Tuesday, January 8, 2013

Tuesday, December 11, 2012

Fiscal Cliff

You've all heard the news. Now let's all take a deep breath.

There's a chance that the Democrats and the Republicans will make an 11th hour deal; but let's assume that they won't.

The world will  not end. The world is only coming to an end on the day that it literally ends. If you have lived for more than a decade or two, you have seen many press-created catastrophies. This is one of them.

Let's analyze what is at stake. On January 1, 2013, the income tax legislation that was passed in 2001, and in 2003, will no longer be law. This will have no effect on the income tax returns that you will file in 2013. Your income and deductions will be based on the old law.

However, this will affect your tax rates and deductions throughout 2013. We will go back to the way things were before 2001. (If you weren't working before 2001, this means nothing to you.)

The lowest marginal rate will go from 10% back to 15%. The highest marginal rate will go from 35% back to 39.6%. If your income is wage-based, your employer will go back to the old withholding table, and your refunds will look like the ones you used to have.

If your income is based on capital gains and qualified dividends, you will no longer have the favored tax rates. If you have that kind of income, you haven't had a tax refund for as long as you can remember. You will have to increase your estimated tax payments. Use the same calculations you made before 2001. You'll be alright.

I'm not done with speech, but I have to go. There's more to come.