House passes bill to avert Fiscal Cliff

[audreyh1]

Just in case you missed it!

I, personally, am dancing about the permanent AMT patch. 2012 taxes were looking pretty steep for me without this patch.

It looks like 15% rates on qualified dividends and long-term capital gains up to $400,000 of income where it increases to 20% on both. In other words, qualified dividends will NOT be taxed as ordinary income rates.

These tax cuts are permanent.

 

[traineeinvestor]

Good news for many retirees I expect.

The other thing I took away from this is that the expectation that the there will continue to be substantial deficits suggests that interest rates may well remain low for longer than would otherwise be the case. I'm not sure whether that is good news or bad news for my investments.

 

[easysurfer]

I saw the news too.

Usually, I don't look at the market, but it'll be interesting to see what happens tomorrow.

Asia's already gone up because of the deal.

http://www.marketwatch.com/story/as...-in-upbeat-fashion-2013-01-01?dist=tcountdown

 

[LOL!]

There is good and bad in this bill, but my low tax rates are safe for quite a while. Somebody will have to pay the Piper, but it's not me.

 

[samclem]

This is the "balanced approach" we were promised--we'll all get to see how the tax increases (compared to the taxes paid last year) compare to the spending cuts.

And it's just one more month until we have another debt ceiling battle with all the attendant hand-wringing in the bond market.

 

[haha]

IMO, it is a pretty good outcome. Basically it was a kick the can act, which at least will leave us some space to maneuver.

Our real problems will be addressed if and only if things get as bad or worse than Greece. I think the Act is ridiculously progressive, but not nearly so bad as it might have been. With luck eventually we will realize that a VAT is the only thing likely to work. Otherwise, the "middle class" will also be income taxed much more heavily. It is my opinion that there are limits to what can be extracted from the rich. Overall, they are smarter, more highly motivated to prevail, and with all kinds of institutional advantages. At no time in history would this have been an accurate description of a class that put up for long with paying an outside share of government expenses, unless somehow they were getting even more back.

My broker was calling me trying to get me to recognize gains while it would cost me only 15%. I told him no way are they going to do anything more radical than kick the can. I pay 15% now; and I'll pay 15 % next year and likely for at least a while after that. So expect no trading from me over this issue.

I do think that eventually Medicare and SS will be considerably weakened. If I were in my 60s now I might be strongly tempted to grab the SS cash while it is available.

They are not going to try clawbacks.

Ha

 

[ejman]

IMO, it is a pretty good outcome. Basically it was a kick the can act, which at least will leave us some space to maneuver.

Our problems will be addressed if and only if things get as bad as Greece.
I think the Act is ridiculously progressive, but not nearly so bad as it might have been. With luck eventually we will realize that a VAT is the only thing likely to work. Otherwise, the "middle class" will also be income taxed much more heavily.

My broker was calling me trying to get me to recognize gains while it would cost me only 15%. I told him no way are they going to do anything more radical than kick the can. I pay 15% now; and I'll pay 15 % next year and likely for at least a while after that. So expect no trading for me over this issue.

I do think that eventually Medicare and SS will be considerably weakened. IF I were in my 60s now I might be strongly tempted to grab the SS cash while it is available.

They are not going to try clawbacks.

Ha

My feelings as well. Exactly why I sold nothing and why I just started my SS payments at 62. By the way, that SS deposit notice showing up is mighty nice.

 

[haha]

My feelings as well. Exactly why I sold nothing and why I just started my SS payments at 62. By the way, that SS deposit notice showing up is mighty nice.

Yes; I evaluated it differently in 20011 and paid back my SS to restart. I think now that this was not a very good decision.

Ha

 

[clifp]

The problem is that road, we kicked the can down, ended long ago. It is like Wiley Coyote chasing the Roadrunner over the cliff, he is able to run on thin air for while until he looks down. At which point he experiences a very painful fall.

I suppose it is possible that at some point in the future the Congress will gets act together and behave like adults to address the long term structural problems the country faces. It is also possible that now that Hefner is married that all of his blonde girlfriends are going to want to date me at once.

I figured there was a reasonable chance that we'd see a cap gain rate increase to 20% so I did sell one overprice stock a couple of days ago in order to lock in the 15% capital gains rate. If I had known we still would have a 15% rate I wouldn't have bothered.

 

[haha]

I just noticed that the $450,000 threshold for families regarding ltcg and qualified dividends is $400,000 for single taxpayers. Pretty heavy marriage penalty. Likely not good for the country, but gives me more than enough room.

BTW, I am listening to House Members spin on the passage of the bill. Very interesting; it appears that no matter what the outcome might be, it reflects well on each party.

Ha

 

[devans0]

I expected better. Kicking the can down the road doesn't even meet my low expectations of politicians.
I put as much as I can into Roth IRA's and Roth 401K's. I would have done better to have invested with post tax cash in cash this past year. I STILL stubbornly will stick to my plan. Why? My recollection of history has shown difficult periods that the rich and elderly are targeted to take their wealth. With the large numbers of baby boomers being flush with saved retirement money, I don't see how politico's can help but go after that pile, to make it their own. Greed will always target wealth builders and savers. Each party does it.

 

[Midpack]

Limited progress, but progress nonetheless IMO. Right or wrong, I was surprised they had the "courage" to let the payroll tax holiday lapse.

Stay tuned (for dealing with spending?)...

