After hearing about the drama surrounding the expected fiscal cliff, we thought we’d check back in and share an update with you related to tax planning and estate planning. The highly anticipated deadline of January 1, 2013 came and went. We did go over the cliff—for about a day and a half—but Congress pulled us out of the potential economic catastrophe with a plan that answers some of the fiscal cliff concerns and punts other issues to be determined later in the year.
In a nutshell, the plan works in three ways. Payroll taxes will increase by 1.8% for all workers. (The Bush-era payroll tax cuts were always intended to be temporary.) Second, there will be higher taxes for the rich. The tax rate increases to 39.6% on all income over $400,000 for individuals and $450,000 for families. Third, estate taxes went up from 35% to 40%.
Most importantly, the effect on the typical, median household is minimal. If Congress had allowed the country to go over the fiscal cliff without intervention, this same household would be facing a steep 13% increase in taxes.
For Americans struggling in the job market, unemployment insurance has been extended through the rest of the year. Additionally, there are no government spending cuts in the fiscal cliff deal, which means funding for social programs, like Medicare and Medicaid, has not shrunken.
The two issues that Congress punted on are the automatic spending cuts passed in the Budget Control Act of 2011 that were supposed to take affect this year and the debt ceiling. Last week, the House passed a bill to suspend the country’s debt limit for another few months. If the Senate passes it, then it will be signed into law. For now, spending cuts will also be postponed.
And that’s the news for now! In the meantime, if you are struggling with bankruptcy or foreclosure, please contact us. McFarlin LLP is here to help.