Those elected officials who brought you the "Fiscal Cliff", featured in movie houses and other venues throughout the country, as well as its companion performance "Stalemate", succeeded in accomplishing very little by getting this latest tax bill passed. Indeed, these (stated in the collective group sense) poor excuses for what passes currently as welfare recipients on the government's dole, passed a bill that, with one exception, effectively changes just about nothing for the vast majority of our country. Don't get fooled by the hysteria and hype - again, with one exception, the vast majority of Americans won't see any change at all.

The One Exception - Social Security Withholding

All that has happened is that we are back to the same level of Social Security tax withholding that we had two years earlier and for the 20+ years before that. To pump some extra money into most people's pockets, in 2011 the Social Security tax withholding on employee's pay was temporarily reduced from 6.2% to 4.2%. We are now back to 6.2%.

Changes for the "Privileged" Few

Essentially, if you are not making serious money (the word serious as it applies to New Jersey, New York City, San Francisco, and some other selected areas) or really serious money (applies to most of the rest of the country), you will barely notice any change. Pretty much everything remains unchanged unless your income exceeds $400,000 as a single individual, or $450,000 a year for a married couple filing jointly. For most people in that category, your tax rates for the most part are back to where they were prior to 2001. However, not really - it's better than that. For instance, your tax rate on dividends will be 20% (plus the 3.8% special Medicare tax) - whereas it used to be (prior to 2001) taxed as ordinary income at the top rate of 39.6%.

Capital Gains & Dividends

For the vast majority of us, the tax on capital gains and qualified dividends remains where it was for the last several years at 15%. If your income is over $200,000/single, $250,000/married filing jointly, you may also experience an additional 3.8% new Medicare tax (which was not an item of the new tax law, but rather one that was passed a couple of years earlier with the Healthcare Act). And, as referenced above, for those fortunate enough to be making in excess of $400,000, your tax on capital gains and dividends will be an extra 5%.

Alternative Minimum Tax

This nasty Congressional mistake remains with us, softened only to the extent that they have bumped up the threshold and made it indexed for inflation. Effectively that's exactly what has happened for the last number of years - expect that it has been an annual "patch". Now the whiz bangs in Congress have eliminated the need for the annual patch by making the threshold indexed for inflation.

Estate & Gift Taxes

You might have heard that Congress this time made a "permanent" change in this area. In DC, the definition of "permanent" is "temporary". For the most part, and what happened here is that the changes that were put through in the Obama Administration about two years ago, were made "permanent". A single individual with an estate of 5 million dollars or less, or a married couple with an estate of 10 million dollars or less, will no longer have any federal estate taxes. Do not overlook the estate tax area as it may apply to you on the state level. Thus, about 99% of this country will not have a federal estate tax. That is where it was for the past couple of years - and that is the way it looks like it will be for the foreseeable future. That does not mean you should ignore estate planning - there are many issues that need to be addressed besides whether or not you are going to pay a federal tax. Do consult with your personal tax, estate and financial advisors.

A Few Miscellaneous Items to Note - extended through 2013:

• Sales tax deduction, as an alternative to income tax deduction;
• Ability to make a charitable contribution from your retirement plan RMD (Required Minimum Distribution) for those over age 70 ½;
• Increased/higher level depreciation write-offs;
• Starting this year, maximum cafeteria plan health care expense set-asides capped at $2,5000;
• Limited phase-out of exemptions and itemized deductions reinstated for 2013 going forward (starting with income over $250,000/single, $300,000/joint).

The usual cautions - this is only a simplified and abbreviated overview. Please do check with your professional tax advisor, and keep a sense of humor. We welcome new clients and appreciate your referrals.