Five New Rules of the Tax Payer Relief Act of 2012
Congress has passed a relatively short (157 pages) bill with far-reaching implications. Here are five new rules that may impact many of us:
1. The income tax rates will not change for 98% of taxpayers. The other 2%, those earning over $400,000/year or $450,000/year for couples, will have a new high tax rate of 39.6%. Of course, even though the rate stays the same for most of us, we will be keeping less of our money. Payroll taxes will be 2% higher and a myriad of other, non-income taxes, will put government’s hand deeper in our pockets.
2. Those same 2% with the highest tax rate, will also pay a 20% tax on capital gains. Those are, however, people likely to invest. The impact of that increase will be interesting to watch.
3. The Estate tax exemption will remain at $5 Million, but with a higher tax rate – now 40%. The Portability provision also becomes permanent. This change is most surprising. With the current administration’s class warfare rhetoric, it is surprising that the exemption is so high. No tax on your first five million?
4. The Alternative Minimum Tax will now be indexed to inflation – “permanently.” This will avoid the annual patch we had needed up until now.
5. Roth plans are now able to make in-plan conversions at any time.
More information will be trickling out over the next days and weeks. Overall, though, the changes made are favorable for most of us and will do absolutely nothing to change the crushing debt and reckless spending of our “leaders.”