Government Compromise - Am I Safe Now?

Author: Keith Huggett 

The Fiscal Cliff has been averted! What does this mean for you, the small business owner and taxpayer?  Initially, it means that while some things have changed, they were not the drastic changes we all feared would happen on January 1st.

Payroll taxes are going to rise on wage-earners by 2%, going from 4.2% to 6.2%, thus yielding a smaller paycheck.   The payroll tax will apply only to the first $113,700 of earnings in 2013. This will effect every employed person in our country. For a closer look at 2013 Income Tax Withholding rates a paper is available at the Tax Office Inc.

Personal Income Tax rates for individuals earning more than $400,000 or $450,000 for families will increase to 39.6%.  Anyone below those income levels will retain the tax rate they held during the Bush-era tax rates.  

The above mentioned income levels also apply to Capital Gains & dividends.  If you earn $400,000 individually, or $450,000 as a family, the tax rate on capital gains & dividends increases from 15% to 20%. Anyone below those income levels are taxed at 15%.

The Alternative Minimum Tax (AMT) was patched in such a way to avoid raising taxes. The income exemption levels are now set at $33,750 for individuals and $45,000 for married, filing joint.  The patch on AMT is also now indexed for inflation going forward.

For individuals making over $250,000, and married couples making over $300,000, there will be limitations in the personal exemptions and itemized deductions they can take. Those with incomes above $422,500 will not qualify for a personal exemption.

Last but not least, the Estate Tax has been adjusted from 35% to 40% with a $5 million exemption level. This threshold has been indexed for inflation going forward.

Now is the time to see your tax specialist. Make the necessary adjustments to your tax plan. Plan ahead, act now. The Tax Office, Inc., are specialists in proactive tax planning, payroll, small business planning. Contact us today!