Will the “fiscal bill” impact your finances?

Depositphotos_15501897_xsWhether you are earning $40,000 or $400,000, one thing is certain the implementation of the American Taxpayer Relief Act of 2012 will have an impact on your bottom dollar.  From new tax income rates for the wealthy, to the extension of certain tax credits and deductions, it is critical to understand whether the new tax changes will impact your finances.

New tax changes

Although Congress did not fall over the “fiscal cliff,” there were however many tax changes implemented.  While most Americans will not see an increase in their personal federal income tax rates, high-income individuals who earn at least $400,000 and families who earn at least $450,000 can expect to pay an income tax rate up to 39.6% for the upcoming year.

Along with the income tax increases, these same high-income individuals will also pay more in capital gains tax rates.  Prior to 2012, individuals were taxed up to 15%.  While most will still enjoy low capital tax rates, those individuals earning more than $400,000/$450,000 per year will now be subject to a capital gain rate of 20%, with the implementation of the American Taxpayer Relief Act of 2012.

Also, keep in mind, individuals who earn more than $200,000 or families who earn $250,000 will also be subject to an additional tax of 3.8% on net investment income as a result of President’s Obama Affordable Care Act.

What’s not in the bill?

At the end of 2012, many of the Bush-era tax laws were set to expire, along with other tax laws.  Therefore Congress decided whether certain tax laws would be expired or extended.   As a result, the payroll tax holiday, which cut payroll taxes for both wage earners and self-employed individuals by 2% was not extended.  Since the legislation has not been extended, everyone can expect to pay more in payroll taxes for the New Year.  It means about a $1,000 increase per year for an individual who earns $50,000 annually.

More of the same

There is some good news about this bill.  For now, most of the Bush-era tax cuts we all have grown accustomed to have remained intact.  The bill extended certain tax credits such as education credits, earned income credit, the child tax credit.  In addition, the bill also extended the marriage penalty relief, which allows married couples to obtain a standard deduction twice as much as single taxpayers.

It is important to keep in mind; many of the tax laws implemented have been extended for a certain period of time.  For example, the American Opportunity Credit Act, which provides a tax credit for students’ postsecondary education costs, has been extended until the year 2017. So the best thing to do is make certain you get your financial house in order and do not fall off your own fiscal cliff!

Remember: your choice, your future!

Kemberley Washington is a certified public accountant and business professor.  She contributes to the “Saving Money Blog” with Bankrate.com.  Find her on Twitter or connect with her on Facebook!

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