The American Taxpayer Relief Act of 2012 (“Fiscal Cliff Deal”) passed by Congress and signed by the President will provide individuals and small business owners greater certainty with regard to taxes as the law makes permanent over 85% of the Bush Tax Cuts. Unfortunately, the Fiscal Cliff Deal failed to address the federal government’s excessive spending and increasing debt. How will the Fiscal Cliff Deal impact you?

The Fiscal Cliff Deal made many temporary tax provisions permanent, thus avoiding annual extensions or “patches” and eliminating the uncertainty in taxes. The tax provisions made permanent include:

• AMT exemption increases to $50,600 single/$78,750 married, with the exemption and phase-out amounts indexed in future years;
• Ordinary income tax rates of 10%/15%/25%/28%/33%/35% for income under $400,000 single/$450,000 married (rate for those in excess increases to 39.6%);
• Capital gain rate of 15% for income under $400,000 single/$450,000 married (rate for those in excess increases to 20%);
• Reduction of tax rate on stock dividends from ordinary rates to capital gain rate for income under $400,000 single/$450,000 married (rate for those in excess increases to 20%);
• Expansion of Child Tax and Dependent Care Credits;
• Elimination of “marriage penalty” in the standard deduction and 15% ordinary tax rate;
• Repeal of the personal exemption phase-out and the limitation of itemized deductions for income under $250,000 single/$300,000 married (phase-out and limitation return for those in excess of limits); and
• Estate tax exemption of $5 million and an estate tax rate of 40%.

In addition to the permanent tax provisions, the Fiscal Cliff Deal included the extension of the following temporary tax provisions:

• American Opportunity Credit for 5 years;
• Research and Development Tax Credit through 2013;
• Work Opportunity Tax Credit for one year;
• Section 179 depreciation amount of $500,000 ($2 million phase-out) through 2013; and
• Accelerated depreciation (50% of expense) for qualifying property purchased and placed in service before January 1, 2014.

In addition to all the permanent and temporary tax provisions, the Fiscal Cliff Deal authorized the following:

• Revenue provision allowing taxpayers to convert traditional IRAs to Roth IRAs;
• Extension of expanded unemployment benefits for one year;
• Extension of agricultural programs for one year; and
• Delay in mandatory expense cuts for two months.

With so many changes enacted at the last minute, the IRS has delayed any processing of tax returns until January 30th in order to give them time to reprogram their software and change any impacted tax forms. Although most taxpayers will be able to start filing on January 30th, some will have to wait even longer until significant changes are made to several tax forms (e.g., Form 4562 and Form 3800).

Flexible Accounting Services of the Triangle is continually monitoring the tax law changes and is ready to assist you. Contact us today and let us guide you through the changes so you can minimize your tax bill.