 

[bUU]

The 15% rate on dividends and capital gains (we're well under $400k!) surprised me. I was riding a wave this year... trying to keep our AGI low enough to qualify for direct Roth contributions (before I learned about Roth conversions), but still trying to reconfigure a very messy portfolio, which was more a reflection of my late mother's penchant for owning dozens of itty-bitty holdings. I was very worried about how much loss harvesting I did this year (to keep my AGI low), given that the experts were saying to hold off doing that until next year when the capital gains tax was thought to be significantly increasing for everyone.

I'm still wondering if the bill scuttled the Backdoor Roth approach. I hope we get a definitive answer to that soon. Wherever I've seen folks go over the few paragraphs that relate to it, there is general disagreement about how the IRS will administer the change, with some saying that the pro rata rule will extend to include 401(k)s and others saying that 401(k) money and IRA money will be kept separate.

 

[MichaelB]

The AMT fix is nice. Glad I didn't sell anything.

 

[sheehs1]

I didn't sell anything either. Did not want to increase my tax bill regardless of 15% or 20%. As it is, it would have stayed the same. Trying to delay incurring more taxes until my income decreases in 2014.
Happier with the $450K threshold than I was with the $250k threshold but am on alert as it has been signaled this is not the end of new increases in other forms of taxation or revenue generation. Not happy there were not some spending cuts included. While I understand spending cuts can upset the overall GDP, our government must do a better job of allocating the revenues.
Also I'm assuming the extra 3.8% on dividends, cap gains and K1 income under ObamaCare remains at the $250K threshold. Is this correct or will that be modified to the $450K level?

 

[donheff]

The debate over the cuts will be interesting. I predict that if push comes to default, Obama will exercise one of several options to ignore the debt ceiling. Unfortunately that could ultimately allow the sequester to go into effect. Those 10% reductions seem eventually doable but it would be unfortunate if they were not postponed until the economy improved and then gradually trickled in.

 

[MichaelB]

A nice summary of the legislation here Financial Planning Implications of HR8 - the Taxpayer Relief Act of 2012 - kitces.com | Nerd's Eye View

 

[FinanceDude]

A nice summary of the legislation here Financial Planning Implications of HR8 - the Taxpayer Relief Act of 2012 - kitces.com | Nerd's Eye View

That bill already sounds like an oxymoron............

 

[bUU]

As someone who's taxes didn't go up as high as they would, I can attest that this taxpayer is relieved.

 

[pb4uski]

There is good and bad in this bill, but my low tax rates are safe for quite a while. Somebody will have to pay the Piper, but it's not me.

It's our kids who will pay and I'm not happy about that. We should pay our own way - this country is on decline due to our lack of fiscal discipline and I'm not happy about that either.

I was disappointed in the bill since it kicked the can down the road on spending and the problem is spending, not taxes, and I have absolutely no confidence that they will do anything substantive on the spending front. I hope I am wrong.

 

[eytonxav]

I do think that eventually Medicare and SS will be considerably weakened. If I were in my 60s now I might be strongly tempted to grab the SS cash while it is available.

They are not going to try clawbacks.

Ha

I am not doubtful there is an immediate need to file, as the SS benefit formula will likely not be affected for those that are close to collecting. However, I suspect a change in the COLA will affect everyone under SS and the ER and FRA could get bumped up for those under 55.

 

[timeasterday]

My first (weekly) paycheck of the new year is $35 less (net). That's the SS deduction going back up which is probably a good thing for the future, but I'm still not thrilled about $140/month lower income. I'll be lucky to get a 2% raise this year from Megacorp to help offset that.

 

[scrabbler1]

So the AMT and estate tax "brackets" will now be indexed for inflation, just like most of the other brackets are now indexed. It's about time. The only big ones left IMHO are the SS earnings brackets ($25k and $32k) which have not changed, and those affect or will affect many of us early retirees. Or will those be part of entitlement reform and/or tax reform?

 

[eytonxav]

It's our kids who will pay and I'm not happy about that. We should pay our own way - this country is on decline due to our lack of fiscal discipline and I'm not happy about that either.

I was disappointed in the bill since it kicked the can down the road on spending and the problem is spending, not taxes, and I have absolutely no confidence that they will do anything substantive on the spending front. I hope I am wrong.

+1 I suspect the coming battle will be a much harder one, and hopefully we will finally see some tangible spending cuts take place. Keep your tin foil hats or combat helmuts ready.

 

[audreyh1]

The AMT fix is nice. Glad I didn't sell anything.

The title is no longer true, as last night's bill did provide the 2012 AMT patch, and the IRS won't have to reprogram all their computers and can process 2012 returns right away now. [The IRS had assumed an AMT patch would be passed and programmed their systems accordingly].

But here is a fascinating history of the AMT patch and the legislation that had to be passed every few years, and sometimes every year, to patch it.
2012 Likely to be First Year Without AMT Patch | Tax Foundation

I still can't quite believe the AMT patch was made permanent. I think making it permanent has been strongly resisted because having it on the books created the illusion of lower future deficits even though it ended up being patched again and again. But it got to the point where folks only making $33,750/$45,000 joint would start losing out on deductions/etc., and pay higher marginal rates due to the patch. So it was silly to pretend that these folks would pay the higher taxes in the future.

There are still plenty of us chickens paying higher taxes due to the new higher 2012 AMT exemption at $50,600/$78,750.