Fiscal Cliff II: What’s Next For Tax Reform?

On January 1, 2013, the Senate and House of Representatives passed the American Taxpayer Relief Act of 2012 (“ATRA”), signed into law by President Obama on January 2. ATRA averts the “fiscal cliff” by making permanent the 2001/2003 tax rates for individuals with taxable incomes less than $400,000 and couples less than $450,000, extending dozens of temporary tax provisions, permanently patching the Alternative Minimum Tax (“AMT”), and delaying the implementation of across-the-board spending cuts known as budget sequestration. These, and other highlights of the legislation, are listed below.

- Permanent tax rates: Permanent extension of the 2001/2003 tax rates for individuals with taxable incomes less than $400,000 per year and for joint filers with taxable incomes less than $450,000, while allowing the 2001/2003 tax rates for taxpayers over the thresholds to expire.

- New top tax rate: Reinstating a top rate of 39.6 percent for individuals with taxable incomes above $400,000 and couples with taxable incomes above $450,000.

- Capital gains/dividends: Permanent 15 percent rate for those below the $400,000/$450,000 taxable income threshold, 20 percent for those above.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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