Here is a summary of permanent provisions that benefit most Americans:
- Income Taxes - The income tax rates for most American will be unchanged compared to 2012 and the brackets that were a part of the Bush tax cuts are now permanent - no expiration dates. A top bracket of 39.6 percent was added for single tax filers making $400,000 & joint filers making $450,000.
- Capital Gains Rates - The tax rate that is paid by the majority of Americans on capital will remain at 15 percent. Taxpayers in the 39.6 percent tax bracket will pay a rate of 20 percent. If your income is in the 10 percent or 15 percent bracket, your tax rate on capital gains will be 0 percent.
- Dividends - Qualified stock dividends will be taxed at 15 percent not at the ordinary income tax rates as feared by many investors. If you are in the two lowest income tax brackets (10 or 15 percent), the tax you pay on dividends will be 0 percent.
- Estate Taxes - The expiring $5 million dollar estate tax exemption was made permanent, indexed to inflation, and made portable. For example in 2013, the exemption will be inflation adjusted to $5,250,000. Portability means that any unused exemption from a deceased spouse can be used by the surviving spouse. Therefore, a married couple could pass estate tax free $10 million onto their children.
- Alternative Minimum Tax - Lawmakers permanently indexed this tax for inflation and made the change retroactive to the beginning of 2012.
- Roth 401K Conversions - You may now do Roth 401K conversions within a retirement plan without the requirement of being eligible for a distribution provided your plan has a Roth option.
Written by Robert Grey, Founder of Accredited Investment Fiduciary
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