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SUMMARY OF THE PRIMARY TAX ASPECTS OF THE FISCAL CLIFF

Jan 4 2013
• Taxpayers will continue to be subject to the current 10/15/25/28/33/ and 35% tax rates on all income up to $450,000 (for MFJ, $400,000 for single). Those with taxable income in excess of these thresholds will pay tax on the excess – and only the excess — at 39.6%

• The tax-rate on long-term capital gains and qualified dividends will increase from 15% to 20% for only those taxpayers with taxable income in excess of the aforementioned thresholds. The rates will remain 15% for everyone else. However, you need to tack on the 3.8% Obamacare tax on net investment income on the lesser of 1) A taxpayer’s net investment income (generally interest, dividends, royalties, annuities, rents and capital gains), or 2) Modified adjusted gross income in excess of the applicable threshold: $250,000 for MFJ, $200,000 for single.

• The estate tax exemption will remain at $5,000,000 (adjusted for inflation, so approximately $5,120,000 in 2013) but the rate will increase from 35% to 40%.

• The phase-out of a taxpayer’s itemized deductions and personal exemptions return, but only at increased levels of income. The new threshold kicks in at $300,000 of AGI for married taxpayers and $250,000 for single taxpayers.

• The increased child tax and earned income credits and the expanded education credits have been extended for five years.

• The R&D credit has been retroactively reinstated and prospectively extended, and 50% bonus depreciation is back for 2013.

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