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HOW DOES THE SO-CALLED FISCAL CLIFF AFFECT YOUR TAXES?

Even if you don’t read the newspapers or watch the news, you probably have to be living in a cave to have avoided hearing the term, “fiscal cliff.” By now, we all know that our heroes in Washington saved us by entering into an agreement to avoid the fiscal cliff (please ignore my sarcasm).

Technically, they passed a law which they called The American Tax Relief Act of 2012. I think we all know it doesn’t solve the deficit issue, but here’s how it affects taxes in general:

1. Current income tax rates remain the same on individuals with income of up to $400,000 and married couples of up to $450,000.
2. Capital gains will remain at 15% tax on long term capital gains and also for incomes up to $400,000 for singles and up to $450,000 for married. For anyone making more than that, the capital gains rate would be 20%.
3. The estate tax will continue with the $5 million per spouse exemption and there will be a 40% tax rate at the top for the biggest estates.
4. The payroll tax cut has been allowed to expire, which means payroll taxes will go up. This new law is expected to raise an additional $600 billion in tax revenue.

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