CONGRESS AVOIDS THE FISCAL CLIFF

As we were going to press with this newsletter, the Senate and the House have voted on a last-minute budget deal worked out between President Barack Obama and congressional Republicans averting the so-called fiscal cliff.

Details of the deal were sketchy at press time, but here are some highlights of the compromise bill as provided by unofficial sources:

The current tax rates will be kept in place for individuals making less than $400,000. Incomes above $400,000 ($450,000 for married taxpayers, $425,000 for heads of household) will be taxed at 39.6%.
Capital gains rates will be raised from 15% to 20% for taxpayers in the 39.6% bracket.
Qualified dividends will continue to be taxed at capital gains rates.
The estate tax rate will rise to 40% (up from 35%) with an exemption of $5 million.
A one-year extension of unemployment benefits will be provided.
There will be a two-month delay on the automatic spending cuts.
Tax credits established under President Obama’s economic recovery program will be extended for 5 years.
The American Opportunity Tax Credit (tuition credit) will be extended for 5 years.
The alternative minimum tax (AMT) will be made permanent with the exemption being inflation-adjusted in future years.
Itemized deductions and personal exemptions for households will be phased out for those making more than certain amounts.
A host of individual provisions will be extended, including the treatment of mortgage insurance premiums as qualified residence interest, deductions for state and local general sales taxes, and the above-the-line deduction for qualified tuition and related expenses.
Key business tax breaks will be extended such as depreciation provisions, including bonus depreciation, and the research and work opportunity tax credits.
There will be no extension of the 2% payroll tax deduction.