Well, the autopen signature is dry, and HR8 is officially law. Now, to decipher what is in it and see how it affects each of us. I think it will take a bit of time to sort out the nuances of how the various changes and provisions interact, like the different levels of capital gains rates some taxpayers may have (within the same tax return). I’ll hit the highlights below, and for my retainer clients- you can expect an email with a more individualized interpretation in the next several days.
The dreaded fiscal cliff has been avoided, for now; certainly not for good. But not without a price. Our elected officials (of both parties) have managed to lose even more of the little respect the public had left for them. They allowed this issue, which they knew was coming for two years, to become a last minute crisis, and yet still did not settle the issue of spending. After all of the battling, the revenue raised by increasing taxes is a drop in the bucket of our deficit spending. It disgusts me that our leaders in Washington have become so consumed with keeping their place in office that it is virtually impossible for them to do the right thing for the country, which in this case is to have the courage to be honest with the American people: that our spending is a major part of the problem, and we will not be on solid financial ground until we make hard choices about spending cuts.
Even more upsetting to me though is the attitude beginning to permeate society, that those who succeed must be selfish or greedy, and that somehow someone else having more than we do means we must have to have less. The other day I saw a disturbing comment on Facebook where someone posted a receipt from Cabela’s showing a medical excise tax. Turns out Cabela’s erroneously applied that tax, but the commenter called the Cabela’s customer selfish and greedy for complaining about a tax when he spent 280-something dollars, because there are others who can’t afford to spend that kind of money. No one has ever become wealthier by envying someone else, and when we harbor jealousy it does not hurt that other person or make things any more “fair,” it only poisons us instead.
Life’s not fair, and being frustrated by that fact of life doesn’t help anything. Acceptance, on the other hand, brings peace, and peace brings the ability to find constructive ways to do what we can to change the world.
Some Quick Highlights of HR8
Alternative Minimum Tax patch was passed, sparing hoardes of unsuspecting taxpayers who would have been subject to the AMT otherwise. The patch is permanent, so we will not have to wonder each year who the AMT will hit.
The following were restored retroactively for 2012 and extended through 2013:
Teachers’ $250 expense deduction
Choice to deduct sales tax instead of state and local income tax when itemizing deductions
Deduction for mortgage insurance premiums
2% payroll tax cut we’ve enjoyed for the past two years is expired. That will be felt immediately in paychecks this week.
Extended the American Opportunity Tax Credit for education for five years
Child tax credit remains at $1,000 (vs $500) for the next five years
Increase in top tax rate to 39.6%, which applies to income over $400,000 for individuals and $450,000 for married filing jointly (how’s THAT for a marriage penalty)
Itemized deductions and personal exemptions are limited beginning at adjusted gross income of $200,000 for individuals and $350,000 for married filing jointly
Capital gains rates for most everyone remain at 0% for those in the 10% and 15% tax brackets and 15% for others, except for those in that new 39.6% bracket, who will see a 20% capital gains rate for the part that falls in that bracket
Qualified dividends will continue to be taxed at capital gains rates (as opposed to ordinary income rates)
Exclusion from tax for cancellation of qualified personal residence debt (from short sale for example), extended for one year
Those are the highlights immediately applicable. Stay tuned for more info in a later post…