tax changes 2013
On Dec. 31, 2012 Washington hammered out a last-minute agreement for tax deals to avert the looming fiscal cliff.
A collective sigh of relief could be heard by taxpayers even though Congress did not fix spending cuts.
Now as we begin gathering documents for the April 15 tax filing date, there are new tax laws from the fiscal cliff deal that will affect everyone.
One immediate thing that will be noticed is the Internal Revenue Service (IRS), thanks to the last-minute changes, is processing tax returns at a slower rate.
But it doesn't mean you have to delay things.
U.S. President Barack Obama has said that 98% of Americans will not see their income taxes go up - but take a look to be sure, because there is something for everyone in here.
Your Fiscal Cliff Deal Tax Changes for 2013
First, here's some good news from the tax changes:
- Being married isn't a bad thing! Couplesstill have the standard deduction that's twice that of individuals. For the 2012 tax year, this standard deduction increased to $6,100($12,200 for married couples filing jointly), a rise from $5,950 ($11,900 for married couples filing jointly).
- Many middle-class taxpayers will be protected from the alternative minimum tax (AMT)as the income exemption level will now be permanently adjusted for inflation. This means taxes will be less for the 60 million Americans that would have impacted.
- For homeowners who were either granted principal forgiveness or underwent a short sale or foreclosure, they will not have to pay tax on the forgiven debt amount with the deal's one-year extension.
But, here's where you got hit:
- Say goodbye to the two-year payroll tax holiday. It has expired and now employees' net pay is down two percentage points as 6.2% of Social Security will be taken out of paychecks versus 4.2%. There is $113,700 wage ceiling so any wages over that will be exempt.
- A worker with a $41,000 salary - the national average--will have $32 less in a biweekly paycheck, reported CNN.
Possible Tax Changes for 2013 Trigger Stock Selling
Anxiety about tax changes for 2013 among investors holding high-yielding dividend-paying stocks has led to a selloff, driving down stock prices.
It's almost certain tax rates on dividend payments will rise, possibly by as much 43.4% for those in upper income brackets.
Some investors could be spared from the dividend tax, depending on the outcome of fiscal cliff negotiations. U.S. President Barack Obama has said he wants to increase the tax on those earning $400,000 or more, while Republicans have suggested raising the tax on those earning $1 million or more.
But even if you're not hit by higher dividend taxes, you could see the prices of stocks you own plunge because of a selloff by investors worried about the higher tax rates.
Two sectors - telecoms and utilities - have been especially hard hit.
Utilities could be the worst-performing sector in 2012, up only 2% through November compared with the Standard & Poor's 500 gain of 15%. Telecoms have slipped 5% to 6% just in the past few months.
Some larger investors in the telecoms sector may have been simply riding momentum and quickly sold out.
Sam Stovall, chief equity strategist at S&P Capital IQ, told CNBC "some of these groups will be and have been beaten up because a lot of these investors were riding the momentum wave for high yielders."
But the selling has been pretty consistent in recent months. From August-November, the top 20% of dividend-paying companies in the S&P 500 underperformed the index by about 3%.
Vadim Zlotnikov, chief market strategist at AllianceBernstein, told the Financial Times, "You can't argue that the threat of higher taxes is not important to investors."
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