HOW DID THE FISCAL CLIFF AFFECT OUR TAXES FOR 2013?

When talks of the fiscal cliff began, a majority of people across Texas, including just about everyone else in the United States, worried about how the expiration of the Bush-administration tax cuts would affect their earnings in 2013.

For months, Congress has been in a headlock over how best to approach the new budget and with neither side budging, even hours before the ball drop, the world looked on with anticipation to see how it would all turn out.

But in the wee hours of the morning on Jan. 1, Congress and the president came to a tentative decision that could have considerable impacts on how much money a majority of people will see paid out in the upcoming year. This is especially true for those people who may have waited until after the fiscal cliff to do any sort of estate planning.

According to the federal government, taxpayers will continue to pay the current tax rates. However, it’s good to point out that although tax rates will be staying the same, take-home pay will likely be less than anticipated because of the expiration of the 2 percent reduction in Social Security tax.

With a series of other tax rates increasing by about 5 percent across the board, many Americans fear there may not be a silver lining when it comes to the amount of money they will be able to leave their beneficiaries after they pass. The good news may be that the estate tax exemption will continue to remain at $5 million-adjusted for 2013 inflation, of course, to just over $5 million. Even though the estate tax rate will be increased from 35 percent to 40 percent, this will only take affect after a person’s estate has surpassed the $5 million exemption. Though it may appear to be a small silver lining, this may actually be good news for people who expected much worse.

Source: Forbes, “Secrets Of The Fiscal Cliff Deal,” Tony Nitti, Jan. 2, 2013