Approaching the fiscal cliff

The cliff deal struck between Vice President Joe Biden and Senate Minority Leader Mitch McConnell is a good deal overall for high income folks.

Make no mistake, some of them will have to pay more in taxes, but the amount is far less than if there is no deal and all is set back to the Clinton tax regime.

Here is a summary:

1. If your family makes less than $250k a year, you will likely see no changes to your tax.

2. If your family makes more than $250k a year but less than $450k, there will be two sources of tax increases that do not add up to a major jump:

a) Itemized deductions will begin to be phased out as your income increase; and

b) You will pay a 3.8% surtax on your investment income as result of Obamacare – this is actually not part of the cliff deal, and it will just happen in 2013.

3. If your family makes more than $450k a year, in addition to a) and b), you will see additional tax hits:

c) Your income above $450k will be subject to a higher tax rate of 39.6%.

d) Your investment income will also be subject to a higher tax rate at 20%.

The consolation prize for high income/high net-worth folks is this – you will still pay far less than under the Clinton tax regime:

• All of your income under $450k will enjoy the Bush tax rates which are made permanent;
• Your dividends will not be taxed at your marginal rate, but at the much lower 20% rate; and
•  The estate tax exemption will be kept at $5mm per persona and $10mm per family.
• For folks in business, the 50% bonus depreciation will be extended for another year.

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