The Fiscal Cliff Resolution: What It Means for Your Wallet

Gabrielle Karol
Posted

Estate and Gift Tax

The estate and gift tax exemption will remain at $5 million for individuals and $10 million for married couples, though the top tax rate on amounts over $5 million will rise five percentage points to 40%.

Education and Family Tax Credits

Provisions that expired in early or late 2013 have been extended for teachers ($250 deduction for classroom expenses); tuition and education expenses; conservation donation benefits; the American Opportunity Tax Credit (worth up to $2,500); and the Child Tax Credit and Earned Income Tax Credit, which affects those making $50,000 or less.

The dependent care credit will be extended, meaning $3,000 in eligible expenses for one child, and $6,000 for two or more children. Adoptive parents will see the tax credit increase from $5,000 to $10,000 for eligible expenses.

The annual contribution limit for Coverdell Savings Accounts (used for education savings) has been lifted to $2,000 from $500, and can now be used for elementary and secondary schools in addition to college. (Read all about tax credits.)

Business Deductions

For one more year, businesses will continue to be able to deduct up to 50% of property and equipment (though not real estate).

More Battles Still to Come

In the next couple of months, the two contentious parties will likely butt heads again regarding the nation’s debt ceiling. Additionally, the $110 billion in automatic spending cuts that were supposed to kick in on January 1 have merely been pushed off for two months.

Many in Congress will also push for a tax overhaul, with Democrats likely to push for more tax increases. We’ll keep you covered on how your wallet will be affected, as new discussions regarding taxes and government spending start to develop.

Tell us: How do you think Congress handled the fiscal cliff debate? Do you feel confident in President Obama’s leadership regarding the issue?

  • Allonarbor

    This article seems to only be concerned with the increases for high income earners. The lowest it seems to be concerned with is where it discusses payroll tax increases and says, “Individuals earning $113,700 or more will see nearly $200 more withheld each month.” How about those earning less? I read elsewhere that those earning ~$40K will see payroll tax increases of $400 to $500 per year. Why does a lengthy article like this not show the tax increases that will affect lower wage earners? Could you please also show this?

    • Bbhart113

      I am very interested to see the response to this great question abou thte article, as I make no where near what is mentioned and I’d like to see how I’m impacted.