payroll taxes relief was allowed to expire. This provision has a disproportionate impact on those making less than $113,700 (the FICA limit in 2013). This is expected to take $125 billion out of consumer income.
  • Extends the tuition tax credit and child and dependent care tax credits for five years.
  • Workers will be allowed to rollover 401k funds to a Roth IRA while still actively participating in a 401k plan. Think of it as an ‘In-Service’ distribution.
    • Benefits Of A Roth IRA:
    • Pay income tax currently.
    • Not subject to Required Minimum Distributions at age 70½.
    • Future earnings are tax-free.
  • Permanent adoption of the Alternative Minimum Tax exemption amounts. Impacts 32 million Americans who may have been subjected to AMT in 2012 and indexes AMT for inflation.
  • Postpones $109 billion sequester for two months.
  • Extends unemployment insurance for two million long-term unemployed Americans.
  • Extension of the 2008 Farm Bill through the end of this fiscal year (September 30, 2013). Keeps the price of milk from potentially doubling.
  • Prevents a 27% reduction in Medicare payments to doctors and other health care providers treating patients on Medicare.

As you can see this is a complicated Act with new rules unfolding every day that will impact you and me as taxpayers and Sadd Velazquez Higashi Shammaa as your tax advisors. It is our intention to keep you informed on these important changes to our tax laws and be available to answer any concerns you have. We wouldn’t blame you if you were confused or concerned. Give us a call if you are.

Recommended Additional Articles

After The Fiscal Cliff Deal: Estate And Gift Tax Explained – Forbes
Doomsday averted. Confusion reigns. Questions and answers on federal estate tax.

Contact SVHS

The certified public accountants (CPA) and advisors at Sadd Velazquez Higashi Shammaa are ready to assist you with all of your accounting and consulting needs. Contact us today and we will connect you with the professional you need.

Sadd Velazquez Higashi Shammaa, LLP
330 North Brand Blvd., Suite 200
Glendale, CA 91203

Phone: (818) 547-5701
Fax: (818) 547-5708
Email: info@svhscpas.com