Fiscal Cliff, Tax Aspects

     Here are some notes on tax changes scheduled on Jan 1st, if Congress and the President can't get together:

1. Income tax rates will go up (for example, for a married couple):
     a) The 10% bracket will become part of the 15% bracket (i.e., there will no longer be a 10% bracket).
     b) The 15% bracket will go from taxable income of $0 to $60,550 instead of the current $17,001 to $69,000.
     c) The 25% bracket goes to a rate of 28%.
     d) The current 28% bracket goes to 31%.
     e) The 33% bracket becomes a 36% bracket.
     f)  The 35% bracket goes to 39.6%.

2. The tax on long term capital gains goes up as follows:
     a) For people in the current 10% and 15% bracket for regular income tax, the capital gains rate goes from zero (no tax at all) to 10%.
     b) For everyone else it will go from 15% to 20%
     c) For upper income people (in the $200,000-plus range), there will also be a 3.8% Medicare surtax.

3. The thresholds for Alternative Minimum Tax go back to where they were in the year 2000.  This would mean that probably millions more people would find their tax jacked up by the AMT, which was originally conceived to snag only the very wealthy.

4. Employees' FICA tax withholding would go from 4.2% to 6.2%.  (This does not include the Medicare tax withholding of 1.45%, which would not change--except for a .9% increase for the 'wealthy'.)

5. "Obamacare" changes and taxes kick in as follows:
     a) The medical deduction threshold for itemized deductions goes from 7.5% to 10%, except for people 65 or older.  This will mean that many people who deduct medical expenses will see their deduction shrink or disappear.
     b) Increased Medicare taxes for high-incomers
     c) Misc other taxes and fees.

6. Reduction of the Child Tax Credit

7. The ability of small and mid-sized businesses to write off (rather than depreciate) purchases of equipment and other assets will be cut from a limit of $125,000 to $25,000.  (In 2011 the limit was $500,000.)  This has been a very big tax break for small businesses, and having it reduced to $25,000 will make a huge difference to many of them.

8. Various deductions, credits, etc. will expire, such as teachers' deductions for teaching supplies, Qualified Charitable Distributions from IRA's, etc.