Waiting until the last moment possible, Congress finally approved a Fiscal Cliff compromise that raises taxes for high income earners ($400k individual / $450k married).  The automatic spending cuts, however, that were set to kick in on Jan 1 have been postponed for two months allowing lawmakers additional time to hash out the details.  All in all, this deal wasn’t much of a deal but rather a postponement.  The good news is that the Fiscal Cliff has been averted for the time being.  The bad news is the debate continues on what to do about the debt ceiling, spending reforms, and the tax code.
In the meantime, here are the highlights from the new tax legislation:

• Tax rates remain the same for single filers who make $400,000 per year and for married couples making $450,000 per year.  Above this income level, marginal tax rates will rise to 39.6%.
• Certain personal exemptions are phased out for individuals with $250,000 of taxable income and for joint filers making more than $300,000.
• Capital Gains and Dividend Income have a new top bracket of 20% for the highest earners (those making more than $400,000 as an individual or $450,000 as a married couple).  These tax filers will also be paying the 3.8% healthcare surcharge on investment income.
• The Alternative Minimum Tax threshold has been permanently indexed to inflation.
• The Estate Tax exemption has been set at $5 million and the federal tax rate is at 45%.
• The Social Security tax holiday, reducing payroll tax by 2% has been allowed to expire, bringing the tax back up to 6.2% on the first $113,700 of earned income.

South Coast Investment Advisors will continue to monitor any progress in negotiations as we move closer to another deadline 2 months from now.

-Posted by Chris