What does the “fiscal cliff” legislation mean to you?

[pullquote_left] Unless you have been hiding under a rock, you’ve been hearing about the “fiscal cliff” and how our government waited until the very last minute to pass any meaningful legislation to avert us from this “cliff”. [/pullquote_left] Unless you have been hiding under a rock, you’ve been hearing about the “fiscal cliff” and how our government waited until the very last minute to pass any meaningful legislation to avert us from this “cliff”.  What does this mean for the “average Joe”?  The bill addresses the Bush era tax rates, estate and gift tax rates and Medicare reimbursement, among other things.

The biggest feature of the American Taxpayer Relief Act of 2012 is the fact that it permanently extends the current tax rates for individuals earning less than $400,000 and couples earning less than $450,000.  Tax rates for individuals earning more than $400,000 and families earning more than $450,000 will be 39.6%.  Tax rates on the wealthiest individuals will increase from 15% to 20% on capital gains and dividends and there will be a phase-out of personal exemptions for those families earning $300,000 or more and individuals earning $250,000 or more.

The estate tax exemption (the amount you can transfer during your lifetime) will remain at today’s numbers which is $5.12 million per person (and will be indexed for inflation), with the estate tax rate increasing to 40%.  These rates are permanently extended (which means that, hopefully, we will not have another “fiscal” crisis where estate taxes are concerned).  Also extended is the portability (meaning if one spouse died during 2011 or 2012, the other spouse can get the decedent’s unused exemption amount, if any, without having to set up trusts or make other complex tax-saving moves).

Stay tuned for more  on what the “fiscal cliff” legislation means to you.

 

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Laurie Ohall is a board certified Elder Law attorney with license to practice in both Florida and Ohio.  For more information about planning documents, please contact the Brandon, FL Estate Planning Offices of Laurie Ohall today.

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